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WorksheetsCh. 2 Life Insurance Basics
Total questions: 34
Worksheet time: 17mins
What is the purpose of the agent’s report during the application process?
The agent’s report summarizes financial projections used to determine policy dividends.
The agent’s report documents underwriting decisions made by the insurer’s home office.
The agent’s report discusses the agent’s personal observations about the proposed insured that may help in the underwriting process.
The agent’s report verifies medical records obtained from third party medical providers.
When must the policy summary for a life insurance policy be delivered to the policyowner?
Within 30 days after the policy is issued
At the time the application is signed
At the time of policy delivery
At the end of the free look period
What are the three factors that determine the premium for a particular life insurance policy?
Age, health and occupation
Risk class, policy type and face amount
Mortality, interest and expense
Longevity, inflation and underwriting costs
What is the purpose of insurance guarantee associations?
To regulate insurer marketing practices and premium rates
To provide investment returns for participating policyowners
To protect policyowners, insureds and beneficiaries from financial losses caused by insolvent insurers.
To replace private insurers during economic downturns
What type of report provides information about the applicant’s hobbies, habits and financial status?
Attending physician statement
Medical information bureau report
Investigative consumer report
Insurer underwriting questionnaire
What is insurance underwriting?
The process of pricing policies based on actuarial tables
The evaluation of claims submitted by policyowners
The process of risk selection and classification
The supervision of agents and marketing activities
What term describes the fee a person pays an insurance company to receive coverage?
Dividend
Assessment
Premium
Contribution
Who must be a member of insurance guaranty associations?
All insurers selling policies nationwide
Only mutual insurance companies
All insurers authorized to write insurance within a state.
Insurers offering only life and health products
Who is responsible for the contents of insurance advertisements?
The insurance agent who distributes the advertisement
The state department of insurance
The insurance company
The underwriting department
Can insurers advertise the existence of the guaranty association during solicitation and sale insurance policies?
Yes, if the disclosure is approved by the state
Yes, but only in written materials
No, advertising of the existence of the guaranty association for the purpose of solicitation and sale of insurance policies by insurers is an illegal business practice.
No, unless the policyowner requests the information
Mortality tables are used by insurance companies to predict what?
Policy lapse rates and surrender activity
Medical costs associated with aging populations
Life expectancy and the death rates for specific groups of individuals.
Long term investment performance trends
If an applicant for a life insurance policy and the potential insured are two different people, what would be the underwriter’s main concern?
Whether the insured has signed the application
Whether the premium payments are affordable
The existence of insurable interest between the applicant and the insured.
Whether the insured has existing coverage
What are the three main instances when insurable interest exists in life insurance?
Employment relationships, creditor relationships and charitable interests
Marriage, business ownership and joint investments
Insuring your own life, the life of a family member, or the life of a business partners or someone who has a financial obligation to the policyowner.
Any relationship approved by the insurer
What type of life insurance offers an applicant a cash value element?
Term insurance
Group life insurance
Permanent insurance (usually, whole life).
Accidental death insurance
What document describes the specific information about a policy?
Insurance application
Buyer’s guide
Policy summary
Certificate of insurance
How does the premium mode affect the total premium paid for insurance for the year?
More frequent payments reduce total cost
Payment mode has no effect on premium
Higher frequency of premium payments will result in higher overall premium
Annual payments increase administrative charges
What does liquidity mean in a life insurance policy?
Ability to change beneficiaries
Flexibility of premium payments
Availability of cash value
Speed of underwriting approval
What is included in Part 2 of a life insurance application?
Beneficiary and ownership information
Agent’s report and premium details
Medical information about the prospective insured
Policy riders and endorsements
When must insurable interest exist in a life insurance policy?
At the time of death
At the time of policy delivery
At the time of application
Throughout the entire policy term
What type of insurance creates an immediate estate?
Annuities
Disability insurance
Life insurance
Health insurance
Who is the beneficiary on a key person life insurance policy?
The insured employee
The employee’s family
The employer
The business partners
All other factors being equal, which premium payment mode will require an overall higher premium: monthly or annual?
Annual
Quarterly
Monthly
Semiannual
What is the main responsibility of a company’s underwriting unit?
Policy issuance
Claims processing
Risk selection
Agent licensing
Who must have insurable interest in the insured?
The beneficiary
The insurance agent
The policyowner
The insurer
What is the purpose of key person insurance?
To provide retirement income for executives
To reward long term employees
To minimize the risk of financial loss caused by the death of a key employee
To cover employee medical expenses
In calculating the amount of life insurance needed, what is the needs approach based on?
The insured’s current income level
The policyowner’s investment goals
The predicted needs of a family after the premature death of the insured
The insurer’s underwriting guidelines
If an insured changes his payment plan from monthly to annually, what happens to the total premium?
It increases
It remains the same
It will decrease
It becomes tax deductible
At what point does coverage begin when an agent issues a conditional receipt for a life insurance policy?
On the date the policy is delivered
When the first premium is deposited
Either on the date of the application or the date of the medical exam (whichever occurs last)
After underwriting approval
What are illustrations in a life insurance policy?
Guaranteed policy values
Contractual policy benefits
Presentations of nonguaranteed elements of the policy
Required policy disclosures
What is the term that describes the frequency and the amount of the premium payments?
Premium schedule
Payment structure
Premium mode
Contribution level
Life insurance may be used to pay state inheritance taxes and federal estate taxes eliminating the need to sell assets from the estate. What is this called?
Estate creation
Survivor protection
Estate conservation
Asset liquidation planning
A business is the owner and beneficiary of a key person life policy. When the business collects the policy benefit, how is it taxed?
Taxed as ordinary income
Taxed as capital gains
The benefit is received tax free
Subject to payroll taxes
When planning for survivor protection in life insurance, what needs to be considered?
Only the insured’s income level
Market interest rates and inflation
The insured’s current assets, liabilities and survivor’s needs
The insurer’s underwriting classification
What are the personal uses of life insurance?
Income replacement and tax deferral
Business continuation and buy sell funding
Survivor protection, estate creation and conservation, cash accumulation and liquidity
Investment growth and retirement income only
