Questions and Answers
Who regulates any entity selling insurance?
State Insurance Departments
What 2 types of insurance reports do underwriters use?
Who is subject to the provisions of the Fraud and False Statements Act?
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When should consumer rights report give notice?
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All of the following statements are true regarding the guaranty association, EXCEPT:
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What is a written report about a consumer's character, general reputation, personal characteristics, or mode of living obtained through personal interviews called?
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An example of an unfair claim settlement practice would include?
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The situation where a producer offers club membership as a bonus for a policy purchase is known as?
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Which of the following is a personal use of annuities?
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Which statement concerning the payment from a non-qualified annuity is correct?
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What does aleatory mean?
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In most cases, who pays premiums for a credit life insurance policy?
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All of the following are elements of insurable risks EXCEPT:
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All of the following are characteristics of whole life insurance, EXCEPT:
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What does non-forfeiture mean?
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What happens when the cash value of a life insurance policy equals the face value?
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Which of the following is not true regarding the cash value in an ordinary whole life policy?
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Wesley purchases an increasing term life insurance policy. Which of the following elements must increase in Wesley's policy?
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All of the following statements regarding renewable term life insurance policies are false, EXCEPT:
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All of the following are false regarding the tax consequences of Roth IRAs, EXCEPT:
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The annual renewable term (ART) policy is characterized by which of the following?
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Which of the following is not a factor in determining the amount of a life insurance policy dividend?
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Collin intentionally surrendered a right on his contract known as waiver. What prevented him from reclaiming the right?
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Which of the following is not a case in which life insurance proceeds would be included in the deceased's estate?
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Which of the following is true about immediate annuities?
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Does whole life insurance have a cash value?
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What are nonforfeiture options?
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What is contained on Part III of an application for insurance?
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What does 'apparent' authority mean in insurance?
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What is 'implied authority'?
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What is expressed authority in insurance?
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What is a 1035 exchange?
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What is SPIA?
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What is a life insurance policy that has a face amount that cannot be changed?
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Christopher surrendered his whole life policy with a cash value of $50,000. During the life of the policy, he paid $40,000 in premiums. What amount is subject to federal income tax?
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How will premiums be affected if annuity benefits start at 65 years of age rather than 60?
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A plan that allows a deceased stockholder's heirs to retain ownership while a portion of the deceased stockholder's shares are redeemed by the corporation is a:
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Study Notes
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.
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Prepare for your Life Insurance License Exam with these flashcards covering essential terms and definitions. Each card helps you understand key concepts regulated by state departments and the reports used by underwriters. This interactive method makes studying efficient and effective.