Life Insurance Exam-Illinois |161
Questions and Answers
Pooling of Risks - -A large group of people contribute money to a fund out of
which their losses can be paid
- Policyowner - -is the person or org that applies for the policy and pays the
premium
- Actuarial Tables - -Are statistical tables that are used when calculating
premium rates and mortality loss reserves
- Life Insurance Policies transfer: - -financial risks of premature death on a
defined amount
- Loss of income - -the face amount of life insurance is determined as a
multiple of income
- Life annuity - -contract which is issued by a life insurance company
protects an individual against the financial risk of outliving a normal life
expectancy according to the mortality actuarial tables and running out of
money in old age
- Life annuity - -guarantees monthly income benefits to the annuitant for
the rest of his/her life no matter how long he/she lives
- Insurable interest - -a person must be in a position where he/she will lose
money should loss occur only at the time the policy is issued
- Who must have insurable interest? - -the policy owner; he/she will lose
money should hte insured die prematurely
- tax qualified plans - -contributions can be deducted
- non qualified plans - -contributions cannot be deducted
- tax deferred plans - -tax on the interest and/or earnings is postponed as it
compounds and accumulates until it is withdrawn
- tax free - -no tax on benefits
- cost basis - -total contributions made to the plan
, - Tax: premiums paid on individual life insurance policies... - -cannot be
deducted (non-qualified)
- Tax: the benefits paid to the beneficiary at the insured's death... - -is
usually not taxed (tax free)
- Participating policy - -pays a dividend
- Tax: dividends paid to the policyowner on participating policies... - -are
usually not taxed (tax free)
- Modified Endowment Contract - -The IRS has written rules that define
when a life insurance policy does not have a real, valid life insurance purpose
and is in substance an investment or savings plan
- If a cash value life insurance policy does not have a valid life insurance
purpose, the IRS classifies it as a - -modified endowment contract
- Underwriter - -is an insurance company employee who reviews
applications and additional information and decides whether the applicant is
acceptable and what the correct premium rate should be
- Application includes (7 items) - -age, sex, occupation, dangerous
recreational activities, aviation, smoking, agent's report
- Medical reports can be (3 items) - -health questionare, paramedic
examiner's report, and physician's report
- Who completes the health questionnaire? - -the agent and the applicant
with questions about applicant's health history as well as the applicant's
parents' health history
- Errors and changes on the application - -if an error on an application
occurs, underwriter may require that it be correct and changes must be
approved and initialed by the applicant
- Medical Information Bureau Report (MIB) - -it is a CLEARINGHOUSE for
medical information for insurance companies that belong to it
- Inspection Report - -does by an outside firm to verity that the producer
completed the application accurately and completely and to determine if the
applicant has any moral or character risks
- Fair Credit Reporting Act (4 items) - -1. applicant has a right to be advised
that there may be information collected from outside sources
Questions and Answers
Pooling of Risks - -A large group of people contribute money to a fund out of
which their losses can be paid
- Policyowner - -is the person or org that applies for the policy and pays the
premium
- Actuarial Tables - -Are statistical tables that are used when calculating
premium rates and mortality loss reserves
- Life Insurance Policies transfer: - -financial risks of premature death on a
defined amount
- Loss of income - -the face amount of life insurance is determined as a
multiple of income
- Life annuity - -contract which is issued by a life insurance company
protects an individual against the financial risk of outliving a normal life
expectancy according to the mortality actuarial tables and running out of
money in old age
- Life annuity - -guarantees monthly income benefits to the annuitant for
the rest of his/her life no matter how long he/she lives
- Insurable interest - -a person must be in a position where he/she will lose
money should loss occur only at the time the policy is issued
- Who must have insurable interest? - -the policy owner; he/she will lose
money should hte insured die prematurely
- tax qualified plans - -contributions can be deducted
- non qualified plans - -contributions cannot be deducted
- tax deferred plans - -tax on the interest and/or earnings is postponed as it
compounds and accumulates until it is withdrawn
- tax free - -no tax on benefits
- cost basis - -total contributions made to the plan
, - Tax: premiums paid on individual life insurance policies... - -cannot be
deducted (non-qualified)
- Tax: the benefits paid to the beneficiary at the insured's death... - -is
usually not taxed (tax free)
- Participating policy - -pays a dividend
- Tax: dividends paid to the policyowner on participating policies... - -are
usually not taxed (tax free)
- Modified Endowment Contract - -The IRS has written rules that define
when a life insurance policy does not have a real, valid life insurance purpose
and is in substance an investment or savings plan
- If a cash value life insurance policy does not have a valid life insurance
purpose, the IRS classifies it as a - -modified endowment contract
- Underwriter - -is an insurance company employee who reviews
applications and additional information and decides whether the applicant is
acceptable and what the correct premium rate should be
- Application includes (7 items) - -age, sex, occupation, dangerous
recreational activities, aviation, smoking, agent's report
- Medical reports can be (3 items) - -health questionare, paramedic
examiner's report, and physician's report
- Who completes the health questionnaire? - -the agent and the applicant
with questions about applicant's health history as well as the applicant's
parents' health history
- Errors and changes on the application - -if an error on an application
occurs, underwriter may require that it be correct and changes must be
approved and initialed by the applicant
- Medical Information Bureau Report (MIB) - -it is a CLEARINGHOUSE for
medical information for insurance companies that belong to it
- Inspection Report - -does by an outside firm to verity that the producer
completed the application accurately and completely and to determine if the
applicant has any moral or character risks
- Fair Credit Reporting Act (4 items) - -1. applicant has a right to be advised
that there may be information collected from outside sources
