Life Insurance Exam Tips

(Type of Life Insurance) Term Insurance

Temporary + Low Cost, No cash value, Expires after term ends

(Type of Life Insurance) Whole Life

Permanent + Level Premium, Cash value grows at a guaranteed rate

(Type of Life Insurance) Universal Life

Flexible Premium + Interest-sensitive, Policyowner can skip payments if cash value covers cost

(Type of Life Insurance) Variable Life

Investment-based, Requires FINRA registration, Cash value and death benefit can vary

Term Life Insurance

Temporary, Lowest cost, No Cash value, Pure protection, Expires

Whole Life Insurance

Level premium, Guaranteed cash value, Permanent, Guaranteed benefits, Cash accumulation

Universal Life Insurance

Flexible premiums, Adjustable death benefit, Interest-sensitive, Flexible, Interest credited

Variable Life Insurance

Investment-based, Separate account, Risk for policyowner, SEC/FINRA required, variable returns

Indexed Universal Life Insurance (IUL)

Growth tied to index (e.g., S&P 500), With downside protection, Equity-indexed, Market-linked growth

Guaranteed Cash Value

Whole Life

Flexible Premium & Investment Risk

Variable Universal Life

Which insurance has a guaranteed death benefit and guaranteed cash value

Whole Life Insurance

(Life Insurance Riders) Waiver of Premium

Waives premium if disabled

(Life Insurance Riders) Accidental Death Benefit (ADB)

Pays double/triple if death is accidental

(Life Insurance Riders) Guaranteed Insurability Rider

Buy more insurance later, no exam

(Life Insurance Riders) Child Term Rider

Covers all children under one policy

(Life Insurance Riders) Payor Benefit Rider

Premiums waived if parent dies or becomes disabled (on child policy)

(Life Insurance Riders) Cost of Living Rider

Increases coverage to match inflation

(Life Insurance Riders) Return of Premium Rider

Returns all paid premiums if insured survives term (term life only)

(Life Insurance Riders) Accelerated Benefit Rider

Allows access to death benefit before death if terminally ill

When is ADB triggered?

By accident Within 90 days of injury

(Policy Provisions & Options) Entire Contract

Policy + Application + Riders

(Policy Provisions & Options) Grace Period

30/31 Days (Premium can still be paid after due date)

Reinstatement

3 years, Must repay back premiums + interest

Incontestability

2 years, Insurer can’t deny claim after 2 years (even if fraud missed)

Optional Provisions

Suicide Clause (2 years), Assignment Clause, Change of Beneficiary

If age is misstated

Benefit is adjusted - not denied

Incontestability protects the [blank]; Reinstatement favors the [blank]

insured; insurer

(Beneficiaries & Settlement Options) Per Stirpes

Share goes to heirs if a beneficiary dies

(Beneficiaries & Settlement Options) Per Capita

Share split equally among surviving beneficiaries

(Beneficiaries & Settlement Options) Lump Sum

Tax-Free

(Beneficiaries & Settlement Options) Life Income

Pays for life, no refund if early death

(Beneficiaries & Settlement Options) Fixed Period

Pays over time, beneficiary gets all money

(Beneficiary Designations) Primary

Gets death benefit

(Beneficiary Designations) Contingent

Receives benefit if primary is deceased

(Beneficiary Designations) Revocable

Can be changed at any time

(Beneficiary Designations) Irrevocable

Needs beneficiary’s consent to change

(Common Disaster Clause) Spendthrift Clause

Prevents creditors or heirs from taking benefit before it’s paid

If the policy has no named beneficiary

Proceeds go to the insured’s estate

Lump Sum

No income tax; Interest from other options = taxable

(Premiums & Taxation) Premiums

NOT tax deductible

(Premiums & Taxation) Death Benefit

Tax-Free to beneficiary

(Premiums & Taxation) Cash Value Growth

Tax-deferred

(Premiums & Taxation) Loans

Not taxed unless policy lapses

(Taxation Summary) Death Benefit

No (Tax-Free to Beneficiary)

(Taxation Summary) Premiums, individual policy

Not deductible

(Taxation Summary) Cash Value Growth

Tax-deferred

(Taxation Summary) Policy Loan

Not taxable (unless policy lapses)

(Taxation Summary) Interest on Settlement Option

Yes (interest = taxable income)

(Taxation Summary) Employer-Paid Group Premiums > $50k

Taxable to employee (imputed income)

Are death benefit interest payments (from installment options) taxable?

Yes, even though the base amount is not

Employer-paid group life is tax-…

free only up to $50,000 coverage

(Underwriting & Application) Field Underwriting

Agent, Deliver policy, Collect premium, Explain terms

(Underwriting & Application) Insurable Interest

Must exist at policy start

(Underwriting & Application) Effective Date

When insurer accepts app + premium received

Conditional Receipt

Coverage begins if conditions are met (medical exam, etc.)

(Group Life Insurance) Is usually…

Term Life

(Group Life Insurance) Requires no…

Medical exam (guaranteed issue)

(Group Life Insurance) Conversion

31 days to convert to individual policy (no proof of insurability)

Group life coverage ends when employment ends…

but can be converted

(Uses of Life Insurance) Personal Uses

Final expenses, income replacement, estate planning

(Uses of Life Insurance) Business Uses

Key person insurance = Company owns policy, Buy-Sell agreement = Surviving owner buys out deceased’s share

(Business Uses of Life Insurance) Key Person

Employer = owner + beneficiary

(Business Uses of Life Insurance) Buy-Sell Agreement

Funds business ownership transfer

(Business Uses of Life Insurance) Executive Bonus

Employer gives bonus to fund life policy; employee owns it

(Business Uses of Life Insurance) Split-Dollar Plan

Employer/employee share cost/benefit of premium & policy

(Retirement Plans & Life Insurance) IRA & Roth IRA

Individual Retirement Plans, Roth = post-tax, tax-free growth

(Retirement Plans & Life Insurance) 401(k), 403(b)

Employer-sponsored, Tax-deferred growth

(Retirement Plans & Life Insurance) Early Withdrawal

10% penalty before age 59 1/2

[Blank] used for estate planning; [Blank] used for retirement accumulation

Whole life; IRAs

(Policy Replacement Rules) Definition

Replacing one policy with another

(Policy Replacement Rules) Disclosure Required

Replacement form, Comparison of benefits, Signed acknowledgment from client and agent

(Policy Replacement Rules) Twisting

ILLEGAL misrepresentation to replace coverage

When is replacement okay?

Only if in client’s best interest and properly disclosed

Do all policies have cash value

No, only permanent life insurance does

Does Variable = Guaranteed Growth

No, Variable = investment risk

Per stirpes vs per capita

Per stirpes = bloodline

Are all riders free

No, most cost extra

What is grace period

Typically 30-31 days from due date. 10 days is usually Health Insurance

Is death benefit taxable

No, it’s tax-free to beneficiary