Arizona Life Insurance Exam - Life Insurance Basics, Exams of Advanced Education

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Arizona Life Insurance Exam - Life

Insurance Basics

Beneficiary - A person who receives the benefits of an insurance policy Death Benefit - The amount paid upon the death of the insured in a life insurance policy Cash Value - Equity amount accumulated in permanent life insurance Estate - A person's net worth Illustrations - Presentation or depiction of nonguaranteed elements of a life insurance policy Life Insurance - Coverage on human lives Liquidation - Selling assets in order to raise capital (such as using cash value for capital needs) Lump-Sum - Payment of the entire benefit in one sum Minor - A person under legal age Solvency - The ability to meet financial obligations (an insurance company maintains enough assets to pay claims) Survivor Protection - Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death and this is called ________________ Estate Conservation - Life insurance proceeds may be used to pay inheritance taxes and federal estate taxes so that it is not necessary for the beneficiaries to sell off the assets which is ___________________ Estate Creation - The insured will have an estate worth the amount of the life policy upon the first paid premium which is ______________ Viatical Settlements - ____________________ allows someone living with a life- threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death Viator - The insured selling their life insurance in a viatical settlement

Viatical Settlement Provider - A person, other than a viator, that enters into a viatical settlement contract (the person buying the life insurance policy) Viatical Producer - A person who represents the viatical settlement provider Viatical Broker - A person who represents the viator Life Settlement - Any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party for some form of compensation, usually cash Uses of Life Insurance - 1. Survivor Protection

2. Estate Creation and Conservation
3. Liquidity and Cash Accumulation
4. Viatical Settlements and Life Settlements Human Life Value Approach - This approach gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. It calculates an individual's life value by looking at the insured's wage, inflation, the number of years to retirement, and the time value of money. Needs Approach - This approach is based on the predicted needs of a family after the premature death of the insured. It includes income, the amount of debt (including mortgage), investments, and other ongoing expenses. Lump-Sum Needs - 1. Costs associated with Death
5. Debt Cancellation
6. Emergency Reserve Funds
7. Education Funds
8. Retirement Fund
9. Bequests Costs associated with Death - The final medical expenses of the insured, funeral expenses, and day-to-day expenses family maintenance (also called Post Mortem) Debt Cancellation - Paying off debts of the insured, such as home mortgage or auto loans Emergency Reserve Funds - Paying for unexpected expenses following the death of the insured, such as travel and lodging for family members Education Funds - Paying for children's education expenses so they can remain in school, or for a surviving spouse to train for a skill to re-enter the workforce Retirement Funds - Using life insurance as a source of retirement income

employee (the wage increase is tax deductible to the employer and income taxable to the employee) Insurable Interest - To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of loss which is known as

15 - Minimum age possible for minors to contract life and disability insurance on their own lives and the lives of their immediate family is __ Stranger-Oriented Life Insurance - Life Insurance arrangement in which a person with no relationship to the insured purchase a life insurance policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies (Insurers take an aggressive legal stance against policies they suspect are of this type) Process of Issuing a Life Insurance Policy - 1. Solicitation and Sales Presentation

2. Underwriting: Field and Company
3. Premium Determination
4. Policy Issue and Delivery Solicitation and Sales Presentation - An attempt to persuade a person to buy an insurance policy, orally or in writing Deceptive Acts - Acts that describe life insurance policies incorrectly, such as guaranteeing benefits following a lapse in premiums, of making a statement that cannot be verified in the contract (should not say) Prohibited Acts - Acts that agents cannot say, such as calling a policy an investment plan, charter plan, or profits, falsely implying that dividends are guaranteed, or that the policyholder will receive special treatment not listed in the contract (cannot say) Buyer's Guide - A guide that provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance (must be provided to applicants prior to first premium being collected) Policy Summary - A written statement describing the features and elements of the policy being issued, includes the name and address of the agent, the full name and home office of the insurer, the generic name of the basic policy and each rider, the premium, cash value, dividend, surrender value and death benefit figures for specific policy years (insurers must maintain a copy for 3 years) Life and Disability Insurance Guaranty Fund - Protects the interests of the insureds and policyholders when insurers become insolvent, and helps detect and prevent insurance company impairments (established by the Department of Insurance) (there is a disability

account, a life insurance account, and an annuity account) (cannot say a policy is guaranteed by the existence of this) Interest-Adjusted Net Cost Method - Life Insurance Cost Comparison Method that considers the time value of money by applying an interest adjustment to yearly premiums and dividends Comparative Interest Rate Method - Rate of return that must be earned on a 'side fund' in a buy term invest the different plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time Life Insurance Surrender Cost Index - The index that determines the policy's guaranteed cash surrender value available to the policyowner at the end of the 10th and 20th policy year Suitability - An insurance producer may not recommend the purchase, sale, or exchange of a policy or annuity contract without the reasonable belief that the transaction is in the best interest of the insured which is called ___________. Replacement - Any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuity will be replaced through one of several ways Replacing Insurer - Company that issues the new policy in a replacement Existing Insurer - Company whose policy is being replaced in a replacement Duties of a Replacing Producer - 1. Present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer. A copy must be left with the applicant.

2. Obtain a list of all existing life insurance and/or annuity policies to be replaced (including policy numbers and companies)
3. Leave the applicant with the original or a copy of written or printed communications used for presentation to the applicant
4. Submit to the replacing insurance company a copy of the replacement notice with the application Duties of Replacing Insurers - The insurer must notify any existing insurer affected by the replacement within 5 business days of the receipt of any possible replacement, and notify the insured of the free-look period Duties of Existing Insurers - The existing insurer must be able to provide the Director with all notifications received by replacing insurers for at least 5 years and offer the insured information about their existing policy within 5 business days

Notice of Information Practices - Agents are required to disclose to a prospect the facts about information collection practices with the products that are proposing to sell, in the form of a ______________________________ Company Underwriting - The process of the insurance company reviewing the application and investigating other necessary information Attending Physician Statement - A statement from the applicant's physician which the insurance company may request and must pay for Paramedical Exam - A medical exam that includes blood work and a urine sample that is administered by a registered nurse or a paramedic, which the insurer must pay for Full Medical Exam - Occurs for applicants requesting higher amounts of coverage, if the application raised additional questions, or if the applicant is beyond a certain age which is an exam that investigates all aspects of the applicant's health, which the insurer must pay for Investigative Consumer Report - An inspection report on the applicant from an independent investigating firm or credit agency, which covers financial and moral information. The individual being investigated must be informed and have the option to request an interview instead. Medical Information Bureau - A membership corporation owned by member insurance companies. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information of individuals. Disclosure Authorization Notice - Provided to the applicant or insured when the insurer plans to seek and use information from investigators Unfair Discrimination - Discriminating in policy rates based solely on:

• Age or Gender
• Physical or Mental Impairment
• Blindness or Partial blindness
• Genetic Characteristics is known as ______________________. Rating Classification - The insured is placed into a _______________________ that their premiums and coverage is based off of Preferred - The highest risk classification for individuals who meet certain requirements and qualify for lower premiums due to superior physical condition Standard - The risk classification for non-smoking adults, they are the average risk

Substandard - The risk classification for smoking adults, or with poor physical condition, family history of disease, occupation, or dangerous habits, may have a higher premium Declined - The risk classification where applicants are uninsurable due to:

• No insurable interest
• Medically unacceptable
• Potential for loss is so great
• Insurance is prohibited by public policy Factors in Premium Determination - - Mortality
• Interest
• Expense Mortality - Ratio of the number of deaths in a specific population over a certain amount of time versus the number of living people in that population Mortality Table - Tool used by insurers that indicates the number of individuals within a specified group of individuals starting at a certain age, who are expected to be alive at a succeeding age Interest - This is earned on premiums by insurance companies and affects the premium determination Expense - Also known as the loading charge, this affects premium rates. This is the costs of the insurance company. Net Single Premium - Includes the mortality and interest components necessary to keep the policy in force until maturity. Mortality-Interest=__________________ Gross Annual Premium - The one year cost for mortality, plus the expense, minus the interest Net Premium+Expense=____________________ Frequency - How often the policyowner pays the premium, affects the price of the premium Higher _________ = Higher Premium Delivery Receipt - Document verifying when an agent hand delivers an individual policy or annuity to the policy owner Policy Review - The agent delivering the policy and answering any questions or concerns is the ____________