NC LIFE INSURANCE EXAM STUDY GUIDE
Cash Value - Answers - Money accumulation in a permanent policy which the policy
owner may borrow as a policy loan or receive if the policy is surrendered before
maturity. Upon maturity or endowment the cash value is paid to the policy owner. Cash
value may be used as a source of supplemental income.
Non- Participating Policies - Answers - Insurance policies which do not pay dividends
to policy owners.
Participating Policies - Answers - Policies that may pay annual dividends to policy
owners.
Human Life Value Approach - Answers - This approach measures the actual future
earnings and services of a person at risk of coverage as determined by the value of the
the individual to his/her dependents.
Human Life Value Factors - Answers - Factors: 1. After-tax annual salary, 2. Annual
expenses (no hobbies), 3. Value of Personal Assets, 4. Years remaining of individuals
expected ability to work, 5. Ages of all family members, 6. Value of the individual's dollar
as it depreciates over time, 7. Present salaries of all wage earners.
Needs Analysis Approach - Answers - This approach determines a need for coverage
upon the premature death of an individual. It always assumes the death of an individual
to be immediate. Calculates all financial needs caused by an immediate death.
Buy-Sell Agreement - Answers - Business use of Life Insurance where partners in a
business buy life insurance on each other. They agree that when one of them dies the
survivors have the right to purchase the deceased partner's share of the business. The
death benefit from the insurance is used to finance the purchase. (Cross Purchase
Plan, Entity Plan)
Key Person Insurance - Answers - protects against the loss of a key employee or key
executive by making the business the beneficiary if a key person dies. The business is
the owner, premium payor, and beneficiary.
Deferred Compensation Insurance - Answers - Payment for services under any
employer-sponsored plan or arrangement that allows an employee (for tax-related
purposes) to defer income to the future. The employer is the policy owner and
beneficiary.
Split-Dollar Plan - Answers - a life policy in which employee and employer split the
premium payments and if the employee dies while working for this employer, the
employer receives the total of premiums paid. The remaining balance is paid to the
,employee's beneficiary. A certain period of time must elapse before an employee is
entitled to any of the cash value. Since an individual life insurance policy is being
issued, proof of insurability is required.
Classes of Life Insurance Plans - Answers - Plans include:
-Group, individual, ordinary life insurance, Industrial, permanent, term, participating,
non-participating, fixed, flexible, and variable.
Group Life Insurance - Answers - provided under a master contract for members of
qualified groups. Generally written as a one year renewable term plan without medical
examinations and at rates that are more favorable than individual policies. The
premiums are usually employer paid but may be paid on a shared basis with the
employee.
Individual Life Insurance - Answers - the greatest difference between group and
individual life insurance is the full latitude of ownership. Unlike group, individual policies
may be of any classification or type insurance. The policy owner may use the policy
proceeds to build equity (cash value).
Ordinary Life Insurance - Answers - Is defined as any type of life insurance that is not
group, industrial or government insurance. A large number of people are insured with an
ordinary life policy making this the larger portion of the life insurance in force today.
Evidence of insurability is required, and the underwriter considers age, sex, weight,
health, and tobacco use as this info. applies to the prospective insured. The grace
period is 30 days.
Permanent Life Insurance - Answers - This type of insurance is designed not only to
provide the beneficiary a death benefit if the insured dies, but also to provide the
insured/owner a build up of cash value from which they may borrow for emergency
expenses.
Term Life Insurance - Answers - this is known as "pure protection" insurance and is
less expensive than "permanent" life insurance. Used for death protection only.
Participating Life Insurance - Answers - A policy marketed by a mutually owned
company. The word participating means a dividend will be paid to the policyowner as
dividends are declared. The company is not required to issue only participating policies
(mutual companies are controlled by a board of directors voted into office by the
policyholders).
Non-Participating Life Insurance - Answers - A pure cost policy marketed by a
company owned by stockholders with all future values guaranteed. (Stockholders)
Fixed Life Insurance - Answers - the policy has a fixed amount of coverage, benefits
and premium. Without riders, future inflationary trends and money values will depreciate
the policy's effectiveness
, Flexible Life Insurance - Answers - Recently the marketing of new policies, such as
Universal and Variable Universal Life, has given the policyowner more flexibility in terms
of premiums, investment objectives and other policy benefits. These policies assist the
insured during inflationary periods with the natural flexibility of each policy.
Variable Life Insurance - Answers - A form of fixed-premium whole life insurance,
where the death benefit and cash value fluctuate according to fluctuations of the
separate account, with the policy owner accepting the risk. The separate accounts are
normally mutual funds and a security license is required. It is designed to provide a
hedge against inflation, and has a guaranteed minimum face amount.
Insurance Rider - Answers - written form attached to an insurance policy that alters the
policy's coverage
Entire Contact Provision - Answers - Consist of the policy, plus any riders, and a copy
of the application. All statements made by the insured are deemed representations and
not warranties.
Insuring Clause - Answers - Defines who is insured by whom and the amount of
benefit/coverage provided by the policy. It states the obligation of the insurer and the
risk that is considered: premature death.
Free Look (Right to Examine Period) - Answers - allows the insured/policyowner a
specified number of days following receipt of the policy to look it over and if dissatisfied
for any reason to return it for a full refund of premium (usually 10 days).
Consideration - Answers - Policy owner must pay something of value (premium) in
exchange for the insurer's promise to pay benefits.
Owner's Rights (Ownership) - Answers - Policyowners have the right to all cash
values, loans, dividends, and any other benefits. He/she may change the beneficiary,
assign the policy and exercise all privileges and options of ownership. The insured and
owner need not be the same person.
Changes (modifications) - Answers - must be in writing, signed by an executive officer
of the insurer, approved by the policy owner and made part of the entire contract. An
agent cannot alter or waive provisions.
Grace Period - Answers - The time period after the premium due date and before a
policy lapses. The policy is in force during this period and the Period Provision states
that if death occurs during this period, the insurer pays the death benefit, minus any
premiums or loans.
Cash Value - Answers - Money accumulation in a permanent policy which the policy
owner may borrow as a policy loan or receive if the policy is surrendered before
maturity. Upon maturity or endowment the cash value is paid to the policy owner. Cash
value may be used as a source of supplemental income.
Non- Participating Policies - Answers - Insurance policies which do not pay dividends
to policy owners.
Participating Policies - Answers - Policies that may pay annual dividends to policy
owners.
Human Life Value Approach - Answers - This approach measures the actual future
earnings and services of a person at risk of coverage as determined by the value of the
the individual to his/her dependents.
Human Life Value Factors - Answers - Factors: 1. After-tax annual salary, 2. Annual
expenses (no hobbies), 3. Value of Personal Assets, 4. Years remaining of individuals
expected ability to work, 5. Ages of all family members, 6. Value of the individual's dollar
as it depreciates over time, 7. Present salaries of all wage earners.
Needs Analysis Approach - Answers - This approach determines a need for coverage
upon the premature death of an individual. It always assumes the death of an individual
to be immediate. Calculates all financial needs caused by an immediate death.
Buy-Sell Agreement - Answers - Business use of Life Insurance where partners in a
business buy life insurance on each other. They agree that when one of them dies the
survivors have the right to purchase the deceased partner's share of the business. The
death benefit from the insurance is used to finance the purchase. (Cross Purchase
Plan, Entity Plan)
Key Person Insurance - Answers - protects against the loss of a key employee or key
executive by making the business the beneficiary if a key person dies. The business is
the owner, premium payor, and beneficiary.
Deferred Compensation Insurance - Answers - Payment for services under any
employer-sponsored plan or arrangement that allows an employee (for tax-related
purposes) to defer income to the future. The employer is the policy owner and
beneficiary.
Split-Dollar Plan - Answers - a life policy in which employee and employer split the
premium payments and if the employee dies while working for this employer, the
employer receives the total of premiums paid. The remaining balance is paid to the
,employee's beneficiary. A certain period of time must elapse before an employee is
entitled to any of the cash value. Since an individual life insurance policy is being
issued, proof of insurability is required.
Classes of Life Insurance Plans - Answers - Plans include:
-Group, individual, ordinary life insurance, Industrial, permanent, term, participating,
non-participating, fixed, flexible, and variable.
Group Life Insurance - Answers - provided under a master contract for members of
qualified groups. Generally written as a one year renewable term plan without medical
examinations and at rates that are more favorable than individual policies. The
premiums are usually employer paid but may be paid on a shared basis with the
employee.
Individual Life Insurance - Answers - the greatest difference between group and
individual life insurance is the full latitude of ownership. Unlike group, individual policies
may be of any classification or type insurance. The policy owner may use the policy
proceeds to build equity (cash value).
Ordinary Life Insurance - Answers - Is defined as any type of life insurance that is not
group, industrial or government insurance. A large number of people are insured with an
ordinary life policy making this the larger portion of the life insurance in force today.
Evidence of insurability is required, and the underwriter considers age, sex, weight,
health, and tobacco use as this info. applies to the prospective insured. The grace
period is 30 days.
Permanent Life Insurance - Answers - This type of insurance is designed not only to
provide the beneficiary a death benefit if the insured dies, but also to provide the
insured/owner a build up of cash value from which they may borrow for emergency
expenses.
Term Life Insurance - Answers - this is known as "pure protection" insurance and is
less expensive than "permanent" life insurance. Used for death protection only.
Participating Life Insurance - Answers - A policy marketed by a mutually owned
company. The word participating means a dividend will be paid to the policyowner as
dividends are declared. The company is not required to issue only participating policies
(mutual companies are controlled by a board of directors voted into office by the
policyholders).
Non-Participating Life Insurance - Answers - A pure cost policy marketed by a
company owned by stockholders with all future values guaranteed. (Stockholders)
Fixed Life Insurance - Answers - the policy has a fixed amount of coverage, benefits
and premium. Without riders, future inflationary trends and money values will depreciate
the policy's effectiveness
, Flexible Life Insurance - Answers - Recently the marketing of new policies, such as
Universal and Variable Universal Life, has given the policyowner more flexibility in terms
of premiums, investment objectives and other policy benefits. These policies assist the
insured during inflationary periods with the natural flexibility of each policy.
Variable Life Insurance - Answers - A form of fixed-premium whole life insurance,
where the death benefit and cash value fluctuate according to fluctuations of the
separate account, with the policy owner accepting the risk. The separate accounts are
normally mutual funds and a security license is required. It is designed to provide a
hedge against inflation, and has a guaranteed minimum face amount.
Insurance Rider - Answers - written form attached to an insurance policy that alters the
policy's coverage
Entire Contact Provision - Answers - Consist of the policy, plus any riders, and a copy
of the application. All statements made by the insured are deemed representations and
not warranties.
Insuring Clause - Answers - Defines who is insured by whom and the amount of
benefit/coverage provided by the policy. It states the obligation of the insurer and the
risk that is considered: premature death.
Free Look (Right to Examine Period) - Answers - allows the insured/policyowner a
specified number of days following receipt of the policy to look it over and if dissatisfied
for any reason to return it for a full refund of premium (usually 10 days).
Consideration - Answers - Policy owner must pay something of value (premium) in
exchange for the insurer's promise to pay benefits.
Owner's Rights (Ownership) - Answers - Policyowners have the right to all cash
values, loans, dividends, and any other benefits. He/she may change the beneficiary,
assign the policy and exercise all privileges and options of ownership. The insured and
owner need not be the same person.
Changes (modifications) - Answers - must be in writing, signed by an executive officer
of the insurer, approved by the policy owner and made part of the entire contract. An
agent cannot alter or waive provisions.
Grace Period - Answers - The time period after the premium due date and before a
policy lapses. The policy is in force during this period and the Period Provision states
that if death occurs during this period, the insurer pays the death benefit, minus any
premiums or loans.
