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Life Insurance Exam (Texas) Questions
with Answers 2024
Insurance (General concept) ✔ - transfers the risk of loss from an individual to an insurer
- based on the principle of indemnity
- based on the principle of risk (risk pooling) insurable interest (General Concept) ✔ - must exist at the time of the application
- insuring one's own life, family member, or a business partner Solicitation and sales presentation ✔ - illustration- presentation of nonguaranteed elements
- buyer's guide is generic information about life polices which must be provided at the time of application
- policy summary is a description of features and benefits of the policy being issued and must be provided when the policy is delivered. Underwriting (Field underwriting (by agent) ✔ - application completed and signed
- agent's report: agent's observation about the application that can assist in underwriting -premiums with application and conditional receipts underwriting ( company underwriting) ✔ - multiple sources of information: applications, consumer reports, MIB (Medical Information Burea)
- Risk Classification: 3 types of risk : standard, substandard, preferred Underwriting (Federal Regulation) ✔ - Fair Credit Reporting Act: protect consumers against circulations of inaccurate or obsolete information
- USE PATRIOT Act/ Anti-money Laundering and Suspicious Activity Reports Rules Premium Determination ✔ - 3 key Factors for life insurance: mortality, interest, and expense
- Mode: the more frequently premium is paid, the higher the premium Policy Issue and Delivery ✔ Effective date of coverage - if the premium is not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of the policy delivery
Agent/ Producer ✔ a legal representative of an insurance company; the classification of producers usually includes agents and brokers' agents are the agents of the insurer Applicant of proposed insured ✔ a person applying for insurance Beneficiary ✔ a person who receives the benefits of an insurance policy Broker ✔ an insurance producer who is not appointed by an insurance company and who represents the client Death benefits ✔ the amount paid upon death of the insured in a life insurance policy Estate ✔ a person's net worth Insurance policy ✔ a contact between a policyowner (and/or insured) and an insurance company which agrees to pay insured or the beneficiary for loss caused by specific events. Insured ✔ a person covered by the insurance policy; may or may not be the policyowner insurer (principal) ✔ the company who issues an insurance policy Lapse ✔ policy termination due to nonpayment of premium Life insurance ✔ coverage on human lives Policyowner ✔ the person entitled to exercise the rights and privileges in the policy Premium ✔ the money paid to the insurance company for the insurance policy Underwriting ✔ is the risk selection and classification process
Attained age ✔ the insured's age at the time the policy is issued or renewed cash value ✔ a policy's saving element or living benefit Face amount ✔ the amount of benefits stated in the life insurance policy Fixed life insurance ✔ contracts that offer guaranteed minimum or fixed benefits Deferred ✔ withheld or postponed until a specified time or event in the future Endow ✔ the cash value of a whole life policy has reached the contractual face amount Level premium ✔ the premium that does not change throughout the life of a policy Liquidation of an estate ✔ converting a person's net worth into a cash flow Mature ✔ the time when the policy's face amount is paid out upon the death of the insured or policy endowment Nonforfeiture values ✔ benefits in a life insurance policy that the policyowner cannot lose even if the policy is surrendered or lapses Policy Maturity ✔ in life polices, the time when the face value is paid out Qualified Plan ✔ a retirement plan that meets IRS guidelines for receiving favorable tax treatment Securities ✔ financial instrument that may trade for value (for example, stock, bonds options Suitability ✔ a requirement to determine if an insurance product is appropriate for a customer Variable life insurance
✔ contracts in which the cash value accumulate based upon a specific portfolio of stocks without guarantees of performance Types of insurance ✔ -term/temporary
- permanent/ whole life Types of term policies ✔ -level term
- annually renewable term
- decreasing term
- increasing term Whole Life insurance ✔ - straight life
- limited payment
- single premium Flexible- premium policies ✔ - adjustable life
- universal life : options A, option B
- Variable Life insurance
- Variable Universal life insurance other polices ✔ Joint Life Survivorship life Basic Annuity Terms ✔ Annuity Annuitant Accumulation/Pay-in period Annuitization/liquidation/pay-out period Beneficiary Owner Types of Annuities ✔ Deferred Annuity fixed annuity general account immediate annuity indexed annuity separate account variable annuity General characteristics (Term life)
✔ - pure protection
- lasts for specific term
- no cash value Level premium Term (Term life) ✔ level death benefit and level premium Annually Renewable Term (Term life) ✔ - renews each year without proof of insurability
- premiums increase due to attained age Decreasing Term (Term life) ✔ coverage gradually decrease at predetermined times; best used when the need for protection declines from year to year Increasing Term (Term life) ✔ coverage increase each year Features of term policies (term life) ✔ - renewable: renew the policy without evidence of insurability
- convertible: right to convert a term policy to a permanent policy without evidence of insurability General characteristics (whole life) ✔ - permanent protection
- guaranteed elements (face amount, premium, and cash value) until death or age 100
- level premium
- cash value and other living benefits Straight life (whole life) (continuous premium) ✔ - basic policy
- level death benefits
- insured pays premiums for life or until age 100 Limited payment ✔ premiums paid until a certain time; coverage in effect to age 100 Single Premium ✔ premiums paid in one lump sum; coverage continues to age 100 General Characteristics (Flexible Premium) ✔ - types of whole life insurance
- flexible premium Adjustable life (Flexible premium)
✔ - policyowner may adjust the premium and premium- paying period, the face amount, and the period of protection
- can be converted from term to whole life and vice versa
- cash value only develops if the premiums paid are more than the cost of the policy Universal life (Flexible premium) ✔ - an insurance component in the form of annually renewable term
- 2 death benefit options: options A level death benefits, and options B- increasing death benefit
- can make partial surrender/ cash withdrawal Variable Life (other types of polices) ✔ - fixed premium, minimum death benefits
- cash value and the actual amount of the death benefits are not guaranteed
- assets in separate accounts
- agents must be dually licensed in insurance and in securities Combination Plans (other types of polices) ✔ - Joint life: - premium is based on the joint average age of the insured ;death benefit upon the first death only
- Survivorship Life: - premium is based on the joint average of the insured; death benefit upon the last death Phases (Annuities) ✔ - accumulation (pay-in): payment made into the annuity
- annuitization (pay-out): payment made to the annuitant from the annuity parties (annuities) ✔ - annuitant: insured (must be a person); policy issued on annuitant's life
- Beneficiary: will receive any amount contributed to annuity (plus any gain) if annuitant dies during accumulation period
- Owner- has all rights to policy (usually annuitant); can be corporation or trust Types of Annuities ✔ - fixed annuities: guaranteed, fixed payment amount; premiums in general account
- variable annuities:payment not guaranteed; premiums in separate account, and invested in stock and bonds.
- indexed annuities: interest rate tied to an index; earn higher rate than fixed annuities, not as risky as variable annuities or mutual funds Premium Payments (annuities) ✔ - Single premium: One lumps- sum payment; the principal is created immediately (both immediate and deferred annuities)
- Periodic (Flexible) premium: multiple payments; the principal is created over time (used for deferred annuity only)
Income Payment (annuities) ✔ - Immediate: purchased with a single premium; income payments start within 12 months from the date of purchase
- Deferred: purchase with either lump sum or periodic: payment, premium; benefit start sometimes after 1 year from the date of purchase (often used to accumulate funds for retirement) Activities of daily living (ADLs) ✔ a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence Assignment ✔ transfer of right of policy ownership Consideration ✔ something of value that each party gives to the other (binding force in any contract) Indemnity ✔ a principle of reimbursement of which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss Lump sum ✔ payment of the entire benefit in one sum Minor ✔ a person under legal age NAIC ✔ National Association of Insurance Commissioners, an organization composed of insurance commissioners from all states and jurisdictions formed to resolve insurance regulatory issues Principal ✔ the face value of the policy; the original amount invested before the earnings Nonforfeiture options ✔ - cash
- extended terms (automatic)
- reduced paid up Dividend options ✔ - cash
- reduction of premium
- accumulation at interest
- paid up additions (automatic) -paid up insurance
- one year term Settlement options ✔ -cash (automatic)
- Life income
- interest only
- fixed period
- fixed amount Life policy provisions ✔ - assignment
- consideration
- entire contract
- free look
- grace period
- incontestability
- insuring clause
- misstatement of Age and gender
- Ownership
- Payment of Premiums
- Reinstatement Beneficiaries ✔ Primary Vs. Contingent Revocable Vs. Irrevocable Common disater clause Accessing cash value ✔ policy loan automatic premium loan withdrawal partial surrender Policy options ✔ - nonforfeiture
- dividend
- settlement consideration (standard provision ) ✔ parties to a contact exchange something of value entire contact (standard provision) ✔ policy (with riders and amendments) and copy of the application Grace period (standard provision) ✔ time period after the premium is due during which the policy will not lapse
incontestability (standard provision) ✔ insurer cannot contest misstatements on the application after a time period Insuring clause (standard provision) ✔ basic agreement between the insurer and the policyowner misstatement of age or gender (standard provision) ✔ death benefits is adjusted according to the correct age and gender at policy issue payment of premiums (standard provisions) ✔ premiums are paid in advance Reinstatement ✔ a policy can be restored within a specified period of time with proof of insurability Assignment (other provisions) ✔ absolute or collateral Exclusions (other provisions) ✔ aviation (noncommercial), hazardous occupation, war or military service, suicide within a specific time period Free Look (other provisions) ✔ policy can be returned for a refund or premium within a specified time period Ownership ✔ policyowner's right Designation (beneficiaries) ✔ - designation: individuals (including minors) classes, estates Succession ( beneficiaries) ✔ - the level of priority. each level in the succession is only eligible if the beneficiary in the level above has died:
- primary: first claim to the policy proceeds
- contingent (secondary, tertiary): next claim after primary Policyowner's right to change a beneficiary: ✔ - revocable: can be change at any time
- irrevocable: can be changed with the beneficiary's consent Common disaster clause (beneficiaries) ✔ protects the right of contingent beneficiaries; if the insured and the primary beneficiary died at approximately the same time, it is assumed that the primary beneficiary died first
Cash loans available (Policy loans, withdrawals and partial surrenders) ✔ policy's cash value minus any unpaid loans and interest Automatic premium loans (Policy loans, withdrawals and partial surrenders ) ✔ prevent unintentional policy lapse due to nonpayment of premium withdrawals and partial surrenders (Policy loans, withdrawals and partial surrenders) ✔ available in Universal life; a charge may apply Wavier of premium (Disability ) ✔ waves the premium if the insured becomes totally disabled; 6 months waiting period before benefits begin Waiver of cost insurance (Disability ) ✔ in universal life policies; waives the cost of insurance in the event of the insured's disability Disability income (Disability) ✔ waives the premium and pays monthly income Accelerated Benefits ✔ - early payment if insured is diagnosed with a specified catastrophic illness -a portion of the death benefits
- death benefit is reduced by the amount paid plus earnings lost by the insurer Spouse/other insured (Additional insured) ✔ term rider (limited time, limited coverage): usually expires when spouse turns age 65 Children's term (Additional insured) ✔ covers all children of the insured (limited time, limited coverage): can be converted to a permanent policy nonfamily insured (Additional insured) ✔ used by business (e.g. key person insurance) Accidental death (riders affect the death benefits) ✔ pays double or triple indemnity if accidental death occurs as defined in the policy; death must occur within 90 days of accident Guaranteed insurability (riders affect the death benefits) ✔ allows for purchase of additional insurance at specified times without evidence of insurability, at the insured's attained age Return of premium (riders affect the death benefits)
✔ increasing term is added to a whole life policy that provides that if death occurs prior to a given age, not only is the death benefits payable to the beneficiary, but all premiums paid as well cash surrender value (Nonforfeiture) ✔ after all that, no more insurance, extended term (Nonforfeiture) ✔ automatic optional; uses cash value to convert to term insurance reduced paid (Nonforfeiture) ✔ uses cash value as a single premium to purchase a permanent policy with a reduced face amount Cash (Dividend ) ✔ insurer sends a check to the insured Reduction of premium (Dividend ) ✔ dividend is applied to the next year's premium Accumulation at interest (Dividend ) ✔ insurers keeps the dividend in an account where its accumulates interest Paid up addition (Dividend ) ✔ dividend is used to increase the face amount Paid- up insurance (Dividend ) ✔ dividend is used to pay up a policy early One year term (Dividend ) ✔ dividend is used to buy additional insurance Cash (settlement) ✔ lump sum payment; usually not taxable Life income (settlement) ✔ provides an income the beneficiary cannot outlive; no guarantee that the entire principle will be paid out (if the beneficiary dies too soon); available as single life or as joint and survivor Interest only (settlement) ✔ insurer retains the principal and only pays out interest Fixed period (settlement) ✔ payments for a specified time period until all the proceeds are paid out
Fixed amount (settlement) ✔ payments in specified amounts until all the proceeds are paid out