Missouri Life Insurance Flashcards

life insurance policy
Terms Definitions
Which risk classification typically qualifies for lower premiums?
What is insurable interest?
To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of a loss. This must exist at the time of application.
Waht is illustration?
A presentation or depiction that includes nonguranteed elements of a policy of life insurance over a period of years. It must distinguish between guranteed and projected amounts.
Who must agents be registered with if they are peforming transactions involving any variable products?
What is underwriting?
The risk selection and classification process. It involves the careful analysis of many different factors to determine the acceptability of applicants for insurance. Its also the process in which insurance company determines whether or not particular applicants is insurable, and if so, what premium to charge.
What are applicants called if they are rejected. These are applicants who are not insurable.
Declined risks
What is absolute assignment?
This assigment involves transferring all rights of ownership to another person or entity. This is permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.
What are the three risk classifications that are used to rate a propective insured?
Standard, Substandard, and Preferred.
What is the needs appoach?
Immediate!!! This approach in purchasing life insurance is based on the predicted needs of a family after the premature death of the insured. This method provides the proper amount of coverage immediately. When using this approach, "always assume that the insured's death will occur immediately.
What are the 3 factors taht determine the premium for a particular policy?
MortalityInterest EarningsExpense
What is constructive delivery?
This when the insurer relinquishes control of the policy by mailing it to the polcy owner, legally the policy is considered delivered.
What are the two types of assignment?
Absolute and Collateral
What is Per Capita?
This means "by the head." This means that the benefits are to be evenly distributed among the remaining survivors.
What is liquidity?
The death benefit is liquid. Or a permanent life insurance policy that will have loan or surrender values that the policyowner may access.
What is estate conservation?
When life insurance proceeds is used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay the cost.
What part of the application contains information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and cause of death of deceased relatives.
Part II, Medical Information
What part of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, martial staus, and occupation.
Part I, general information
What is preferred risk?
This is the longest life expectancy and lowest premium. These individuals meet certain requirements and qualify for lower premiums
What is interest earnings?
Since premiums are paid before claims are incurred, insurance companies invest the money in effort to get this. This is a primary factor in lowering premium rates.
What is a mode?
This refers to the frequency the policyowner pays the premium.
What does replacement mean?
Any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the prosing producer taht by reason of the transaction, existing life insurance or annuities have been or will be: lapsed, forfeited, surrendered, or otherwise terminated.
What is succession of beneficiary?
Primary, Contingent, and Tertiary. In each of these levels, is only eligible for the death benefit if the beneficiary(s) in the level(s) above them has died before the insured.
What is the education funds?
These are insurance proceeds that may be used to pay for children's education expenses so they can remain in school, or sometimes a surviving spouse that has worked in the home caring for children will need to receive education or training in order to re-enter the job market.
What is the underwriters responsibility?
They take us through the risk selection process. The application after completed, is sent to the insurance company's home office where the underwriter's have the final say as to the acceptability of the applicant. The underwriter's responsibities include selecting only those risks that are considered insurable and meet the insurers underwriting standards. They are responsible for protectiong the insurer against adverse selection (risks which are more likely to suffer a loss.
What is cash accumulation?
When life insurance may be used to make specific amount of monies for specific needs and guarantees that the amount of money will be available when needed.
What is a field underwriter?
The agent who is the company's front-line, because they usually solicites the potential insured.
What is the reinstatement period?
This period allows the policyowner an opportunity to restart a policy that has lapsed, subject to providing continued insurability. The maxium time limit is usually three years. If the policyowner does this, the policy is restored to its original status, and all policy values must be brought up date. In other words, the policyowner is required to pay all back premiums, plus interest, and to repay any outstanding loans and interest.
Which is not true regarding accumulation interest?

a) the amount of interest is specified in the policy.

b) the interest compounds annually.

c) the dividends are taxable.

d) the policyholder can withdraw dividends at any time.
C) the dividends are taxable.

The accumulation at interest option let the policyholder withdraw at any time. The isurer keep the dividends, allowing them to compound a specified amount of interest annually. The dividends themselves are not taxable, but the interest on the dividends is taxable to the policyowner, regardless if the dividends are collected.
The automatic premium loan provision is activated at the end of the

a) ending period

b) policy period

c) grace period

d) time period
C) grace period

Provided that there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.
What is the life income installment option in the settlement to the beneficiary?
This installment provides the recipient with an income that he or she cannot outlive. The installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death. If the beneficiary lives for a very long time, payments may exceed the total principal. However, if the beneficiary dies shortly after he or she begins recieving installments, the balance of hte principal is forfeited. This option guarantees payments for the life of the beneficiary; however, there is no guarantee that the beneficiary will receive all of the death benefit.
What is the fixed-amount installment option in the settlement to the beneficiary?
This installment pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted. The recipient selcets a specified fiexed dollar amount to be paid until it is gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out.
Method used to pay the death benefit to a beneficiary upon the insured's death is called?

a) death benefit settlement

b) settlement option

c) designation option

d) beneficiary provision
B) settlement benefit

Settlement options are methods used to pay death benefits to a beneficiary upon the insured's death.
What are the two class designation types?
Per Capita and Per Stirpes
What provision dictates who has the right to change beneficiaries, choose options, and receive proceeds?

a) the ownership provision.

b) the entire contract

c) the consideration clause.

d) the assignment provision
A) the ownership provision.

The ownership provision states the rights of the policyowner.
What does underwriters look at to classify risks?
The applicant's past medical history, present physical condition, occupation, habits and morals.
What is a conditional receipt?
This is a receipt that says that coverage is effective either the date on the application or the date of the medical exam. whichever occurs last, unless coverage is declined. The applicant is covered by the insurance as of the date the application providing that the insurer subsequently determines the applicant to be insurable as applied for.
Who is required to sign the application?
Agent, owner, and insured.Both the agent and the applicant (proposed insured) must sign the application. If the proposed insured and the policyowner are not the same person, such as a business purcahsing insurance on an employee, then the policyowner must also sign the application.
When is a paramedical report required?
When smaller amounts of insurance are requested and their is no prior medical history or concern, the insurer may request a report to be completed by a paramedic or a registered nurse. Under certain circumstances the underwriter may require a full medical examination for additional information.
Which option provides a single beneficiary with income for the rest of his/her life?

a) single beneficiary option

b) single life option

c) one beneficiary option

d) joint life option.
B) single life option

The single life option provides a single beneficiary with income for the rest of his/her life.
What is the difference between a revocable versus irrevocable beneficiary designation?
The policyowner, without the consent or knowledge of the beneficiary, may change a revocable designation at any time. An irrevocable designation may not be changed without the written consent of the beneficiary. Irrevocable beneficiaries have a vested interest in the policy and, therefore, the policyowner may not exercise certain of the policyowner rights without the consent of the beneficiary.
What is the beneficiary?
This is the person or interest to whom the policy proceeds will be paid upon the death of the insured. This may be a person, class of persons (sometimes used with children of the insured), the insured's estate, or an institution or other entity such as a foundation, charity, corporation or trustee of a trust.
A provision in a life insurance policy that provides for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness or injury is called?

a) accelerated provision benefit

b) viatical settlement benefit

A) accelerated provision benefit.

The accelerated payment can be made in a lump sum or in monthly installments over a special period of time. This provision is given without an increase in premium. Some companies, however, deduct an interest charge from the proceeds paid out to make up for their lost earnings.
What is the agent responsible for in the application process?
*Make certain the application is filled out completely, correctly, and to the best of his or knowledge.* If the agent feels that there could be some misrepresentation, he/she must inform the insurance company.
What is a stock redemption plan?
This is when a business owns the policies, pay the premiums, and is the beneficiary.
When replacement is involved, what must the agent do?
* Present the applicant with a Notice Regarding Replacement that is signed by both the applicant and the agent, and a copy must be left with the application.* Obtain a list of all existing life insurance and/ or annuity policies to be replaced including policy numbers and the names of all companies being replaced.* Leave the applicant with the original or a copy of written or printed commmuications used for presentation to the applicant.* Submit to the replacing insurance company, with the application, a copy of the replacement notice.
What are two ways to fund a buy-sell agreement
Stock Redemption or Cross Purchase.
When do insurers usuall require an HIV test?
It is common among insureres to require an HIV test when an applicant is applying for 50,000 or more in coverage.
What is the grace period?
This is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of this period is to protect the policyholder against an unintentional lapse of the policy. If the insured dies during this period, the death benefit is payable; however, the unpaid premium will be deducted from the death benefit.
What is backdating of a policy?
This allows a policyowner to get a lower premium rate. The policy may not go back more than 6 months, and all premiuims must be paid from the effective date of the policy.
Honus is diagnosed with an illness that will require long term treatment and medication. Honus's life insurance policy includes the accelerated benefit rider. Honus applied for money for the policy to pay for his treatment. What must the insurer provide H
C) a benefit payment notice indicating the dollar amount of the payment and the dollar amount of the remaining death benefit and value.

An explanation of how the payments affect the policy's death benefit, of how the benefit affects accumulated cash value, and how much of the policy's death benefit can be accelerated are all provided at the time the benefit is requested.
What is the payment of premium provision?
This is when the policy stipulates when the premiums are due, how often they are paid (monthly, quarterly, semiannually, annually, etc.) and to whom. The least expensive way to pay the policy premium is annually or by monthly draft; all other modes of payment requires the policyowner to pay a service fee for the additional administrative costs incurred by the insurer.
Who is a contingent beneficiary?
This is who has second claims to the policy in the event that the primary beneficary dies before the insured. They do not receive anything if the primary beneficiary is still living at the time of the insured's death. The policyowner may name more than one person and specify how the proceeds are to be divided.
Loretta finds that she is no longer able to pay premiums on her 50,000 whole life policy, but feels that she still needs that amount of coverage to protect her family. Which of the nonforfeiture option would allow her to do this?

a) reduced paid-up

b) p
C) extended term

An extended term nonforfeiture option would provide 50,000, of coverage for as long as the cash value would pay for the term.
Which is true about cash surrender?

a) the policyholder receives the original cash value of the policy.

b) If the cash value exceeds premium paid, the excess is taxable as ordinary income.

c) Once the policyholder opts for cash surrender, he/she is ins
B) If the cash value exceeds premium paid, the excess is taxable as ordinary income.

The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.
What is hazardous occupations or hobbies clause exclusion?
This is a stipulation in a contract that will provide coverage to insured engaged in a hazardous occupation or participates in hazardous hobbies (such as sky diving or auto racing), the underwriter may exclude death that results for the hazardous occupation or hobby. Ex. Jeff Gordan race car driver.
When does a life insurance policy go into force if there is premium with the application?
Most agents attempt to collect the initial premium and submit it along with the application to the insurer. Because the policy goes in effect on the day the policy is delivered.
What are something unfair financial planning that are unlawful for a agent to do?
* Hold himself or herself out as a financial planner or other financial specialist when in fact only engaged in the sale of policies, unless the person has passed the appropriate professional course of study for financial planning.* Engage in financial planning business without disclosing that he or she is an insurance salesman and that a commission for sale if insurance will be received in addition to a financial planning fee.* Charge fees, other than commissions, for financial planning unless such fees are based upon a written agreement.
How is life insurance policy given as an executive bonus taxed?
This is an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy of the employee. The employee owns the policy and therefore has all control. Since the employer treated the premium payment as a pay increase, that amount is tax deductible to the employer and income taxable to the employee.
What is the companies duty regarding advertising?
It is an unfair or deceptive trade practice for an insurer or agent to make use of the protection provided by the Guaranty Association as a reason for the purchase of insurance. Advertising must be accurate and not misrepresent the facts.
What happen to an insured state if at the time of his death, none of the beneficiary are alive?
The insured's state (assets and liability left by the insured at death) will automatically receive the proceeds of a life insurance policy. The death benefit of the policy may be included in the insured's taxable estate if this occurs.
Stan and Fran wanted to include their children in their whole life policy. They included a children's term rider with their spouse term rider, in order to form another,what is the name of this new rider?

a) family term

b) whole family term

c) inclusive
A) family term

A family term policy is created when a children's term rider and a spouse term rider is combined in a single rider which is attached to a whole life policy. with their spouse term rider. Under the family rider, the entire family is covered under the same policy.
What is true about nonforfeiture values?

a) policyowners do not have the authority to decide how to exercise nonforfeiture values.

b) they are required by law to be included into the policy.

c) they are optional provisions.

d) a table showing nonforfe
B) they are required by law to be included into the policy.

Nonforfeiture values are aptly named because they cannot be altered by the policyowner. They are required by state law to be included in the policy. A table showing the nonforfeiture values must be included in the policy for a minimum period of 20 years.
A long stretch of national economic hardship cause a 7% rate of inflation. Devon notices that the face value of her life insurance policy has been raised 7% as a result. What is the name of the provision that causes this change?

a) value adjustment rider
D) cost of living rider

The cost of living rider annually adjust the policy's face value in accordance with the national of inflation or deflation. This provision allows for the relative value of the policy to remain constant over time, despite changes in the economy. The cost of living rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.
Jason has a 50,000 20 year pay life policy which he will let lapse at the end of the forth year. The nonforfeiture option that would provide coverage for the longest period of time would be?

a) extended term

b) paid-up option

c) paid-up additions

d) r
D) reduced paid-up

The reduced paid-up nonforfeiture option would provide protection until Jason reaches 100, but the face amount is reduced to what the cash would buy.
What is the military service status clause?
This exclude all causes of death while the insured is on active duty in the military.
What must a agent/producer do if there are changes in an application?
When an answer to a question on the application needs to be corrected, agents have the option, depending on which insurer they represent, of correcting the information and having the applicant initial the change, or completing a new application. An agent should never erase our use "white-out" on an application for insurance.
What are two ways to plan for income needs?
* Replacing salary or lost services of the deceased* Social Security Income "Blackout period.
How is Part 2 of the application, different from part I.
Part 2, have medical history where as Part 1, gives general information.
Kate misstates her age at the time her life insurance application is taken. This mistatement may result in?

a) autmatic lapse

b) recession of the policy.

c) adjustment in the face amount.

d) no change whatsoever.
C) adjustment in the face amount.

In the event of Kay's death, the policy benefit would be the amount the premium paid would have purchased at the correct age, so long as her correct age did not exceed the policy's maxium age.
What is the life income and joint survivor option?
This guarantees an income for two or more recipients for as long as they live. Although it is possible for the surviving recipient or recipients to receive payments in the same amount as the first recipient to die, most contracts provide that the surviving recipient will recieve a reduced payment after ther first recipient dies. Most commonly the reduced option is written as "joint and 1/2 survivor" or "joint and 2/3 survivor", in which the surviving beneficiary recieves 1/2 or 2/3 of what was received when both beneficiary were alive.
What is cash payment in the settlement to the beneficary?
Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash of a lump sum, unless hte recipient chooses an optional mode of settlement. The policyowner may selcet the settlement option for the beneficiary; however, if the policyowner does not select an option, the beneficiary will be allowed to choose one at the time of the insured's death. If the policyowner does select the settlement option in which the proceeds are to be paid, the beneficiary cannot change the option. Payments of the principal face amount after the insured's death are not taxable as income. If any interest is paid, the interest is taxable.
Which of the following is true of a childrens's rider added to an insured's permanent life insurance policy?

a) the policy only covers the natural children of the insured.

b) each child covered must show evidence of insurability.

c) it is term coverage
C) it is term coverage that is convertible to permanent insurance or prior to the child reaching maxium coverage age.

Children's rider are term insurance covering all of the children in the family, including newly born children, and are convertible to permanent insurance upon a child reaching the maxium age without evidence of insurability.
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