LIFE AND HEALTH INSURANCE EXAM QUESTIONS WITH
COMPLETE SOLUTION
Concept of insurance
The transfer of risk from one party to another through a legal contract.
Law of Large Numbers
The larger the number of risks insured in the same risk pool; the more
predictable losses become.
Peril
An immediate, specific event that causes a loss.
Loss
An unintended, unforeseen reduction, or destruction of financial or
economic value.
Hazard
Creates an increased possibility that a peril (a cause of a loss) will actually
occur.
Occurrence
Is any event that causes a loss.
Risk
Risk is defined as thepotential or uncertainty for loss.
Speculative risk
A situation in which either profit or loss is possible, not insured.
Industrial life insurance
Issues very small face amounts, such as $1,000 or $2,000. Premiums are
paid weekly and collected by debit agents. They were designed for burial
coverage.
Ordinary life insurance
Life insurance of commercial companies not issued on the weekly premium
basis. It is made up of several types of individual life insurance, such as
temporary (term), permanent (whole).
Group life insurance
Insurance written for members of a group, such as a place of employment,
association, or a union. Coverage is provided to the members of that group
under one master contract. The group is underwritten as a whole, not on
each individual member. One of the benefits of group life coverage is
usually there is no evidence of insurability required.
Term life insurance
,Life insurance that pays a death benefit if the policyholder dies within a
specific time period but has no remaining value at the end of this time.
Whole life insurance
Sometimes called straight life insurance or ordinary life insurance; can
provide lifetime insurance coverage; in this case, fixed premiums are paid
for life; pays interest on the cash value portion with a guaranteed minimum
interest rate during life of the contract.
Joint survivor or last survivor life policies
Cover the lives of two individuals and saves on premium costs by
averaging the ages of the two insureds. Joint Life Survivor or Last Survivor
policies only pay the death benefit upon the death of the last insured
person. For example, say B and M purchase a joint life survivor policy. If B
were to die first and then M died 10 years later, no benefits would be paid
out from the policy until M died. A Joint Life and Survivor policy covers two
lives but only pays benefits after the death of the last insured.
Family maintenance policy
Pays a monthly income from the date of death of the insured to the end of
the preselected period.
Family income policy
Combines Whole Life insurance with a Decreasing Term
Rider also written on the same person.
Adjustable life policy
Whole life insurance policy, but you can change your policy as your needs
change. You can change your premium payments to increase or decrease
coverage.
Universal life insurance policy
Incorporates flexible premiums and an adjustable death benefit. The
investment gains from a Universal Life Policy usually go toward the cash
value. The policy owner can use the cash value to manipulate the flexible
aspects of a universal life insurance policy. A customer who wants a policy
that gives them the most options and the most control would be looking for
a Universal Life Policy. Universal policies use gains to fund the cash value
and give the policy owner options for flexible premiums and adjustable
death benefits.
Variable Life Insurance
Life insurance in which the benefits are a function of the returns being
generated on the investments selected by the policyholder.
Equity index universal life insurance
, Combines most of the features, benefits, and security of traditional life
insurance with the potential of earned interest based on the upward
movement of an equity index.
Cash value
The equity amount or "savings" accumulation in a whole life policy.
Endowment policy
Is a contract providing for payment of the face amount at the end of a fixed
period, at a specified age of the insured, or at the insured's death before
the end of the stated period.
Face amount plus cash value policy
Contract that promises to pay at the insured's death the face amount of the
policy plus a sum equal to the policy's cash value.
Juvenile Insurance
Written on the lives of children who are within specified age limits and
generally under parental control.
Non-medical life insurance
Typically does not require a medical exam and tends to be more expensive
than medically underwritten policies. The insurer will average out
everyone's risk and charge accordingly. Although insurers typically will not
require a medical exam, they will still inquire about the applicant's medical
history and lifestyle.
Target premium
Is a suggested premium used in Universal Life policies. It does not
guarantee there will be adequate funds to maintain the policy to any time,
especially to life. It may give an indication of what will be needed (under
conservative estimates), to maintain the policy.
Accidental death benefit rider
Pays a multiple of the death proceeds if the cause of death is a covered
accidental event.
Accelerated benefits rider
Allows the insured to receive a portion of the death benefit before death if
the insured has a terminal illness and is expected to die within 1-2 years.
Whatever amount is withdrawn in an accelerated death benefit will
decrease the death benefit when death occurs.
Accumulate interest options
Allows dividends to accumulate interest. Interest is the ONLY thing you can
be charged tax on.
Automatic premium loan provision
An overdue premium is automatically borrowed from the cash value after
the grace period expires.
COMPLETE SOLUTION
Concept of insurance
The transfer of risk from one party to another through a legal contract.
Law of Large Numbers
The larger the number of risks insured in the same risk pool; the more
predictable losses become.
Peril
An immediate, specific event that causes a loss.
Loss
An unintended, unforeseen reduction, or destruction of financial or
economic value.
Hazard
Creates an increased possibility that a peril (a cause of a loss) will actually
occur.
Occurrence
Is any event that causes a loss.
Risk
Risk is defined as thepotential or uncertainty for loss.
Speculative risk
A situation in which either profit or loss is possible, not insured.
Industrial life insurance
Issues very small face amounts, such as $1,000 or $2,000. Premiums are
paid weekly and collected by debit agents. They were designed for burial
coverage.
Ordinary life insurance
Life insurance of commercial companies not issued on the weekly premium
basis. It is made up of several types of individual life insurance, such as
temporary (term), permanent (whole).
Group life insurance
Insurance written for members of a group, such as a place of employment,
association, or a union. Coverage is provided to the members of that group
under one master contract. The group is underwritten as a whole, not on
each individual member. One of the benefits of group life coverage is
usually there is no evidence of insurability required.
Term life insurance
,Life insurance that pays a death benefit if the policyholder dies within a
specific time period but has no remaining value at the end of this time.
Whole life insurance
Sometimes called straight life insurance or ordinary life insurance; can
provide lifetime insurance coverage; in this case, fixed premiums are paid
for life; pays interest on the cash value portion with a guaranteed minimum
interest rate during life of the contract.
Joint survivor or last survivor life policies
Cover the lives of two individuals and saves on premium costs by
averaging the ages of the two insureds. Joint Life Survivor or Last Survivor
policies only pay the death benefit upon the death of the last insured
person. For example, say B and M purchase a joint life survivor policy. If B
were to die first and then M died 10 years later, no benefits would be paid
out from the policy until M died. A Joint Life and Survivor policy covers two
lives but only pays benefits after the death of the last insured.
Family maintenance policy
Pays a monthly income from the date of death of the insured to the end of
the preselected period.
Family income policy
Combines Whole Life insurance with a Decreasing Term
Rider also written on the same person.
Adjustable life policy
Whole life insurance policy, but you can change your policy as your needs
change. You can change your premium payments to increase or decrease
coverage.
Universal life insurance policy
Incorporates flexible premiums and an adjustable death benefit. The
investment gains from a Universal Life Policy usually go toward the cash
value. The policy owner can use the cash value to manipulate the flexible
aspects of a universal life insurance policy. A customer who wants a policy
that gives them the most options and the most control would be looking for
a Universal Life Policy. Universal policies use gains to fund the cash value
and give the policy owner options for flexible premiums and adjustable
death benefits.
Variable Life Insurance
Life insurance in which the benefits are a function of the returns being
generated on the investments selected by the policyholder.
Equity index universal life insurance
, Combines most of the features, benefits, and security of traditional life
insurance with the potential of earned interest based on the upward
movement of an equity index.
Cash value
The equity amount or "savings" accumulation in a whole life policy.
Endowment policy
Is a contract providing for payment of the face amount at the end of a fixed
period, at a specified age of the insured, or at the insured's death before
the end of the stated period.
Face amount plus cash value policy
Contract that promises to pay at the insured's death the face amount of the
policy plus a sum equal to the policy's cash value.
Juvenile Insurance
Written on the lives of children who are within specified age limits and
generally under parental control.
Non-medical life insurance
Typically does not require a medical exam and tends to be more expensive
than medically underwritten policies. The insurer will average out
everyone's risk and charge accordingly. Although insurers typically will not
require a medical exam, they will still inquire about the applicant's medical
history and lifestyle.
Target premium
Is a suggested premium used in Universal Life policies. It does not
guarantee there will be adequate funds to maintain the policy to any time,
especially to life. It may give an indication of what will be needed (under
conservative estimates), to maintain the policy.
Accidental death benefit rider
Pays a multiple of the death proceeds if the cause of death is a covered
accidental event.
Accelerated benefits rider
Allows the insured to receive a portion of the death benefit before death if
the insured has a terminal illness and is expected to die within 1-2 years.
Whatever amount is withdrawn in an accelerated death benefit will
decrease the death benefit when death occurs.
Accumulate interest options
Allows dividends to accumulate interest. Interest is the ONLY thing you can
be charged tax on.
Automatic premium loan provision
An overdue premium is automatically borrowed from the cash value after
the grace period expires.
