Primerica - Life Insurance Exam with Complete Solutions

What is insurance? - ANSWER-Transfer of the possibility of loss (risk) to an insurance company. What is a risk? - ANSWER-The uncertainty of financial loss There are two types of loss - ANSWER-Pure and Speculative Which type of loss is insurable? - ANSWER-Pure Why is Pure loss insurable? - ANSWER-Loss must be financial and uncertain. No financial gain can occur. What causes loss? - ANSWER-Peril; such as fire, accident or flood What causes a peril? - ANSWER-A hazard What is a hazard? - ANSWER-Increases the likelihood of a loss; such as smoking What is the concept called, that predicts the appropriate number of deaths that should occur within a similar group of people (exposure) within a given period of time? - ANSWER-Law of Large Numbers What is adverse selection? - ANSWER-People in bad health keep their policy in force longer than people in good health As an agent, you are a legal representative of the ______________. - ANSWER-company The person who pays for the policy of insurance is the - ANSWER-policy owner The _____________ is the person who receives the benefits from the insurance policy - ANSWER-beneficiary The person covered by the insurance policy is the ____________. - ANSWER-insured The insurance company is the ___________. - ANSWER-insurer To buy insurance, the policyowner must have ______________ in the insured at the _________________________________________________. - ANSWER-insurable interest; time of purchase but not at time of insured's death. The 5 recognizable areas of insurable interest are ___________. - ANSWER-1. your own life 2. family members 3. business partners 4. key employee cial obligation. What is person called who holds a position of special trust and confidence? - ANSWER-Fiduciary Waiver vs. Estoppel - ANSWER-Waiver is when you voluntarily give up your legal right. Estoppel is when you are denied the right to enforce a legal right that you have previously given up. Estoppel AKA The Loss of Defense What are the business uses of life insurance? - ANSWER-1. Key Employee 2. Buy and Sell Agreement 3. Cross Purchase Plan 4. Split Dollar Plan Key Employee - ANSWER-Company is owner and Beneficiary Employee is Insured Premium NOT tax deductible to Company Third Party Ownership Buy and Sell Agreement - ANSWER-NOT INSURANCE - A legal document that states WHO may purchase a deceased partners share of the business and for HOW MUCH MONEY Life Insurance can be used to fund a Buy and Sell Agreement Drawn up by an Attorney Cross Purchase Plan - ANSWER-Take the Company Value and divide by number of Owners Each Owner buys a policy on the other Owners, naming himself as beneficiary. Split Dollar Plan - ANSWER-Employee and Owner share in Premium and DB Third Party Ownership What is meant by third party ownership - ANSWER-Policy is owned by someone other than the Insured. A company with an employee who could not be replaced without considerable expense might consider buying a____________________ life insurance policy on that individual - ANSWER-key employee With a Key Employee Life Insurance Policy, what rights does the Key Employee have? - ANSWER-None, Employer is Owner and Beneficiary What is the legal document that defines who may buy a deceased partners share of the business and for how much? - ANSWER-Buy and Sell Agreement, a legal document. Can be funded with Life Insurance If Joe and Moe have a Cross Purchase Plan, are 50/50 owners, and the company is valued at $200,000, how much insurance should each buy, and who is the Policy Owner and the Insured? - ANSWER-Joe, Owner, Moe insured, $100,000 / Moe, Owner, Joe insured, $100,000 Two business partners own life insurance on each other. If one partner dies, which of the following contracts will allow the surviving partner to use the death benefit to purchase the deceased's business interests? - ANSWER-A. Buy-Sell Agreement B. Keyemployeelifeinsurance C. Survivorshiplifeinsurance D. Joint and Survivorship annuity All the following would have an insurable interest in an insured EXCEPT: - ANSWER-A. Your spouse B. Your child C. Your mother D. Your close friend Who must sign the Application? Who can make changes to the Application? - ANSWER-The agent (producer), applicant and the policyowner must sign the application. You can never use white out to change an application, applicant must initial change. The agent is the field underwriter. What are the three parts of an application? - ANSWER-General Information, medical information and the agent's report. What is the agent's responsibility as a field underwriter? - ANSWER-Properly solicit applicants, complete application, obtain required signatures, collect initial premium, issue receipt and deliver the policy. When does insurable interest have to exist? - ANSWER-Time of Application, when the agent and applicant complete the application Does the beneficiary have to have Insurable Interest? - ANSWER-No Statements made by an applicant that are true to the best of his/her knowledge. - ANSWER-Representations _____________ is a false statement given to the insurer with the intent to defraud. - ANSWER-Misinterpretation