Texas Life Insurance Exam Questions and Answers with complete solutions

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Insurance (General concept) - ANSWER - transfers the risk of loss from an individual to an insurer - based on the principle of indemnity - based on the principle of risk (risk pooling) insura... ble interest (General Concept) - ANSWER - must exist at the time of the application - insuring one's own life, family member, or a business partner Solicitation and sales presentation - ANSWER - illustration- presentation of nonguaranteed elements - buyer's guide is generic information about life polices which must be provided at the time of application - policy summary is a description of features and benefits of the policy being issued and must be provided when the policy is delivered. Underwriting (Field underwriting (by agent) - ANSWER - application completed and signed - agent's report: agent's observation about the application that can assist in underwriting -premiums with application and conditional receipts underwriting ( company underwriting) - ANSWER - multiple sources of information: applications, consumer reports, MIB (Medical Information Burea) - Risk Classification: 3 types of risk : standard, substandard, preferred Underwriting (Federal Regulation) - ANSWER - Fair Credit Reporting Act: protect consumers against circulations of inaccurate or obsolete information - USE PATRIOT Act/ Anti-money Laundering and Suspicious Activity Reports Rules Premium Determination - ANSWER - 3 key Factors for life insurance: mortality, interest, and expense - Mode: the more frequently premium is paid, the higher the premium Policy Issue and Delivery - ANSWER Effective date of coverage - if the premium is not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of the policy delivery Agent/ Producer - ANSWER a legal representative of an insurance company; the classification of producers usually includes agents and brokers' agents are the agents of the insurer Applicant of proposed insured - ANSWER a person applying for insurance Beneficiary - ANSWER a person who receives the benefits of an insurance policy Broker - ANSWER an insurance producer who is not appointed by an insurance company and who represents the client Death benefits - ANSWER the amount paid upon death of the insured in a life insurance policy Estate - ANSWER a person's net worth Insurance policy - ANSWER a contact between a policyowner (and/or insured) and an insurance company which agrees to pay insured or the beneficiary for loss caused by specific events. Insured - ANSWER a person covered by the insurance policy; may or may not be the policyowner insurer (principal) - ANSWER the company who issues an insurance policy Lapse - ANSWER policy termination due to nonpayment of premium Life insurance - ANSWER coverage on human lives Policyowner - ANSWER the person entitled to exercise the rights and privileges in the policy Premium - ANSWER the money paid to the insurance company for the insurance policy Underwriting - ANSWER is the risk selection and classification process Attained age - ANSWER the insured's age at the time the policy is issued or renewed cash value - ANSWER a policy's saving element or living benefit Face amount - ANSWER the amount of benefits stated in the life insurance policy Fixed life insurance - ANSWER contracts that offer guaranteed minimum or fixed benefits Deferred - ANSWER withheld or postponed until a specified time or event in the future Endow - ANSWER the cash value of a whole life policy has reached the contractual face amount Level premium - ANSWER the premium that does not change throughout the life of a policy Liquidation of an estate - ANSWER converting a person's net worth into a cash flow Mature - ANSWER the time when the policy's face amount is paid out upon the death of the insured or policy endowment Nonforfeiture values - ANSWER benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses Policy Maturity - ANSWER in life polices, the time when the face value is paid out Qualified Plan - ANSWER a retirement plan that meets IRS guidelines for receiving favorable tax treatment Securities - ANSWER financial instrument that may trade for value (for example, stock, bonds options Suitability - ANSWER a requirement to determine if an insurance product is appropriate for a customer Variable life insurance - ANSWER contracts in which the cash value accumulate based upon a specific portfolio of stocks without guarantees of performance Types of insurance - ANSWER -term/temporary - permanent/ whole life Types of term policies - ANSWER -level term - annually renewable term - decreasing term - increasing term Whole Life insurance - ANSWER - straight life - limited payment - single premium Flexible- premium policies - ANSWER - adjustable life - universal life : options A, option B - Variable Life insurance - Variable Universal life insurance other polices - ANSWER Joint Life Survivorship life Basic Annuity Terms - ANSWER Annuity Annuitant Accumulation/Pay-in period Annuitization/liquidation/pay-out period Beneficiary Owner Types of Annuities - ANSWER Deferred Annuity fixed annuity general account immediate annuity indexed annuity separate account variable annuity General characteristics (Term life) - ANSWER - pure protection - lasts for specific term - no cash value Level premium Term (Term life) - ANSWER level death benefit and level premium Annually Renewable Term (Term life) - ANSWER - renews each year without proof of insurability - premiums increase due to attained age Decreasing Term (Term life) - ANSWER coverage gradually decrease at predetermined times; best used when the need for protection declines from year to year Increasing Term (Term life) - ANSWER coverage increase each year Features of term policies (term life) - ANSWER - renewable: renew the policy without evidence of insurability - convertible: right to convert a term policy to a permanent policy without evidence of insurability General characteristics (whole life) - ANSWER - permanent protection - guaranteed elements (face amount, premium, and cash value) until death or age 100 - level premium - cash value and other living benefits Straight life (whole life) (continuous premium) - ANSWER - basic policy - level death benefits - insured pays premiums for life or until age 100 Limited payment - ANSWER premiums paid until a certain time; coverage in effect to age 100 Single Premium - ANSWER premiums paid in one lump sum; coverage continues to age 100 General Characteristics (Flexible Premium) - ANSWER - types of whole life insurance - flexible premium Adjustable life (Flexible premium) - ANSWER - policyowner may adjust the premium and premium- paying period, the face amount, and the period of protection - can be converted from term to whole life and vice versa - cash value only develops if the premiums paid are more than the cost of the policy Universal life (Flexible premium) - ANSWER - an insurance component in the form of annually renewable term - 2 death benefit options: options A level death benefits, and options B- increasing death benefit - can make partial surrender/ cash withdrawal Variable Life (other types of polices) - ANSWER - fixed premium, minimum death benefits - cash value and the actual amount of the death benefits are not guaranteed - assets in separate accounts - agents must be dually licensed in insurance and in securities Combination Plans (other types of polices) - ANSWER - Joint life: - premium is based on the joint average age of the insured ;death benefit upon the first death only - Survivorship Life: - premium is based on the joint average of the insured; death benefit upon the last death Phases (Annuities) - ANSWER - accumulation (pay-in): payment made into the annuity - annuitization (pay-out): payment made to the annuitant from the annuity parties (annuities) - ANSWER - annuitant: insured (must be a person); policy issued on annuitant's life - Beneficiary: will receive any amount contributed to annuity (plus any gain) if annuitant dies during accumulation period - Owner- has all rights to policy (usually annuitant); can be corporation or trust Types of Annuities - ANSWER - fixed annuities: guaranteed, fixed payment amount; premiums in general account - variable annuities:payment not guaranteed; premiums in separate account, and invested in stock and bonds. - indexed annuities: interest rate tied to an index; earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds Premium Payments (annuities) - ANSWER - Single premium: One lumps- sum payment; the principal is created immediately (both immediate and deferred annuities) - Periodic (Flexible) premium: multiple payments; the principal is created over time (used for deferred annuity only) Income Payment (annuities) - ANSWER - Immediate: purchased with a single premium; income payments start within 12 months from the date of purchase - Deferred: purchase with either lump sum or periodic: payment, premium; benefit start sometimes after 1 year from the date of purchase (often used to accumulate funds for retirement) Activities of daily living (ADLs) - ANSWER a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence Assignment - ANSWER transfer of right of policy ownership Consideration - ANSWER something of value that each party gives to the other (binding force in any contract) Indemnity - ANSWER a principle of reimbursement of which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss Lump sum - ANSWER payment of the entire benefit in one sum Minor - ANSWER a person under legal age NAIC - ANSWER National Association of Insurance Commissioners, an organization composed of insurance commissioners from all states and jurisdictions formed to resolve insurance regulatory issues Principal - ANSWER the face value of the policy; the original amount invested before the earnings Nonforfeiture options - ANSWER - cash - extended terms (automatic) - reduced paid up Dividend options - ANSWER - cash - reduction of premium - accumulation at interest - paid up additions (automatic) -paid up insurance - one year term Settlement options - ANSWER -cash (automatic) - Life income - interest only - fixed period - fixed amount Life policy provisions - ANSWER - assignment - consideration - entire contract - free look - grace period - incontestability - insuring clause - misstatement of Age and gender - Ownership - Payment of Premiums - Reinstatement Beneficiaries - ANSWER Primary Vs. Contingent Revocable Vs. Irrevocable Common disater clause Accessing cash value - ANSWER policy loan automatic premium loan withdrawal partial surrender Policy options - ANSWER - nonforfeiture - dividend - settlement consideration (standard provision ) - ANSWER parties to a contact exchange something of value entire contact (standard provision) - ANSWER policy (with riders and amendments) and copy of the application Grace period (standard provision) - ANSWER time period after the premium is due during which the policy will not lapse incontestability (standard provision) - ANSWER insurer cannot contest misstatements on the application after a time period Insuring clause (standard provision) - ANSWER basic agreement between the insurer and the policyowner misstatement of age or gender (standard provision) - ANSWER death benefits is adjusted according to the correct age and gender at policy issue payment of premiums (standard provisions) - ANSWER premiums are paid in advance Reinstatement - ANSWER a policy can be restored within a specified period of time with proof of insurability Assignment (other provisions) - ANSWER absolute or collateral Exclusions (other provisions) - ANSWER aviation (noncommercial), hazardous occupation, war or military service, suicide within a specific time period Free Look (other provisions) - ANSWER policy can be returned for a refund or premium within a specified time period Ownership - ANSWER policyowner's right Designation (beneficiaries) - ANSWER - designation: individuals (including minors) classes, estates Succession ( beneficiaries) - ANSWER - the level of priority. each level in the succession is only eligible if the beneficiary in the level above has died: - primary: first claim to the policy proceeds - contingent (secondary, tertiary): next claim after primary Policyowner's right to change a beneficiary: - ANSWER - revocable: can be change at any time - irrevocable: can be changed with the beneficiary's consent Common disaster clause (beneficiaries) - ANSWER protects the right of contingent beneficiaries; if the insured and the primary beneficiary died at approximately the same time, it is assumed that the primary beneficiary died first Cash loans available (Policy loans, withdrawals and partial surrenders) - ANSWER policy's cash value minus any unpaid loans and interest Automatic premium loans (Policy loans, withdrawals and partial surrenders ) - ANSWER prevent unintentional policy lapse due to nonpayment of premium withdrawals and partial surrenders (Policy loans, withdrawals and partial surrenders) - ANSWER available in Universal life; a charge may apply Wavier of premium (Disability ) - ANSWER waves the premium if the insured becomes totally disabled; 6 months waiting period before benefits begin Waiver of cost insurance (Disability ) - ANSWER in universal life policies; waives the cost of insurance in the event of the insured's disability Disability income (Disability) - ANSWER waives the premium and pays monthly income Accelerated Benefits - ANSWER - early payment if insured is diagnosed with a specified catastrophic illness -a portion of the death benefits - death benefit is reduced by the amount paid plus earnings lost by the insurer Spouse/other insured (Additional insured) - ANSWER term rider (limited time, limited coverage): usually expires when spouse turns age 65 Children's term (Additional insured) - ANSWER covers all children of the insured (limited time, limited coverage): can be converted to a permanent policy nonfamily insured (Additional insured) - ANSWER used by business (e.g. key person insurance) Accidental death (riders affect the death benefits) - ANSWER pays double or triple indemnity if accidental death occurs as defined in the policy; death must occur within 90 days of accident Guaranteed insurability (riders affect the death benefits) - ANSWER allows for purchase of additional insurance at specified times without evidence of insurability, at the insured's attained age Return of premium (riders affect the death benefits) - ANSWER increasing term is added to a whole life policy that provides that if death occurs prior to a given age, not only is the death benefits payable to the beneficiary, but all premiums paid as well cash surrender value (Nonforfeiture) - ANSWER after all that, no more insurance, extended term (Nonforfeiture) - ANSWER automatic optional; uses cash value to convert to term insurance reduced paid (Nonforfeiture) - ANSWER uses cash value as a single premium to purchase a permanent policy with a reduced face amount Cash (Dividend ) - ANSWER insurer sends a check to the insured Reduction of premium (Dividend ) - ANSWER dividend is applied to the next year's premium Accumulation at interest (Dividend ) - ANSWER insurers keeps the dividend in an account where its accumulates interest Paid up addition (Dividend ) - ANSWER dividend is used to increase the face amount Paid- up insurance (Dividend ) - ANSWER dividend is used to pay up a policy early One year term (Dividend ) - ANSWER dividend is used to buy additional insurance Cash (settlement) - ANSWER lump sum payment; usually not taxable Life income (settlement) - ANSWER provides an income the beneficiary cannot outlive; no guarantee that the entire principle will be paid out (if the beneficiary dies too soon); available as single life or as joint and survivor Interest only (settlement) - ANSWER insurer retains the principal and only pays out interest Fixed period (settlement) - ANSWER payments for a specified time period until all the proceeds are paid out Fixed amount (settlement) - ANSWER payments in specified amounts until all the [Show More]

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