Iowa Life Insurance Exam with
Complete Solutions
Insurable Interest - ANS-The possibility of financial loss.
At time of application but not at time of loss - ANS-When must insurable interest exist
for life insurance?
At time of loss - ANS-When must insurable interest exist for property & casual
insurance?
Personal Uses for life insurance - ANS-Survivor protection
Estate creation
Cash accumulation
Liquidity
Estate conservation
Survivor Protection - ANS-Funds to help replace the financial losses resulting from
death for SURVIVORS who depend on income of insured
Estate Creation - ANS-The value of assets owned by the insured inCREAses at the
death of the insured in the amount of insurance owed
Cash Accumulation - ANS-Cash values can be used to provide retirement benefits and
can be used as collateral for loans and can provide death benefits even when payments
are stopped
Liquidity - ANS-When the insured dies, the contract makes cash in the amount of the
death benefit available IMMEDIATELY
Estate Conservation - ANS-Without a cash source, the estate may be forced to sell
assets at "fire sale" prices to accumulate cash to meet these debt and tax obligations
Human Life Value - ANS-The amount of income earning ability, which would be lost by
the insured's death. This value is established by taking into account the potential
insured's: Net annual salary, annual expenses, number of working years expected, and
the value of the dollar over time
How 'Needs Approach' works - ANS-Agent assumes death is immediate then:
calculates all financial needs of the client, subtracts all assets of the insured,
,recommends life insurance in the amount needed to fill in the gaps between needs and
assets
Lump sum financial needs upon death: - ANS-Last expenses,
Emergency fund for survivors
A fund for readjustment
Money to pay estate and inheritance taxes
Mortgage payoff fund
Education fund
Income needs: - ANS-Replacing salary or lost services of the deceased
Social security income "blackout" period
Liquidation vs Retention of Capital
Social Security "BLACKOUT" Period - ANS-The period between the loss of survivor
benefit and beginning of retirement benefit
Business uses of life insurance: - ANS-Key person
Buy-Sell Agreement policy
Executive Bonuses
Key person life insurance policy - ANS-A life insurance policy purchased by an
employer on the life of a **key employee** - benefits are paid to employer
Buy-Sell Agreement Policy - ANS-Provides the funds for partners, or shareholders, of a
business to buy out interest of deceased partner or shareholder
Executive Bonuses Policy - ANS-Company purchases life insurance and names itself as
beneficiary. If employee dies before retirement, life insurance benefit is paid to the
employer who pays the employee's heirs. If employee lives to retirement, policy is
**cashed in to pay the deferred BONUS**
Individual Insurance - ANS-Owned by the INDIVIDUAL; evidence is required; premiums
are based on individual age
Group Insurance - ANS-Owned by the employer; evidence is NOT required; premiums
are based on average age
Ordinary Insurance - ANS-Premiums are payable until death or **age 100**. The
amount of the premium will NEVER increase
Industrial Insurance - ANS-Sold in smaller amounts of protection. Premiums are
collected on weekly or monthly basis
Permanent Policy - ANS-Usually a **lifetime** policy which offers cash value in addition
to death benefits
, Term Policy - ANS-Offers only death benefits and lasts for a **specific period** of time
Participating Insurance - ANS-Pays a dividend; issued by a mutual insurance company
Non-participating insurance - ANS-Does NOT pay a dividend; issued by a stock
insurance company
Fixed Product - ANS-These DO NOT fluctuate with stock market. Insurer accepts all
risks of investment losses
Variable Products - ANS-Invested in some type of security; their values **fluctuate**
based upon stock market performance
Formula for Life Rates - ANS-Mortality - Interest = Net Premium + Loading (expenses) =
Gross Premium
Mortality - ANS-Predicting the number in an age group that will die in a 12 month period
Interest - ANS-**RATE of earnings** the actuary will need to assume will be earned on
the premiums paid to the life insurance
Salary
Office Expenses
Commission - ANS-Expenses include:
(**hint** S.O.C.)
Net Single Premium - ANS-Takes into account ONLY interest and mortality factors
Gross Annual Premium - ANS-Merely adds the load (expense) factor to the net single
premium
Monthly
Quarterly
Semi-Annually
Yearly - ANS-Premium Modes:
Advertisements - ANS-Must meet stringent state requirements of accuracy and
truthfulness and clarity. Words like "investment", "profit", "savings", and "retirement
plan" are PROHIBITED. "Vanishing Deductible" must be associated with guaranteed
rates. Paid endorsements must be disclaimed
Life and Health Guarantee Association - ANS-Advertising by the insurer that suggests
the insured is protected from financial loss by the Life and Health Guaranty Association
is forbidden by state law
Complete Solutions
Insurable Interest - ANS-The possibility of financial loss.
At time of application but not at time of loss - ANS-When must insurable interest exist
for life insurance?
At time of loss - ANS-When must insurable interest exist for property & casual
insurance?
Personal Uses for life insurance - ANS-Survivor protection
Estate creation
Cash accumulation
Liquidity
Estate conservation
Survivor Protection - ANS-Funds to help replace the financial losses resulting from
death for SURVIVORS who depend on income of insured
Estate Creation - ANS-The value of assets owned by the insured inCREAses at the
death of the insured in the amount of insurance owed
Cash Accumulation - ANS-Cash values can be used to provide retirement benefits and
can be used as collateral for loans and can provide death benefits even when payments
are stopped
Liquidity - ANS-When the insured dies, the contract makes cash in the amount of the
death benefit available IMMEDIATELY
Estate Conservation - ANS-Without a cash source, the estate may be forced to sell
assets at "fire sale" prices to accumulate cash to meet these debt and tax obligations
Human Life Value - ANS-The amount of income earning ability, which would be lost by
the insured's death. This value is established by taking into account the potential
insured's: Net annual salary, annual expenses, number of working years expected, and
the value of the dollar over time
How 'Needs Approach' works - ANS-Agent assumes death is immediate then:
calculates all financial needs of the client, subtracts all assets of the insured,
,recommends life insurance in the amount needed to fill in the gaps between needs and
assets
Lump sum financial needs upon death: - ANS-Last expenses,
Emergency fund for survivors
A fund for readjustment
Money to pay estate and inheritance taxes
Mortgage payoff fund
Education fund
Income needs: - ANS-Replacing salary or lost services of the deceased
Social security income "blackout" period
Liquidation vs Retention of Capital
Social Security "BLACKOUT" Period - ANS-The period between the loss of survivor
benefit and beginning of retirement benefit
Business uses of life insurance: - ANS-Key person
Buy-Sell Agreement policy
Executive Bonuses
Key person life insurance policy - ANS-A life insurance policy purchased by an
employer on the life of a **key employee** - benefits are paid to employer
Buy-Sell Agreement Policy - ANS-Provides the funds for partners, or shareholders, of a
business to buy out interest of deceased partner or shareholder
Executive Bonuses Policy - ANS-Company purchases life insurance and names itself as
beneficiary. If employee dies before retirement, life insurance benefit is paid to the
employer who pays the employee's heirs. If employee lives to retirement, policy is
**cashed in to pay the deferred BONUS**
Individual Insurance - ANS-Owned by the INDIVIDUAL; evidence is required; premiums
are based on individual age
Group Insurance - ANS-Owned by the employer; evidence is NOT required; premiums
are based on average age
Ordinary Insurance - ANS-Premiums are payable until death or **age 100**. The
amount of the premium will NEVER increase
Industrial Insurance - ANS-Sold in smaller amounts of protection. Premiums are
collected on weekly or monthly basis
Permanent Policy - ANS-Usually a **lifetime** policy which offers cash value in addition
to death benefits
, Term Policy - ANS-Offers only death benefits and lasts for a **specific period** of time
Participating Insurance - ANS-Pays a dividend; issued by a mutual insurance company
Non-participating insurance - ANS-Does NOT pay a dividend; issued by a stock
insurance company
Fixed Product - ANS-These DO NOT fluctuate with stock market. Insurer accepts all
risks of investment losses
Variable Products - ANS-Invested in some type of security; their values **fluctuate**
based upon stock market performance
Formula for Life Rates - ANS-Mortality - Interest = Net Premium + Loading (expenses) =
Gross Premium
Mortality - ANS-Predicting the number in an age group that will die in a 12 month period
Interest - ANS-**RATE of earnings** the actuary will need to assume will be earned on
the premiums paid to the life insurance
Salary
Office Expenses
Commission - ANS-Expenses include:
(**hint** S.O.C.)
Net Single Premium - ANS-Takes into account ONLY interest and mortality factors
Gross Annual Premium - ANS-Merely adds the load (expense) factor to the net single
premium
Monthly
Quarterly
Semi-Annually
Yearly - ANS-Premium Modes:
Advertisements - ANS-Must meet stringent state requirements of accuracy and
truthfulness and clarity. Words like "investment", "profit", "savings", and "retirement
plan" are PROHIBITED. "Vanishing Deductible" must be associated with guaranteed
rates. Paid endorsements must be disclaimed
Life and Health Guarantee Association - ANS-Advertising by the insurer that suggests
the insured is protected from financial loss by the Life and Health Guaranty Association
is forbidden by state law
