Kentucky Life Insurance Exam Solved 100% Correct!!
Elements of a Contract
Competent parties, legal purpose, offer and acceptance, consideration
Waiver
Voluntary giving up of a known right or privilege, can be express or implied
Estoppel
A person is prohibited by virtue of his own past actions from claiming a right that would work to the detriment of another who relied on the past conduct
Aleatory Contract
a contract where the values exchanged may not be equal but depend on an uncertain event
Contracts of Adhesion
One-sided in regards to preparation (prepared by the insurer)
Contract of Utmost Good Faith
Both parties bargain in good faith when forming and entering into the contract. The two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive has been made.
Executory Contract
A contract that has not yet been fully performed.
Mortality Rate
Determined by dividing the average number of people who will die each year at each age by the entire population of people that age (1980 CSO table)
Functions of Life Insurance
Create an immediate estate, requires no management or physical upkeep, paid in installments, can be used as collateral
Final Expenses
Medical and funeral expenses, outstanding debts
Total Needs Approach
Totaling the amount required to pay for current and future expenses
Living Benefits of Life Insurance
Loan value (can be used as collateral,) retirement benefits
Human Life Value
The monetary value of an individual's life
Tax Advantages of Life Insurance
Cash value earnings accumulate tax free, proceeds at death pass income tax free
4 Types of Life Insurance
Permanent, Term, Industrial, Group
Permanent Life Insurance
Accumulates cash value, insurance protection decreases as cash value increases
Term Life Insurance
Accumulates no cash value, only provides death benefits
Whole Life Insurance
A permanent policy for which you pay a specified premium each year for the rest of your
life, cash value accumulates, endows at age 100
Limited-Pay Life Policies Premiums are paid to a specified age or for a specified number of years and then stop. Protection remains for the rest of the insured's life.
Endowment Policies
As of 1984, no policy can endow before age 95 because the CV and DB would be taxed
Single Premium Whole Life
Policy is completely paid up after one premium, policyholder pays less than if premiums stretched out over several years
Modified Endowment Contract (MEC)
TAMRA: All single premium policies, any policy that does not satisfy the 7-pay test // money taken from the policy is taxed as ordinary income // if policy owner is younger than 59 1/2 and not disabled 10% penalty is assigned
Joint Life Policies
First-to-die, contract comes to an end at the first death, no further insurance protection for the other person or persons covered by the policy
Survivorship Policies
Second-to-die, covers 2 lives and guarantees payment only when second insured dies
Adjustable Life Policies
Policyholder can adjust face amount of policy, amount/frequency of premium payments,
period of insurance protection
Universal Life Insurance
Flexible premium, adjustable death benefits, accumulates cash values: earlier models have front-end load, later models have back end load. Insurance costs are debited and guaranteed and excess interest are credited.
Universal Life Death Benefit Option A
Level death benefit throughout life of policy (can be increased with proof of insurability, can also be reduced.)
Universal Life Death Benefit Option B
Increasing death benefit made up of the policy face value plus cash value account
Risk Corridor
The minimum separation between the cash value and death benefit.
Partial Withdrawal
Permanent deduction of the cash value and cannot be reversed, no interest credited or paid, repayment treated as premium payment
Cash Value of ULP $0
Contract expires, policy goes into grace period,
Variable Life
Securities based, whole life, NASD registration required, separate account holds assets,
fluctuating death benefit but never below a guaranteed minimum (face amount of policy,) but no guaranteed CV, traditionally a fixed premium
Variable Universal Life
Flexible premiums, choice of death benefits (A or B,) NASD registration required, separate account holds assets, fluctuating death benefit but never below a guaranteed minimum (face amount of policy,) but no guaranteed CV
Indeterminate Premium Policies Low current premium for first 3 years, premium is adjusted at end of 3 year duration based on investment return, mortality, and expenses, which can result in increase or decrease of premium (within a stated maximum)
Level Term Insurance
Term insurance where the face value of policy remains the same from the date the policy is issued until the date the policy expires.
Decreasing Term
A type of life insurance that features a level premium and a death benefit that decreases
each year over the duration of the policy.
Convertible Term Insurance
Term to Permanent, no requirement of proof of insurability, most people convert at attained age to avoid paying back premiums, time-limit varies by policy
Renewable Term
Insurance which can, at the election of the policyowner, be renewed at the end of a term
attained age without evidence of insurability within a time limit (commonly 30 days)
Interim Term
Interim term coverage provides instantaneous coverage and is intended for people who plan on purchasing permanent life insurance coverage within one year, no proof of insurability, at attained age, built in time limit
Family Income Policies
Income is paid upon death of family breadwinner, combination of permanent and decreasing term coverage, children are added without additional premium and can convert at specified age without proof of insurability. Benefit duration lasts not starting from death but from when policy was purchased.
Family Maintenance Policies
Combination of level term and permanent policies, income provided starting from insured's death
Jumping Juvenile Policy
Purchased by parent, the child reaches age 21, coverage increases to five times the face amount, premiums remain the same and no evidence of insurability is required.
Industrial Life Insurance
A type of insurance in which the policies are sold in small amounts and an agent of the company collects the premiums at the insured's home usually monthly or weekly (by home service companies)
Monthly Debit Ordinary Policy
Higher premium amounts but paid monthly and collected at policyowner's home or by mail or bank account
Annuities
A fixed sum of money paid to someone each year, typically for the rest of their life.
Annuitant
The person who receives the payments from an annuity
Beneficiary
Receives any survivor benefits payable under the annuity on the death of the annuitant
Fixed Annuity
Specifies a fixed, guaranteed minimum rate of interest paid on the principle amount invested in the annuity, taxes are deferred during accumulation period
