Life and Health Insurance Exam Prep

CH 1 — Term Life Insurance

Temporary death-benefit protection for a specified number of years or until a stated age. It normally has no cash value, so initial premiums are lower than permanent insurance. Coverage expires unless renewed or converted according to the contract.

CH 1 — Level, Decreasing, and Increasing Term

Level term maintains the same death benefit for the term. Decreasing term reduces the death benefit, commonly matching a shrinking mortgage. Increasing term raises the death benefit according to a schedule or formula. Premium design is a separate feature from death-benefit design.

CH 1 — Renewable Term and Annual Renewable Term

Renewable term gives the owner the contractual right to renew without proving insurability. Renewal premiums generally rise with attained age. Annual renewable term (ART) renews for successive one-year periods, generally at increasing rates.

CH 1 — Convertible Term Insurance

Allows a term policy to be exchanged for permanent life coverage without new proof of insurability within the conversion period. The premium is generally based on attained age, though some policies offer original-age conversion with an adjustment.

CH 1 — Straight Whole Life

Permanent coverage with guaranteed level premiums, a guaranteed death benefit, and scheduled cash value, assuming premiums are paid. Premiums generally continue for life or until contractual maturity. Ordinary whole life and straight whole life refer to the same basic design.

CH 1 — Limited-Pay and Single-Premium Whole Life

Limited-pay whole life requires premiums for a shorter period, such as 20 years or until age 65, while coverage continues for life. Single-premium whole life is funded by one lump sum. Faster funding usually means higher initial cost and can create modified endowment contract tax treatment.

CH 1 — Modified and Graded-Premium Whole Life

Modified whole life begins with lower premiums and increases to a higher scheduled level after an introductory period. Graded-premium whole life increases premiums in stages over several years. Both provide permanent protection but shift more premium cost into later years.

CH 1 — Indeterminate-Premium Whole Life

Permanent insurance with a guaranteed maximum premium and a current premium that may change based on insurer experience, within contractual limits. Unlike conventional whole life, the amount actually charged is not necessarily guaranteed to remain level.

CH 1 — Adjustable Life Insurance

Combines adaptable life insurance features in one policy. The owner may request changes to premium, coverage amount, or protection duration, subject to policy limits and sometimes proof of insurability. Increasing protection may require additional premiums.

CH 1 — Universal Life Insurance

Flexible-premium permanent insurance with separately identified interest credits, cost of insurance, and expenses. The owner can adjust payments within limits, but insufficient policy value can cause lapse. Its target premium is a funding suggestion, not always the minimum required to keep coverage active.

CH 1 — Universal Life Death Benefit Options A and B

Option A generally provides a level death benefit, with cash value supporting that benefit rather than automatically being added to it. Option B generally provides the specified amount plus cash value, producing an increasing death benefit. Tax-law corridors and policy terms can modify amounts.

CH 1 — Variable Life and Variable Universal Life

Variable life uses separate-account investments, creating market risk and potential growth or loss in cash value; traditional variable whole life generally has scheduled premiums. Variable universal life combines separate-account investment risk with universal life's flexible funding. Appropriate securities licensing is required to sell variable products.

CH 1 — Interest-Sensitive Whole Life

A permanent policy whose current cash-value accumulation or other nonguaranteed elements respond to insurer interest and expense assumptions. Guaranteed minimum values may apply. It is not the same as variable life, where investment performance directly drives separate-account values.

CH 1 — Endowment Insurance

Pays the face amount at a specified maturity date if the insured survives, or at death if death happens earlier during coverage. Unlike term life, surviving to maturity produces a payout. An endowment's tax treatment may differ from ordinary life insurance.

CH 1 — Joint Life and Survivorship Life

Joint life usually covers two people and pays at the first death, after which coverage ends. Survivorship life, also called second-to-die, pays when the last insured dies and is often used for estate planning. The insured persons and owner can be different.

CH 1 — Family Income and Family Maintenance Policies

Family income combines whole life with decreasing term to provide monthly income for the remaining family-income period following the insured's death, generally in addition to the whole-life face amount. Family maintenance combines whole life with level term to provide income for a specified duration after death, followed by the underlying death benefit.

CH 1 — Accidental Death and Dismemberment Insurance

Pays a principal sum for covered accidental death or certain major losses such as multiple limbs, and a capital sum for specified lesser losses. Coverage requires the accident and loss to satisfy policy conditions. Illness-related death is not automatically an accidental death.

CH 1 — Cash Value, Face Amount, and Policy Maturity

Cash value is the owner's accumulated policy value available under policy provisions for loans or surrender. Face amount is the specified basic death benefit. Ordinary whole-life death benefits generally do not pay face amount plus cash value unless the contract specifically provides it. Maturity is the contractual point when a benefit becomes payable under the policy.

CH 2 — Annuity Purpose and Contract Parties

An annuity is a contract designed to accumulate funds and/or convert money into periodic income, often for retirement. The owner controls contractual rights, the annuitant's life determines certain payments, the insurer promises contractual benefits, and a beneficiary may receive eligible remaining benefits.

CH 2 — Accumulation and Annuitization Periods

During accumulation, premiums or contributions build contract value, generally tax-deferred in a nonqualified annuity. During annuitization, value is exchanged for an income payment stream. Annuitization can restrict access to the original principal and makes the selected payout option important.

CH 2 — Immediate and Deferred Annuities

An immediate annuity starts periodic income within one year of purchase and is normally funded by one premium. A deferred annuity postpones income beyond one year and can accumulate money first. The immediate/deferred distinction refers to when income begins, not whether returns are fixed.

CH 2 — Single-Premium and Flexible-Premium Annuities

Single-premium annuities receive one lump-sum purchase payment. Flexible-premium annuities allow multiple contributions under contract rules. Either funding approach is conceptually separate from fixed or variable investment treatment and from income-start timing.

CH 2 — Fixed, Variable, and Indexed Annuities

Fixed annuities credit insurer-guaranteed interest or provide guaranteed payment terms. Variable annuities use separate accounts and expose contract values and some benefits to investment risk. Indexed annuities credit interest under an index-linked formula with participation limits, caps, spreads, or floors.

CH 2 — Straight Life and Life with Period Certain

Straight life pays income while the annuitant lives and generally stops at death with no residual payment guarantee. Life with period certain pays for life but guarantees at least a chosen number of years, with remaining guaranteed payments going to a beneficiary if death occurs early.

CH 2 — Fixed Period and Fixed Amount Settlement

Fixed period distributes an annuity fund over a selected number of years, so payment size depends on the amount available and interest assumptions. Fixed amount pays a chosen dollar amount per interval until the fund is exhausted, so the payout duration varies.

CH 2 — Cash Refund, Installment Refund, and Joint-and-Survivor Annuities

Cash refund guarantees that any unpaid amount of the annuity purchase price is returned as a lump sum after early death. Installment refund continues payments until the guaranteed amount is repaid. Joint-and-survivor continues income over two lives, sometimes at a reduced survivor percentage.

CH 2 — Surrender Charges, Taxation, and Annuity Death Benefits

Surrender charges can apply when funds are withdrawn early. Nonqualified annuity earnings are generally tax-deferred, but withdrawals commonly distribute earnings first and may trigger ordinary income tax and an early-distribution penalty. Death benefits during accumulation and remaining benefits after annuitization depend on the contract and payout option.

CH 3 — Insuring Clause, Consideration, and Entire Contract

The insuring clause states the insurer's promise to provide covered benefits. Consideration is the exchange of legal value: the insurer's promise for the applicant's application statements and premium. Entire contract identifies the policy and attached application or riders as the governing agreement.

CH 3 — Unilateral, Aleatory, Adhesion, and Conditional Contracts

Unilateral means only the insurer makes the enforceable promise to pay benefits; the policyowner is not compelled to continue premiums. Aleatory means exchanged values may be unequal. Adhesion means the insurer drafts the policy and ambiguities are generally interpreted against it. Conditional means contractual requirements must be met.

CH 3 — Incontestability Clause

Generally prevents an insurer from contesting a life policy's validity for application misstatements once it has been in force for two years after issue. Nonpayment of premium remains an exception. Misstatement of age is governed by its own adjustment rule and does not simply disappear after two years.

CH 3 — Suicide Exclusion

Commonly allows an insurer to exclude suicide during the first two policy years, generally refunding premiums instead of paying the death benefit. Once the exclusion expires, suicide is generally covered, subject to the contract and applicable law.

CH 3 — Misstatement of Age or Sex Provision

When an insured's age or applicable sex classification is misstated, the insurer adjusts the amount payable to the coverage that the premiums actually paid would have purchased using the correct information. This is generally an adjustment rather than automatic cancellation.

CH 3 — Grace Period

A period after a premium due date during which coverage continues despite nonpayment. North Carolina individual life insurance generally requires 31 days, excluding the first premium. If death occurs during grace, overdue premiums may be deducted from proceeds.

CH 3 — Reinstatement

Restoration of a lapsed policy, usually requiring an application, evidence of insurability, payment of overdue premiums plus interest, and handling policy indebtedness. Reinstatement restores the original contract subject to its terms rather than purchasing an entirely new policy.

CH 3 — Automatic Premium Loan

A provision authorizing an insurer to borrow from available cash value to pay an overdue premium and prevent lapse. Loans accrue interest, reduce available cash value, and lower death proceeds if unpaid. It is not a dividend option or a nonforfeiture election.

CH 3 — Cash Surrender Option

A nonforfeiture option in which the owner terminates a cash-value policy and receives its available surrender value after applicable loans and charges. Insurance protection ends. Any gain over tax basis may be taxable.

CH 3 — Reduced Paid-Up Insurance

A nonforfeiture option that uses available cash value as a single premium to buy a smaller fully paid permanent life policy. No future premiums are required and protection generally lasts for life, but the death benefit is reduced.

CH 3 — Extended Term Insurance

A nonforfeiture option that uses available cash value to purchase term coverage, typically preserving the original face amount for a limited time. The protection amount generally stays higher than under reduced paid-up, but coverage eventually expires.

CH 3 — Absolute and Collateral Assignment

Absolute assignment transfers policyownership rights to another party, including rights over beneficiaries and surrender as permitted by law. Collateral assignment transfers only enough rights to secure a debt; the lender receives what is owed and remaining proceeds pass under the beneficiary designation.

CH 3 — Revocable, Irrevocable, Primary, and Contingent Beneficiaries

A revocable beneficiary may ordinarily be changed by the owner without consent; an irrevocable beneficiary generally has protected rights requiring consent to changes. Primary beneficiaries receive first. Contingent beneficiaries receive proceeds if the primary beneficiaries cannot. A tertiary beneficiary is next in succession.

CH 3 — Dividend Options in Participating Life Insurance

Policy dividends may be received as cash, used to reduce premiums, accumulated at interest, used for paid-up additions, or used for one-year term insurance when offered. Dividends are generally not guaranteed; interest earned on accumulated dividends is generally taxable.

CH 3 — Paid-Up Additions Versus Reduced Paid-Up Insurance

Paid-up additions are a dividend option that buys small amounts of extra permanent insurance, increasing death benefit and cash value. Reduced paid-up is a nonforfeiture option used after premiums stop, converting available value to a smaller paid-up permanent policy.

CH 3 — Life Income, Fixed Period, Fixed Amount, and Interest-Only Settlement

Life income pays for the beneficiary's lifetime, possibly with guarantees. Fixed period spreads proceeds over selected years. Fixed amount pays a stated installment until funds run out. Interest-only pays interest while leaving principal with the insurer for later disposition.

CH 3 — Waiver of Premium and Disability Income Riders

Waiver of premium excuses premiums after qualifying total disability, often following a waiting period and subject to age conditions. Disability income provides periodic payments during qualifying disability. A waiver does not itself provide cash income.

CH 3 — Payor Benefit and Guaranteed Insurability Riders

Payor benefit is commonly attached to juvenile insurance and waives premiums if the payor dies or becomes qualifying disabled before the child's specified age. Guaranteed insurability allows additional coverage at specified dates or events without new evidence of insurability, with premiums based on attained age.

CH 3 — Accelerated Death Benefit and Accidental Death Benefit Riders

Accelerated death benefit permits an insured with a qualifying terminal or serious illness to access part of the death benefit while alive, reducing remaining proceeds. Accidental death benefit provides an additional death amount when covered death results from an accident; exclusions and timing limits can apply.

CH 3 — Policy Loans, Interest, and Death Benefit Calculations

Cash-value loans create policy debt rather than taxable income in ordinary non-MEC situations while the policy stays active. Unpaid principal plus accrued interest reduces death proceeds and can cause lapse. Net death proceeds equal the payable benefit minus outstanding policy indebtedness and other authorized deductions.

CH 4 — Insurable Interest and Application Representations

Insurable interest is a legitimate financial or close-family interest in another person's continued life, generally required when the policy is issued. Application answers are usually representations, meaning substantially true statements, not warranties requiring absolute literal accuracy.

CH 4 — Conditional Receipt and Policy Effective Date

A conditional receipt does not promise unconditional insurance. Temporary coverage may begin on the application or exam date only if receipt conditions and underwriting requirements are satisfied. If no initial premium was paid, policy delivery may require payment and evidence of continued good health.

CH 4 — Underwriting and Risk Classification

Underwriting evaluates insurability using medical history, occupation, finances, lifestyle and lawful consumer information. Preferred risks receive favorable rates; standard risks receive regular rates; substandard risks may face higher premiums, exclusions or modified coverage. Declined risks are not insured.

CH 4 — FCRA, Consumer Reports, Investigative Reports, and MIB

The Fair Credit Reporting Act regulates consumer-report disclosures, accuracy, adverse-action notices and dispute rights. Investigative reports examine personal character or lifestyle through interviews. MIB exchanges coded underwriting information among participating insurers and does not make underwriting decisions itself.

CH 4 — Group Life and Participation Requirements

The employer or organization holds the master policy; covered members receive certificates. Contributory plans require employee contributions and commonly use 75% minimum eligible participation. Noncontributory plans are employer-funded and generally require 100% eligible participation, subject to plan eligibility rules.

CH 4 — Group Life Conversion Privilege

Eligible terminating group members generally have 31 days to convert to individual permanent life coverage without new medical evidence, at premiums based on attained age. Death during the conversion period may be covered even without completed conversion.

CH 4 — Key Person, Cross-Purchase, and Entity-Purchase Insurance

Key person insurance pays the business after a vital employee's death to offset financial loss. Cross-purchase buy-sell agreements involve owners buying insurance on each other to acquire an ownership interest. Entity-purchase agreements have the business own insurance and redeem the deceased owner's interest.

CH 4 — Life Insurance Taxation and Business Premium Deductions

Life insurance death benefits are generally excluded from federal income tax, subject to exceptions. Policy dividends generally represent a return of premium; credited interest is taxable. Employer-paid group coverage may qualify as a deductible employee benefit, while business-owned key-person premiums are generally not deductible when the business is beneficiary.

CH 4 — Qualified Plans, Defined Benefit, and Defined Contribution

Qualified retirement plans receive favorable federal tax treatment by meeting IRS requirements. Defined benefit plans promise a retirement benefit determined by a formula, placing funding risk mainly on the employer. Defined contribution plans specify contributions; ultimate benefits depend on contributions and investment results.

CH 4 — Traditional IRA, Roth IRA, 401(k), and 403(b)

Traditional IRAs may offer deductible contributions with taxable withdrawals. Roth IRAs generally use after-tax money with tax-free qualified distributions. 401(k)s are employer-sponsored salary-deferral plans; 403(b)s are for eligible nonprofit and public education employees. Eligibility, income limits and withdrawal rules differ.

CH 4 — Social Security Insured Status and PIA

Fully insured status generally requires 40 work credits for retirement benefits. Primary Insurance Amount (PIA) is the benefit determined at full retirement age using indexed earnings. Disability and survivor eligibility may have different recent-work rules; insured status alone does not establish the benefit amount.

CH 4 — Social Security Disability and Survivor Benefits

Social Security disability generally requires an inability to perform substantial gainful activity expected to last at least 12 months or result in death, plus work-credit eligibility and a five-full-month waiting period. Eligible spouses and children can receive survivor benefits; the standard lump-sum death payment is $255.

CH 5 — North Carolina Commissioner of Insurance

The Commissioner regulates the state's insurance industry, administers insurance laws, oversees insurer solvency and producer licensing, investigates violations and may impose authorized administrative actions. The Commissioner does not guarantee every insurer's claims personally.

CH 5 — Domestic, Foreign, Alien, and Authorized Insurers

A domestic insurer is formed under North Carolina law; a foreign insurer is formed under another US state's law; an alien insurer is formed under another country's law. Authorized insurers have the state's legal approval to transact the applicable insurance business.

CH 5 — Producer Licensing Versus Insurer Appointment

A license gives legal authority to transact specified lines of insurance. An insurer appointment authorizes a licensed individual to act for that insurer. North Carolina generally requires insurers to file appointment notices within 15 days after submission of the first insurance application.

CH 5 — Address and Email Change Deadline

North Carolina insurance licensees must give the Commissioner written notification of residential-address or email-address changes within 10 business days. Failure results in a $50 administrative fee under N.C.G.S. 58-2-69.

CH 5 — Criminal Conviction Notification Deadline

A North Carolina insurance licensee convicted of a crime other than a motor vehicle infraction must notify the Commissioner in writing within 10 days. Conviction includes guilty and no-contest pleas.

CH 5 — Administrative Action and Criminal Prosecution Reports

A producer must report certain administrative actions within 30 days after final disposition. A producer must also report criminal prosecution within 30 days after the initial pretrial hearing or similar proceeding, with required supporting documents. These are separate from the 10-day conviction rule.

CH 5 — Free-Look Periods in North Carolina

The free-look provision lets an owner return a delivered policy for a refund within the required period. North Carolina generally requires at least 10 days for new life policies and at least 20 days for replacement life policies. The period begins upon delivery, not issue.

CH 5 — Grace Period and Incontestability Under NC Law

Individual life policies generally must provide a 31-day grace period after premiums other than the first are due, while coverage remains in force. Life policies generally become incontestable after two years in force, except for nonpayment and distinct contractual adjustments.

CH 5 — Rebating and Illegal Inducements

Rebating involves offering a benefit or premium discount not specified in the insurance contract as an unlawful purchase inducement. Returning part of a commission to secure a sale can constitute rebating; legitimate filed policy discounts are different.

CH 5 — Twisting and Churning

Twisting uses misleading policy comparisons or representations to induce replacement. Churning involves unnecessarily using an existing policy's value to purchase new coverage, often mainly generating commissions. Both can harm consumers through new costs and lost benefits.

CH 5 — Defamation, Coercion, and Unfair Discrimination

Defamation involves knowingly spreading false or malicious statements that damage an insurer or insurance professional. Coercion involves improper pressure or threats to force an insurance transaction. Unfair discrimination treats similarly situated insurance risks differently without a valid lawful basis.

CH 5 — Replacement Regulation and Disclosure

Replacement means new coverage is purchased while existing life insurance is terminated, surrendered, reduced or otherwise affected. Required notices and comparisons protect consumers against new surrender charges, lost guarantees, higher premiums and restarted exclusion periods.

CH 5 — Life and Health Insurance Guaranty Association

North Carolina's guaranty association provides limited statutory protection if a member insurer becomes insolvent. It is funded through the insurance industry, not a guarantee of unlimited benefits. General protection is limited to $300,000 in aggregate benefits per life, including applicable cash values, subject to statutory exceptions.

CH 5 — Risk Retention Groups and Surplus Lines

A risk retention group is a liability insurance organization created under federal liability risk retention law for members with related risks. Surplus lines insurance is placed with an eligible nonadmitted insurer when the admitted market cannot provide needed coverage, under special legal procedures.

CH 5 — Viatical Settlements

A viatical settlement transfers a life policy's ownership or death-benefit rights to a purchaser for payment to the original owner, commonly less than the death benefit. The purchaser generally becomes responsible for premiums and collects proceeds at death. Licensing and consumer-protection regulations apply.

CH 5 — Producer Fiduciary Duties and Handling Premiums

Insurance producers must properly account for premiums and money received in their professional capacity, transmit or handle funds as required, and avoid misappropriation or improper commingling. They must act within their licensing and appointment authority and comply with required disclosures.