7: A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then
A The benefit is received tax free.
B The benefit is subject to the exclusionary rule.
C IRS has no jurisdiction.
D The benefit is received as taxable income.
Should a key person die, the benefit is treated as a reimbursement to the business for loss of services from that key person.
10: During replacement of life insurance, a replacing insurer must do which of the following?
A Guarantee a replacement for each existing policy
B Designate a new producer for a replaced policy
C Send a copy of the Notice Regarding Replacement to the Department of Insurance
D Obtain a list of all life insurance policies that will be replaced
The replacing insurance company must require from the producer a list of the applicant’s life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacement.
13: Which of the following is NOT an example of insurable interest?
A Business partners in each other
B Employer in employee
C Child in parent
D Debtor in creditor
The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.
14: What does “liquidity” refer to in a life insurance policy?
A The policyowner receives dividend checks each year.
B The insured receives payments each month in retirement.
C Cash values can be borrowed at any time.
D The death benefit replaces the assets that would have accumulated if the insured had not died.
Liquidity in life insurance refers to availability of cash to the insured through cash values.
7: A key person insurance policy can pay for which of the following?
A Hospital bills of the key employee
B Costs of training a replacement
C Loss of personal income
D Workers compensation
A key person insurance policy will pay for costs of running the business and replacing the employee.
12: What is the time period called during which the surviving spouse of the insured does not receive Social Security income benefits?
A Probationary period
B Blackout period
C Waiver of premium
D Retention of capital
Blackout period begins when the youngest child reaches the age of 16, and ends when the surviving spouse qualifies for retirement benefits, as early as age 60. No benefits are paid during this time.
15: Upon policy delivery, the producer may be required to obtain any of the following EXCEPT
A Payment of premium.
B Delivery receipt.
C Signed waiver of premium.
D Statement of good health.
The policy does not go into effect until the premium has been collected. If the premium was not collected at the time of the application, the producer may also be required to get a Statement of Good Health from the applicant at the time of policy delivery. Waiver of premium is a rider that can be added to a life insurance policy, and not something to be obtained from the applicant.
CLASSIFICATION OF RISK IN INSURANCE
| Preferred Plus | Table A = 25% above standard rates |
| Preferred | Table B = 50% above standard rates |
| Standard Plus | Table C = 75% above standard rates |
| Standard | Table D = 100% above standard rates |
Human-Life Approach
What is Human-Life Approach
The human-life approach is a method of calculating the amount of life insurance a family will need that is based on the financial loss the family would incur if the insured person were to pass away today. It is usually calculated by taking into account a number of factors, including, but not limited to, the insured individual's age, gender, planned retirement age, occupation, annual wage, employment benefits, as well as the personal and financial information of the spouse and/or dependent children.
Since the value of a human life has economic value only in its relation to other lives, such as a spouse or dependent children, this method is typically only used for families with working family members. The human-life approach contrasts the needs approach.
The needs approach is one of the most accurate methods to determine the amount of life insurance to own. It takes into account all the present and future family needs and calculates directly the amount necessary to meet those needs.
To estimate how much life insurance you need using the needs approach, you should add up all current and potential expenses and then subtract the total amount of existing assets from it.
Whole life insurance, or whole of life assurance (in the Commonwealth of Nations), sometimes called "straight life" or "ordinary life," is a life insurance policy which is guaranteed to remain in force for the insured's entire lifetime, provided required premiums are paid, or to the maturity date.
Q:
I own a whole life policy which has a cash value. When I die, will my beneficiary receive both the death benefit and the savings portion (cash value)?
No, your beneficiary receives the death benefit, but not the cash account. As with so many insurance questions, though, there is an exception. If you purchased a rider on your policy that gives the beneficiary both the cash value and face value, then the beneficiary would receive both. Review your policy to see what the coverage entails. Such a rider, of course, would have resulted in a higher premium, so you'd probably know if your policy includes this benefit.
Under Option B the death benefit includes the annual increase in cash value so that the death benefit gradually increases each year by the amount that the cash value increases. At any point in time, the total death benefit will always be equal to the face amount of the policy plus the current amount of cash value.
3: Which of the following types of insurance policies is most commonly used in credit life insurance?
A Increasing term
B Whole life
C Equity indexed life
D Decreasing term
Credit insurance is a special type of coverage written to insure the life of the debtor and pay off the balance of a loan in the event of the death of the debtor. It is usually written as decreasing term insurance.
6: All other factors being equal, the least expensive first-year premium payment is found in
A Level Term.
B Annually Renewable Term.
C Increasing Term.
D Decreasing Term.
Annually renewable term is the purest form of term insurance. The death benefit remains level, but the premium increases each year with the insured's attained age. In decreasing policies, while the face amount decreases, the premium remains constant throughout the life of the contracts. In level term and increasing term policies, the premium also remains level for the term of the policy. Therefore, in the other types of level policies, the first-year premium would not be different from any other year.
9: If an employee wants to enter the group outside of the open enrollment period, to reduce adverse selection, the insurer may
A Require a higher premium.
B Prolong the open enrollment period.
C Increase medical requirements on existing members.
D Require evidence of insurability.
In group underwriting the evidence of insurability is usually not required of each participant unless he or she is enrolling for coverage outside of the normal enrollment period.
2: Another name for a substandard risk classification is
A Controlled.
B Declined.
C Elevated.
D Rated.
Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.
5: Which part of an insurance application would contain information regarding the applicant’s medical history?
A Part 2
B Inspection report
C Agent's report
D Part 1
Part 2 - Medical Information of the application includes information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.
8: An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require?
A A complete medical record
B Sworn health affidavit from the applicant
C Statement of Continued Good Health
D Attending Physician Statement
The APS is used to obtain medical DETAILS about a specific condition which has shown up in the application; the insurance company orders the information directly from the physician, using a signed authorization which was part of the application.
10: Insurance producers must ensure that contracts they recommend are in the best interest of the insured. This is called
A Approval.
B Underwriting.
C Suitability.
D Client protection.
Insurance producers must adhere to the concept of suitability by ensuring that, to the best of their belief, the purchase, sale or exchange of a policy is in the best interest of the insured.
11: Are insurance company underwriters allowed to discriminate?
A Yes, but only for gender
B Yes, but not unfairly
C No, higher risks pay higher premium
D No, discrimination is an unfair practice
The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.
13: If a change needs to be made to the application for insurance, the agent may do all of the following EXCEPT
A Erase the incorrect answer and record the correct answer.
B Draw a line through the first answer, record the correct answer, and have the applicant initial the change.
C Note on the application the reason for the change.
D Destroy the application and complete a new one.
An agent should not use white-out, erase or obliterate any answers given to a question on an application. It could prevent an insurer from contesting the application, should it be necessary.
6: An underwriter is reviewing the medical questions in the application and needs further information due to a medical situation the applicant had in the past. What will the underwriter require?
A A complete medical record
B Sworn health affidavit from the applicant
C Statement of Continued Good Health
D Attending Physician Statement
The APS is used to obtain medical DETAILS about a specific condition which has shown up in the application; the insurance company orders the information directly from the physician, using a signed authorization which was part of the application.
10: All of the following are factors that an underwriter could use to select and classify risk EXCEPT
A Morals.
B Occupation.
C Avocation.
D National origin.
The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.
13: Are insurance company underwriters allowed to discriminate?
A Yes, but only for gender
B Yes, but not unfairly
C No, higher risks pay higher premium
D No, discrimination is an unfair practice
The company will discriminate in favor of good risks and not of poor risks; however, it cannot discriminate unfairly by using factors such as race or national origin in their underwriting.
15: Which of the following methods of calculating the amount of life insurance needed takes into account the insured's wages, years until retirement, and inflation?
A Lump-sum approach
B Human life value approach
C Needs approach
D Blackout approach
Human life value approach is determined by the loss of income that would result with the death of the insured, after making adjustments for expenses, inflation, etc.