Life Insurance License Exam Prep

Regulation of Insurance

• Entities selling insurance are regulated by State Insurance Departments.

Underwriting Reports

• Underwriters utilize Consumer Reports and Investigative Consumer Reports for evaluation.

Fraud and False Statements Act

• All individuals and entities involved in insurance transactions are subject to the provisions of this act.

Consumer Rights Notification

• Notice regarding consumer rights must be given at the time of application.

Guaranty Association Coverage

• Not all life and health insurance policies are covered by the guaranty association.

Investigative Consumer Reports

• These reports include character assessments based on personal interviews with acquaintances.

Unfair Claim Settlement Practices

• Advising claimants of the possibility of receiving a lesser arbitration award if rejecting a settlement offer is deemed an unfair practice.

Rebating in Insurance Sales

• Offering additional non-specified bonuses, such as country club membership, in insurance sales constitutes rebating.

Personal Uses of Annuities

• Annuities serve personal purposes, including life income, IRAs, and tax-deferred growth.

Non-Qualified Annuity Taxation

• Only a portion of payments from non-qualified annuities is taxable.

Aleatory Nature of Insurance

• Aleatory indicates that there is unequal exchange of value; premiums are minimal relative to the potential payout.

Credit Life Insurance Premiums

• Typically, the debtor is responsible for paying premiums for credit life insurance.

Elements of Insurable Risks

• Insurable risks require definite and measurable loss, predictability, random loss exposure, and must not be catastrophic.

Whole Life Insurance Characteristics

• Cash value in whole life policies is a nonforfeiture benefit; the statement regarding nonforfeiture value is true.

Non-Forfeiture Clause

• Nonforfeiture clauses ensure policy owners can receive benefits or refunds if premiums lapse due to non-payment.

Policy Endowment

• A life insurance policy endows when its cash value matches its face value, typically no earlier than the insured's 95th birthday.

Ordinary Whole Life Policy Cash Value

• Cash value grows tax-deferred and serves as a nonforfeiture value but cannot be used as a policy loan without affecting the death benefit.

Increasing Term Life Insurance

• In increasing term policies, the death benefit is the element that must increase over time.

Renewable Term Life Insurance

• Insured individuals can renew renewable term life policies without evidence of insurability at their option.

Roth IRA Tax Consequences

• Roth IRA contributions are made with taxed dollars, and interest grows tax-free; qualified distributions are tax-free after age 59½.

Annual Renewable Term (ART)

• ART allows renewal every year without the need for proof of insurability.

Life Insurance Policy Dividend Factors

• Factors like operating expenses, mortality, and assumed interest lie in dividend determination; morbidity is not a factor.

Waiver and Estoppel

• Waiver refers to intentionally surrendering a right, while estoppel prevents reclaiming that right.

Life Insurance Proceeds and Estate Inclusion

• Life insurance proceeds are included in the estate if the deceased was the policy owner, but not if the beneficiary was the deceased's spouse.

Immediate Annuities

• Immediate annuities do not have an accumulation period and payouts must start within one year of purchase.

Whole Life Cash Value

• Whole life insurance policies have a cash value, qualifying them as permanent insurance.

Nonforfeiture Options

• Required by law, nonforfeiture options guarantee cash value availability when premium payments stop.

Insurance Application Part III

• Part III of the application includes financial information, character assessments, and details about the agent-applicant relationship.

Apparent Authority in Insurance

• Apparent authority arises when an agent acts on behalf of an insurer without explicit or implied permission based on their actions or materials.

Implied Authority in Insurance

• Implied authority allows agents to solicit applications based on their representation of the insurance company.

Express Authority in Insurance

• Express authority is granted to agents specifically to act on behalf of the insurance company.

1035 Exchanges

• A 1035 Exchange allows policyholders to transfer benefits from one life insurance policy or annuity to another without tax penalties.

Single Premium Immediate Annuity (SPIA)

• SPIA involves a single lump sum payment for guaranteed periodic payments for life or a specified duration.

Tax Implications of Whole Life Cash Surrender

• Upon surrendering a whole life policy, the amount subject to federal income tax is calculated as the cash value minus the premiums paid.

Impact of Delaying Annuity Benefits

• Starting annuity benefits later at age 65 will result in lower premiums, as benefits are paid for a shorter timeframe.

Section 303 Plan

• A Section 303 plan allows the heirs of a deceased stockholder to retain ownership while redeeming some of the deceased's shares.