Life Insurance and Annuity(2)Exam Questions With
Accurate Answers.
Insurable interest in Life insurance - accurate answers-Can be based on love
and affection (family) not just financial loss.
Also need only exist at the time of policy purchase, not at the time of Loss.
Actual Cash Value (ACV) - accurate answers-The maximum reimburse that
will be provided to the claimant under most insurance Contracts. Typically
replacement cost minus depreciation.
Waiver - accurate answers-A voluntary surrender of a know. Legal right.
Personal Risks that Can be Eliminated by Life Insurance Coverage - accurate
answers-1) Debt Repayment (if creditor owns the policy, or if the policy is
collaterally assigned to the creditor)
2) Life income for a spouse/children
3) Charitable contributions on death
Closely held business exposures that benefit from life insurance - accurate
answers-1) A partnership may take out a policy on a key person.
2) Funding for pre-arranged buy/sell agreements
3) A business owner who dies with estate debts, but whose liquidity is
completely tied up in his/her business.
Term Insurance - accurate answers-Provides protection for a definite but
limited period of time (but most are renewable or convertible to a whole life
or endowment policy).
Term Insurance Renewal - accurate answers-Does not require evidence of
insurability.
Premium may increase each year, or stay the same for the whole term.
Regulation XXX - accurate answers-Developed by the NAIC - a model
regulation that requires insurers to establish special reserves for term policies
that provide guaranteed premium rates for long periods of time.
,Advantages of Term Life Insurance - accurate answers-- Low Cost per unit of
Coverage
- Low Commission Charges (since the premium is lower)
- Low State Premium Taxes (since premium is lower)
Disadvantages of Term Life Insurance - accurate answers-- Protection is only
provided for a temporary period.
- Renewal and Conversion require higher premiums at higher ages and
become unavailable beyond certain maximum ages.
- No Savings/Investment Element
- Results in substantial adverse selection risk, since those in poor health are
more likely to renew/convert, and those in good health are less likely to
renew/convert.
- No tax shelter (which is available to owners of permanent life insurance).
Whole Life Insurance Policy - accurate answers-Provides protection against
loss due to death no matter when teat death occurs.
2 Types of Whole Life Policy - accurate answers-1. Straight Whole Life Policy
2. Limited-Payment Whole Life Policy
Straight Whole Life Policy - accurate answers-Provides whole life protection
with a level premium calculated on the assumption that is will be payable for
the whole of life.
The excess paid in the early years, when mortality rates are low, builds the
cash value of the policy.
Limited-Pay Whole Life Policy - accurate answers-Premiums are payable only
for a certain number of years, after which, the policy is considered "paid up."
The investment income earned by the policy's cash value helps keep the
premium payment at zero in the later years of life.
Since this investment income is tax-deferred, part of the premium is actually
being paid by the government.
Advantages of Whole Life Insurance - accurate answers-1) Permanent
Protection without renewal
, 2) Combines Savings with Protection
3) Provides substantial flexibility - cash values can be used as premium loans ,
or emergency funds
4) Can be surrendered in exchange for cash value, or for a paid-up life
insurance policy.
5) Most can be exchanged for another form of life insurance.
6) Cash surrender values may be used to purchase an annuity.
Advantage to Level Premium Policy - accurate answers-Lowest Initial Outlay
for a permanent life policy. Premiums will be lower than for any other type of
permanent life policy.
Disadvantages of Whole Life Insurance - accurate answers-1) Higher
Premiums than Term Policies
2) Premiums have to be paid for one's entire life on a level premium policy.
3) No hedge against inflation, the face value amount of the policy loses
purchasing power over time.
Endowment Life Insurance Policy - accurate answers-Provides for the face
amount of the policy to be paid to the policy owner, if living, on a maturity
date listed on the policy, or to a beneficiary if the policy owner dies prior to
the maturity date.
Very expensive per unit of coverage, and because it acts as more of a savings
vehicle than most whole life insurance, it does not get favorable ta treatment if
cash values are withdrawn before maturity.
Can be a useful tool for college savings, or for retirement savings.
Universal Life Insurance (UL) - accurate answers-A flexible premium life
insurance policy that permits the policy owner to change the death benefit
from time to time and vary the premium payments.
--Lower cost premiums than whole life insurance.
--Cash value accumulates if the insurance company's investments outperform
expectations.
--Policy holders can access the cash value without affecting the death benefit,
along as the premium is paid each year.
Accurate Answers.
Insurable interest in Life insurance - accurate answers-Can be based on love
and affection (family) not just financial loss.
Also need only exist at the time of policy purchase, not at the time of Loss.
Actual Cash Value (ACV) - accurate answers-The maximum reimburse that
will be provided to the claimant under most insurance Contracts. Typically
replacement cost minus depreciation.
Waiver - accurate answers-A voluntary surrender of a know. Legal right.
Personal Risks that Can be Eliminated by Life Insurance Coverage - accurate
answers-1) Debt Repayment (if creditor owns the policy, or if the policy is
collaterally assigned to the creditor)
2) Life income for a spouse/children
3) Charitable contributions on death
Closely held business exposures that benefit from life insurance - accurate
answers-1) A partnership may take out a policy on a key person.
2) Funding for pre-arranged buy/sell agreements
3) A business owner who dies with estate debts, but whose liquidity is
completely tied up in his/her business.
Term Insurance - accurate answers-Provides protection for a definite but
limited period of time (but most are renewable or convertible to a whole life
or endowment policy).
Term Insurance Renewal - accurate answers-Does not require evidence of
insurability.
Premium may increase each year, or stay the same for the whole term.
Regulation XXX - accurate answers-Developed by the NAIC - a model
regulation that requires insurers to establish special reserves for term policies
that provide guaranteed premium rates for long periods of time.
,Advantages of Term Life Insurance - accurate answers-- Low Cost per unit of
Coverage
- Low Commission Charges (since the premium is lower)
- Low State Premium Taxes (since premium is lower)
Disadvantages of Term Life Insurance - accurate answers-- Protection is only
provided for a temporary period.
- Renewal and Conversion require higher premiums at higher ages and
become unavailable beyond certain maximum ages.
- No Savings/Investment Element
- Results in substantial adverse selection risk, since those in poor health are
more likely to renew/convert, and those in good health are less likely to
renew/convert.
- No tax shelter (which is available to owners of permanent life insurance).
Whole Life Insurance Policy - accurate answers-Provides protection against
loss due to death no matter when teat death occurs.
2 Types of Whole Life Policy - accurate answers-1. Straight Whole Life Policy
2. Limited-Payment Whole Life Policy
Straight Whole Life Policy - accurate answers-Provides whole life protection
with a level premium calculated on the assumption that is will be payable for
the whole of life.
The excess paid in the early years, when mortality rates are low, builds the
cash value of the policy.
Limited-Pay Whole Life Policy - accurate answers-Premiums are payable only
for a certain number of years, after which, the policy is considered "paid up."
The investment income earned by the policy's cash value helps keep the
premium payment at zero in the later years of life.
Since this investment income is tax-deferred, part of the premium is actually
being paid by the government.
Advantages of Whole Life Insurance - accurate answers-1) Permanent
Protection without renewal
, 2) Combines Savings with Protection
3) Provides substantial flexibility - cash values can be used as premium loans ,
or emergency funds
4) Can be surrendered in exchange for cash value, or for a paid-up life
insurance policy.
5) Most can be exchanged for another form of life insurance.
6) Cash surrender values may be used to purchase an annuity.
Advantage to Level Premium Policy - accurate answers-Lowest Initial Outlay
for a permanent life policy. Premiums will be lower than for any other type of
permanent life policy.
Disadvantages of Whole Life Insurance - accurate answers-1) Higher
Premiums than Term Policies
2) Premiums have to be paid for one's entire life on a level premium policy.
3) No hedge against inflation, the face value amount of the policy loses
purchasing power over time.
Endowment Life Insurance Policy - accurate answers-Provides for the face
amount of the policy to be paid to the policy owner, if living, on a maturity
date listed on the policy, or to a beneficiary if the policy owner dies prior to
the maturity date.
Very expensive per unit of coverage, and because it acts as more of a savings
vehicle than most whole life insurance, it does not get favorable ta treatment if
cash values are withdrawn before maturity.
Can be a useful tool for college savings, or for retirement savings.
Universal Life Insurance (UL) - accurate answers-A flexible premium life
insurance policy that permits the policy owner to change the death benefit
from time to time and vary the premium payments.
--Lower cost premiums than whole life insurance.
--Cash value accumulates if the insurance company's investments outperform
expectations.
--Policy holders can access the cash value without affecting the death benefit,
along as the premium is paid each year.
