Docsity
Docsity

Prepare for your exams
Prepare for your exams

Study with the several resources on Docsity


Earn points to download
Earn points to download

Earn points by helping other students or get them with a premium plan


Guidelines and tips
Guidelines and tips

Life Insurance Exam (Texas) Questions and Answers 2024, Exams of Business Economics

A comprehensive overview of life insurance concepts, covering key definitions, principles, and types of policies. It includes explanations of underwriting, premium determination, policy issuance, and delivery, along with detailed descriptions of term life, whole life, and flexible premium policies. The document also explores annuities, their types, and key terms related to annuity contracts. It is a valuable resource for students studying insurance principles and practices, particularly those preparing for the texas life insurance exam.

Typology: Exams

2023/2024

Available from 11/11/2024

maryann001
maryann001 🇺🇸

2.7

(3)

1.5K documents

Partial preview of the text

Download Life Insurance Exam (Texas) Questions and Answers 2024 and more Exams Business Economics in PDF only on Docsity!

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