Comprehensive Life Insurance and Risk Management Concepts

When is term life insurance more appropriate than whole life insurance?

When maximum protection is needed at the lowest cost.

Which rider allows purchasing additional insurance at specified dates without underwriting?

Guaranteed insurability.

What best describes pure risk?

The possibility of loss.

Which method could eliminate the risk of a sky diving accident?

Risk avoidance.

An insured has a policy with $1,500 cash value, $5,000 death benefit, and a $500 outstanding loan. What is the cash surrender value?

$1,000.00

Under the free look provision, how can a policyholder cancel an individual life policy?

By returning the policy within 15 days of delivery.

What policy type allows changing the face amount, premiums, or length of protection?

Universal life policy.

What is the interest accumulated in an annuity called?

Accumulation value.

Who may terminate an insurance producer's appointment?

The insurer.

Which individual has the right to name a beneficiary?

The policyowner.

What type of life insurance policy is typically used by employers for employees?

Group.

Under Michigan Insurance Code Chapter 45, financial loss in insurance fraud excludes what?

Additional premiums.

How are modified premium whole life policies distinguished?

Lower premiums in the first few years, then higher premiums thereafter.

What document does an individual receive as proof of coverage in group life insurance?

Certificate of insurance.

Why is an insurance policy considered a unilateral contract?

Only the insurer is legally bound.

Which rider allows increasing the face amount to adjust for inflation?

Cost of living.

What is an example of an unfair claim settlement practice?

Delaying claim settlements when liability has become clear.

What does preferred risk reflect?

Risks that may be insured at discounted premiums.

Which retirement account is funded with after-tax dollars?

Roth IRA.

Dividends paid to a policyowner are considered to be what?

A return of premium.

What action can the Director take if a consumer suffers financial harm from a licensee?

Revoke the licensee's license after a hearing.

What is a characteristic of a contract of adhesion?

The terms must be accepted or rejected in full.

Which form of insurer has shareholders?

Stock company.

Who is the beneficiary of a key person insurance policy?

The employer.

Which rider allows a spouse to be added to the primary insured's policy?

Spouse term rider.

How often must a licensee provide ongoing privacy notices to a customer?

Every 12 months.

When does a life insurance policy most often become effective?

When the premium is collected and the policy is delivered.

In apparent authority, what authority does an agent have?

Authority a reasonable person would assume they have.

What is true regarding income taxes upon surrendering a whole life policy?

Income taxes may be due when the policy is surrendered.

What is the purpose of the policy review when a producer delivers a new policy?

To confirm the insured understands all aspects of the policy.

What are specific statements on an application that the insured guarantees to be true?

Warranties.

What gives a policyowner access to cash value without terminating the policy?

Policy loans.

Which product is designed to provide a guaranteed stream of retirement income?

Annuity contract.

What is an insurer owned by its policyholders that pays dividends called?

Mutual company.

Who does a producer have a responsibility to represent?

The insurer.

An insurer may defer policy loans for up to how many months?

6 months.

What must a business entity acting as a producer do for compliance?

Designate an individual licensed producer responsible for compliance.

What physical information is requested in the general portion of a life application?

Weight.

When may deferred commissions be paid to a person who sold a policy?

If they were a licensed producer at the time of sale.

What is the purpose of a policy summary?

To provide the features and elements of the policy.

What is a valid business use of life insurance?

Deferred compensation for an executive.

What is replacing a whole life policy with an annuity without tax penalty called?

A 1035 Exchange.

What form of risk management is setting aside funds to self-insure?

Retention.

A producer who diverts funds of an insurer may be found guilty of what?

Fraud.

Which of the following is NOT a right of the life insurance policyowner?

Revoking an absolute assignment.

What is the difference between a policy's face value and its cash value?

Net amount at risk.

Up to how many months can a life insurance policy legally be backdated?

6 months.

Falsely stating that a competitor is bankrupt is an example of what?

Defamation.

What term describes naming a contingent beneficiary as 'all of my children'?

Class designation.

Knowingly submitting a false statement in support of a claim is what?

Fraud.

Purchasing life insurance to enable heirs to pay estate taxes is called what?

Estate conservation.

Who has the right to the nonforfeiture values in an annuity?

The policyowner.

A producer must be appointed within how many days of the contract or first application?

15 days.

Knowingly soliciting new insurance risks for an insolvent insurer is what?

Fraud.

What best describes a limited pay life insurance policy?

Whole life with premiums paid for a limited period, covering life.

What is the additional tax penalty for early qualified plan withdrawals before age 59 1/2?

10%.

What is the period during which an annuity pays benefits on a regular basis?

Annuitization period.

At what age can an individual receive IRA distributions without a tax penalty?

59 1/2 years.

The needs approach for insurance excludes determining which factor?

Projected lifetime earnings in the stock market.

Which rider pays a monthly amount for total and permanent disability?

Disability income rider.

Which policy proceeds can be a lump sum invested to create a beneficiary's estate?

Estate creation.

Offering a $55 handbag to induce an insurance purchase is what unfair practice?

Rebating.

Which method is used by insurance companies to predict losses?

Law of large numbers.

Why can an insurance policy generally not be transferred to another insured?

It is a personal contract.

Which of the following is NOT a characteristic of whole life insurance?

Decreasing death benefit.

Which insurance product is regulated by both the SEC and the state of Michigan?

Variable life insurance.

What best describes a single premium cash value policy?

It requires only one payment to make the policy paid up.

How does an underwriter evaluate risks for group life insurance?

Evaluates the group as a whole.

When is an attending physician's statement appropriate for underwriting?

At the insurer's request with the applicant's consent.

Purchasing insurance is an example of which risk-handling method?

Transference.

What insurance principle states a person should be made whole, but no better?

Indemnity.

What is a characteristic of level premium term life insurance?

The cost of insurance is averaged throughout the contract.

Which of the following is NOT an example of a producer's duties?

Representing the insured.

What is a deliberate lie by an insured to obtain a lower premium?

Fraud.

How does an insurer handle a claim with an inaccurate age or gender?

Adjusts the benefit to what the correct premium would have purchased.

Who must a producer notify before doing business under an assumed name?

The Commissioner.

What must an insurance contract include to be valid?

An offer and an acceptance.

What effect do long-term care rider payments have on the death benefit face amount?

They will be reduced.

What does an accelerated death benefit pay?

A portion of the face amount when the insured is terminally ill.

On what basis is it lawful to charge different premiums for similar risks?

Sound actuarial principles and supporting statistics.

Which approach predicts future earning potential to determine dependent needs?

Human life value approach.

An unlicensed agency employee is prohibited from doing what activity?

Taking claims information.

What is the result of borrowing a portion of whole life cash value?

Reduced death benefit.

Under what mode can premiums generally NOT be collected?

Bi-monthly.

How do cash values in a life insurance policy accumulate?

Tax deferred.

What option is triggered upon the maturity of a life insurance policy?

Settlement.

The Notice of Information Practices and Disclosure is part of which Act?

Fair Credit Reporting Act.

What is signing another person's name to an insurance application called?

Forgery.

What is making false statements on an application for producer benefit called?

An unfair method of competition.

What fine can the Director issue for knowingly violating a cease and desist order?

A civil fine of not more than $10,000 for each violation.

Which insurable risk element allows insurers to exclude war from coverage?

Non-catastrophic.

What must parties be to enter into a legally binding contract?

Competent.

What interest rate characteristic is associated with equity indexed annuities?

Linked to the positive performance of a stock market index.

If premiums are waived due to disability, what happens to dividends?

The insurance company will continue to pay dividends.

Can an agency share client policy numbers with a marketing firm?

No, doing so is illegal under the Michigan Insurance Code.

Who bears the investment risk in a fixed annuity?

The insurer.

When are earnings in a Roth IRA taxed?

Upon a premature distribution.

Which settlement option pays monthly interest earnings to the beneficiary?

Interest only.

What are applicant statements regarding health history and occupation called?

Representations.

What type of annuity is purchased with periodic premium payments?

Deferred.