Chapter 11 Life Insurance Basics
- 1.
What does “liquidity” refer to in a life insurance policy?
- A.
The insured is receiving payments each month in retirement
- B.
The policy owner receives dividend checks each year
- C.
Cash values can be borrowed at any time
- D.
The death benefit replaces the assets that would have accumulated if the insured had not died
Correct Answer
C. Cash values can be borrowed at any timeExplanation
Liquidity in a life insurance policy refers to the ability to access the cash value of the policy at any time through borrowing. This means that the policy owner can take out a loan against the cash value of the policy whenever they need it. This provides flexibility and financial security as the policy owner can use the cash value for various purposes such as emergencies, investments, or other expenses.Rate this question:
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- 2.
What term refers to taxes being paid from Life Insurance proceeds, so it isn’t necessary to sell assets from an estate, to pay for them?
- A.
Estate Creation
- B.
Estate Conservation
- C.
Estate Compensation
- D.
Estate Calculation
Correct Answer
B. Estate ConservationExplanation
Estate Conservation refers to the term where taxes are paid from Life Insurance proceeds, eliminating the need to sell assets from an estate to cover the tax payments. This strategy helps in preserving the estate and ensuring that the assets are passed on to the intended beneficiaries without the need for liquidation. By utilizing life insurance proceeds, the estate owner can protect their assets and maintain the value of the estate for future generations.Rate this question:
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- 3.
George is terminally ill and has many unpaid Medical bills. Which of the following would benefit George?
- A.
Enter into a Viatical Settlement
- B.
Change his beneficiary designation to revocable
- C.
Buy a rider
- D.
Surrender his policy
Correct Answer
A. Enter into a Viatical SettlementExplanation
Entering into a Viatical Settlement would benefit George in this situation. A viatical settlement is a financial arrangement where a terminally ill person sells their life insurance policy to a third party for a lump sum payment. This allows the individual to receive a portion of the death benefit while they are still alive, which can be used to cover medical bills and other expenses. This option provides immediate financial relief for George and helps alleviate the burden of unpaid medical bills.Rate this question:
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- 4.
Jane is currently insured by ABC Life insurance, and she learns she is terminally ill. Jane then agrees to sell her policy to XYZ insurance Recovery. Joe, Jane’s insurance producer, arranges the transaction between Jane and XYZ Insurance Recovery. In this scenario, Joe is:
- A.
The Life provider
- B.
The Viatical Settlement Provider
- C.
The Settlement Broker
- D.
The Life Broker
Correct Answer
C. The Settlement BrokerExplanation
In this scenario, Joe is the Settlement Broker. A settlement broker is a licensed professional who helps facilitate the sale of a life insurance policy from the policyholder to a third-party buyer, such as XYZ Insurance Recovery. Joe is responsible for arranging the transaction between Jane and XYZ Insurance Recovery, ensuring that all necessary paperwork and legal requirements are met. As a settlement broker, Joe acts as an intermediary between the policyholder and the buyer, helping to negotiate a fair price for the policy and facilitating the transfer of ownership.Rate this question:
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- 5.
Which would be eligible to obtain SGLI?
- A.
Small employers
- B.
Military personnel
- C.
The elderly
- D.
Low income individuals and families
Correct Answer
B. Military personnelExplanation
Military personnel would be eligible to obtain SGLI because SGLI (Servicemembers' Group Life Insurance) is a life insurance program for members of the military. It provides coverage to active duty members, members of the National Guard and Reserve, and members of the Commissioned Corps of the National Oceanic and Atmospheric Administration (NOAA) and the Public Health Service (PHS).Rate this question:
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- 6.
The duty (or duties) of a producer where replacement is involved include all of the following except:
- A.
Leaving a copy or original of all solicitation material used for presentation to the applicant
- B.
Submitting all expenses to creditors
- C.
Submitting to the replacing insurer a copy of all soliciting material
- D.
Submitting to the replacing insurer a statement signed by the applicant as to whether or not he has existing Life insurance
Correct Answer
B. Submitting all expenses to creditorsExplanation
The duty of a producer where replacement is involved includes leaving a copy or original of all solicitation material used for presentation to the applicant, submitting to the replacing insurer a copy of all soliciting material, and submitting to the replacing insurer a statement signed by the applicant as to whether or not he has existing Life insurance. However, submitting all expenses to creditors is not a duty of a producer in this context.Rate this question:
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- 7.
Life insurance premiums are determined by several factors pertaining to the insured, including age, occupation and:
- A.
Location of residence
- B.
Number of children
- C.
Avocation
- D.
Marital status
Correct Answer
C. AvocationExplanation
The correct answer is avocation. Avocation refers to the insured's hobbies or recreational activities. Insurance companies consider avocation as a factor in determining life insurance premiums because certain hobbies or activities may increase the risk of injury or death. For example, someone who participates in extreme sports or has a dangerous hobby may be charged higher premiums compared to someone who has a less risky avocation.Rate this question:
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- 8.
In regard to Social Security benefits, what refers to the period of time after the youngest child reaches 16 and prior to the surviving spouse reaching 60, when the Social Security benefits will not be paid?
- A.
Benefit Period
- B.
Benefit Check Period
- C.
Buy Sell Period
- D.
Blackout Period
Correct Answer
D. Blackout PeriodExplanation
The correct answer is "Blackout Period". In regard to Social Security benefits, the blackout period refers to the period of time after the youngest child reaches 16 and prior to the surviving spouse reaching 60, when the Social Security benefits will not be paid. During this period, the surviving spouse is not eligible to receive benefits, but they may become eligible again once they reach the age of 60.Rate this question:
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- 9.
Members of the Armed Forces can obtain _________, also called SGLI.
- A.
PPO individual health insurance
- B.
Group universal life insurance
- C.
Term group life insurance
- D.
Tax-exempt deferred annuities
Correct Answer
C. Term group life insuranceExplanation
Members of the Armed Forces can obtain term group life insurance, also called SGLI. This type of insurance provides coverage for a specified period of time and is typically offered to members of a group, such as military personnel. SGLI is designed to provide financial protection to the insured's beneficiaries in the event of their death during the term of the policy. It is a common benefit provided to members of the military and is often offered at a low cost or no cost to the insured.Rate this question:
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- 10.
What should be disclosed on an advertisement which refers to any dollar amount?
- A.
Only what is approved by the Insurance commissioner
- B.
Cost of policy benefit or loss of which the benefit is payable
- C.
Misleading statements about costs
- D.
Period of time for which any benefit is payable
Correct Answer
D. Period of time for which any benefit is payableExplanation
An advertisement that refers to any dollar amount should disclose the period of time for which any benefit is payable. This means that if the advertisement mentions a specific dollar amount, it should also clearly state the duration or time period for which that benefit will be provided. This disclosure ensures that consumers have accurate information about the duration of the benefit and can make informed decisions about the advertised product or service.Rate this question:
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- 11.
An Industrial Life Insurance Policy has a face amount that is:
- A.
$3,000 or less
- B.
$1,000 or less
- C.
$2,500 or less
- D.
$5,000 or less
Correct Answer
B. $1,000 or lessExplanation
An Industrial Life Insurance Policy has a face amount of $1,000 or less. This means that the maximum amount that will be paid out upon the death of the insured is $1,000 or less. This type of policy is typically designed for lower-income individuals who may not be able to afford a larger policy. The lower face amount also helps to keep the premiums more affordable for these individuals.Rate this question:
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- 12.
Which is the least expensive way to pay a premium?
- A.
Annually
- B.
Semi-annually
- C.
Quarterly
- D.
Monthly
Correct Answer
A. AnnuallyExplanation
Paying the premium annually is the least expensive way because it involves making a single payment for the entire year. By paying annually, there are no additional fees or charges that may be associated with more frequent payment options such as semi-annually, quarterly, or monthly. This can result in cost savings for the policyholder compared to the other payment options.Rate this question:
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- 13.
Information concerning an applicant’s prior health is generally provided to the underwriter by:
- A.
A Medical examination
- B.
The Medical Information Bureau
- C.
The Agent’s Report
- D.
The Inspection Report
Correct Answer
B. The Medical Information BureauExplanation
The Medical Information Bureau is responsible for providing information concerning an applicant's prior health to the underwriter. The Medical Information Bureau collects and maintains medical information on individuals, which includes their medical history, past diagnoses, and treatments. This information is shared with insurance companies to help them assess the risk associated with insuring an individual. By accessing the Medical Information Bureau's database, underwriters can make informed decisions about an applicant's health status and determine appropriate coverage and premiums.Rate this question:
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- 14.
The special significance of a conditional receipt is that it:
- A.
Is given by the agent only to applicants who fully prepay all scheduled premiums in advance of policy issue
- B.
Is intended to provide coverage on a date earlier than the date of the issuance of the policy
- C.
Guarantees the applicant that a policy will be issued in the amount applied for in the application
- D.
Serves as proof that the agent has determined the applicant to be fully insurable for coverage by the insurance company
Correct Answer
B. Is intended to provide coverage on a date earlier than the date of the issuance of the policyExplanation
A conditional receipt is given to provide coverage on a date earlier than the issuance of the policy. This means that if an insured event occurs between the date of the receipt and the date the policy is issued, the insurance company will still provide coverage. It is important because it protects the applicant from potential losses during the underwriting process.Rate this question:
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- 15.
Who is the owner and who is the beneficiary on a Key Person Life Insurance Policy?
- A.
The Key Person is the owner and the employer is the beneficiary
- B.
The employer is the owner and beneficiary
- C.
The employer is the owner and the Key Person is the beneficiary
- D.
The Key Person is the owner and beneficiary
Correct Answer
B. The employer is the owner and beneficiaryExplanation
The correct answer is that the employer is the owner and beneficiary of a Key Person Life Insurance Policy. This means that the employer is responsible for purchasing and maintaining the policy, and in the event of the key person's death, the employer receives the insurance payout. This type of policy is often used to protect a business from financial loss or disruption that may occur if a key employee were to pass away.Rate this question:
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Current Version
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Apr 17, 2024Quiz Edited by
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Mar 25, 2012Quiz Created by
Vivian Tayor