Fundamentals of Insurance Chapter 10 Exam Questions and Correct Answers Latest Update 2024
(Already Passed)
financial needs analysis - Answers an approach that determines how much life insurance is needed to
provide a principal sum that will be liquidated to meet survivor's lump sum and ongoing income needs
human life value approach - Answers an approach that measures a person's human life value in terms of
the present value of that portion of estimated future earnings which, if he or she lives long enough to
achieve all the earnings, will be used to support support dependents
multiple of income approach - Answers a simplistic approach that determines life insurance needs based
on the client's current annual income
capital needs analysis - Answers an approach that determines how much life insurance is needed to
provide a principal sum adequate to fund survivor's needs while preserving the principal
surrender cost index - Answers indicates the cost of surrendering the policy for the cash value at some
future point in time, such as 20 years.
net payment cost index - Answers interest adjusted cost index, evaluates the cost of insurance
protection based on the assumption that the insured dies a the end of the policy's 20th year.
illustration - Answers a presentation or depiction that includes non-guaranteed elements of life
insurance policy over a period years
replacement - Answers refers to the process of replacing an existing life insurance policy with a new
policy, a move that might or might not be advantageous to the policy-owner; agents and insurers must
avoid harm to policyowners
1035 exchange - Answers IRS Code that permits a policyowner who exchanges one insurance contract
for another in a like-kind exchange to receive certain tax advantages
rate-up age method - Answers dealing with substandard applicants is often used when the extra
mortality is decidedly increasing and will continue to increase indefinitely
extra percentage tables - Answers classify applicants into groups based on the expected percentage of
standard mortality and charge premiums that reflect the appropriate increase in mortality
flat extra premium - Answers method of underwriting for substandard applicants; assess a flat extra free
per $1000 of coverage
lien - Answers reduction in coverage for a period of time when an insured has a temporary and
decreasing convalescence or serious illness from which they are expected to recover; allows a person to
be insured despite poor health; policy issued at face value but specifies reduced benefits for a period of
time
, viatical settlement - Answers involves the sale of terminally ill insured's life insurance policy exchange
for a percentage of the face amount, the viator receives a lump-sum cash settlement from the
settlement providor; 40 to 80 percent of the death benefit
life settlement - Answers involves transferring the ownership of life insurance policy to a third party
investor, much like a viatical settlement, but in cases where the insured is not chronically or terminally
ill; provide relatively new way for seniors to convert their life insurance policies into cash.
stranger-originated life insurance (STOLI) - Answers speculators initiate coverage on an older person and
fund the premium payments with intentions of profiting upon the death of the insured. speculators
violate the intent behind the insurable interest laws,
key employee life insurance - Answers used by closely held businesses, inteneded to cover the losses to
the business of the key employees expertise or the increased cost associated with hiring a replacement
buy-sell agreement - Answers buy sell agreement ensures that the estate can sell its interest in a closely
held business; binds the owner of a business interest to sell at his or her death, and a designated buyer
to buy at that time, protects the business and the estate of the owner
entity agreement - Answers used in partnerships or closely held corporations; firm itself enters into an
agreement with each owner specifying that on the death of an owner the firm will buy the business
interest of the deceased and the deceased's estate will sell it
cross-purchase agreement - Answers under such an agreement, each partner or stockholder is both a
seller and a purchaser, provides that, on the death of one owner, his or her estate will sell the
deceased's interest and the other owners will buy it. To fund the agreement, each owner is the
beneficiary of a life insurance policy on the other owners
Sec. 79 plan - Answers group term life insurance plan, provided by an employer to a group of
participating employees, designed to receive a favorable federal income tax treatment; allow the
employer a tax deduction for premium payments on behalf of a participant
split-dollar life insurance - Answers form of life insurance frequently used prior to 2003 as an executive
compensation benefit; corporation and employee split a life insurance policy covering the life of the
employee; The corporation contributes an amount equal to the annual increase in the cash surender
value, while the executive pays the remainder of the annual premium; Sarbanes-Oxley Act 2002,
prohibits a publicly traded company from using corporate funds to make personal loans to its directors
or officers
transfer-for-value rule - Answers exception to general rule of exclusion of life insurance death proceeds
from federal taxation, rule provides that if a policy is transferred from one owner to another for valuable
consideration, the income tax exclusion is lost; when insured dies, beneficiary only can recover tax free
amounts the transferee owner paid for the policy plus any premiums subsequently paid
(Already Passed)
financial needs analysis - Answers an approach that determines how much life insurance is needed to
provide a principal sum that will be liquidated to meet survivor's lump sum and ongoing income needs
human life value approach - Answers an approach that measures a person's human life value in terms of
the present value of that portion of estimated future earnings which, if he or she lives long enough to
achieve all the earnings, will be used to support support dependents
multiple of income approach - Answers a simplistic approach that determines life insurance needs based
on the client's current annual income
capital needs analysis - Answers an approach that determines how much life insurance is needed to
provide a principal sum adequate to fund survivor's needs while preserving the principal
surrender cost index - Answers indicates the cost of surrendering the policy for the cash value at some
future point in time, such as 20 years.
net payment cost index - Answers interest adjusted cost index, evaluates the cost of insurance
protection based on the assumption that the insured dies a the end of the policy's 20th year.
illustration - Answers a presentation or depiction that includes non-guaranteed elements of life
insurance policy over a period years
replacement - Answers refers to the process of replacing an existing life insurance policy with a new
policy, a move that might or might not be advantageous to the policy-owner; agents and insurers must
avoid harm to policyowners
1035 exchange - Answers IRS Code that permits a policyowner who exchanges one insurance contract
for another in a like-kind exchange to receive certain tax advantages
rate-up age method - Answers dealing with substandard applicants is often used when the extra
mortality is decidedly increasing and will continue to increase indefinitely
extra percentage tables - Answers classify applicants into groups based on the expected percentage of
standard mortality and charge premiums that reflect the appropriate increase in mortality
flat extra premium - Answers method of underwriting for substandard applicants; assess a flat extra free
per $1000 of coverage
lien - Answers reduction in coverage for a period of time when an insured has a temporary and
decreasing convalescence or serious illness from which they are expected to recover; allows a person to
be insured despite poor health; policy issued at face value but specifies reduced benefits for a period of
time
, viatical settlement - Answers involves the sale of terminally ill insured's life insurance policy exchange
for a percentage of the face amount, the viator receives a lump-sum cash settlement from the
settlement providor; 40 to 80 percent of the death benefit
life settlement - Answers involves transferring the ownership of life insurance policy to a third party
investor, much like a viatical settlement, but in cases where the insured is not chronically or terminally
ill; provide relatively new way for seniors to convert their life insurance policies into cash.
stranger-originated life insurance (STOLI) - Answers speculators initiate coverage on an older person and
fund the premium payments with intentions of profiting upon the death of the insured. speculators
violate the intent behind the insurable interest laws,
key employee life insurance - Answers used by closely held businesses, inteneded to cover the losses to
the business of the key employees expertise or the increased cost associated with hiring a replacement
buy-sell agreement - Answers buy sell agreement ensures that the estate can sell its interest in a closely
held business; binds the owner of a business interest to sell at his or her death, and a designated buyer
to buy at that time, protects the business and the estate of the owner
entity agreement - Answers used in partnerships or closely held corporations; firm itself enters into an
agreement with each owner specifying that on the death of an owner the firm will buy the business
interest of the deceased and the deceased's estate will sell it
cross-purchase agreement - Answers under such an agreement, each partner or stockholder is both a
seller and a purchaser, provides that, on the death of one owner, his or her estate will sell the
deceased's interest and the other owners will buy it. To fund the agreement, each owner is the
beneficiary of a life insurance policy on the other owners
Sec. 79 plan - Answers group term life insurance plan, provided by an employer to a group of
participating employees, designed to receive a favorable federal income tax treatment; allow the
employer a tax deduction for premium payments on behalf of a participant
split-dollar life insurance - Answers form of life insurance frequently used prior to 2003 as an executive
compensation benefit; corporation and employee split a life insurance policy covering the life of the
employee; The corporation contributes an amount equal to the annual increase in the cash surender
value, while the executive pays the remainder of the annual premium; Sarbanes-Oxley Act 2002,
prohibits a publicly traded company from using corporate funds to make personal loans to its directors
or officers
transfer-for-value rule - Answers exception to general rule of exclusion of life insurance death proceeds
from federal taxation, rule provides that if a policy is transferred from one owner to another for valuable
consideration, the income tax exclusion is lost; when insured dies, beneficiary only can recover tax free
amounts the transferee owner paid for the policy plus any premiums subsequently paid
