Life and Health Insurance Exam UPDATED ACTUAL
Questions and CORRECT Answers
Concept of insurance The transfer of risk from one party to another through a legal contract.
Law of Large Numbers The larger the number of risks insured in the same risk pool; the more predictable
losses become.
Peril An immediate, specific event that causes a loss.
Loss An unintended, unforeseen reduction, or destruction of financial or economic
value.
Hazard Creates an increased possibility that a peril (a cause of a loss) will actually occur.
Occurrence Is any event that causes a loss.
Risk Risk is defined as thepotential or uncertainty for loss.
Speculative risk A situation in which either profit or loss is possible, not insured.
Industrial life insurance Issues very small face amounts, such as $1,000 or $2,000. Premiums are paid
weekly and collected by debit agents. They were designed for burial coverage.
, Ordinary life insurance Life insurance of commercial companies not issued on the weekly premium basis.
It is made up of several types of individual life insurance, such as temporary
(term), permanent (whole).
Group life insurance Insurance written for members of a group, such as a place of employment,
association, or a union. Coverage is provided to the members of that group under
one master contract. The group is underwritten as a whole, not on each individual
member. One of the benefits of group life coverage is usually there is no evidence
of insurability required.
Term life insurance Life insurance that pays a death benefit if the policyholder dies within a specific
time period but has no remaining value at the end of this time.
Whole life insurance Sometimes called straight life insurance or ordinary life insurance; can provide
lifetime insurance coverage; in this case, fixed premiums are paid for life; pays
interest on the cash value portion with a guaranteed minimum interest rate during
life of the contract.
Joint survivor or last survivor life policies Cover the lives of two individuals and saves on premium costs by averaging the
ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the
death benefit upon the death of the last insured person. For example, say B and M
purchase a joint life survivor policy. If B were to die first and then M died 10 years
later, no benefits would be paid out from the policy until M died. A Joint Life and
Survivor policy covers two lives but only pays benefits after the death of the last
insured.
Family maintenance policy Pays a monthly income from the date of death of the insured to the end of the
preselected period.
Family income policy Combines Whole Life insurance with a Decreasing Term
Rider also written on the same person.
Adjustable life policy Whole life insurance policy, but you can change your policy as your needs
change. You can change your premium payments to increase or decrease
coverage.
Universal life insurance policy Incorporates flexible premiums and an adjustable death benefit. The investment
gains from a Universal Life Policy usually go toward the cash value. The policy
owner can use the cash value to manipulate the flexible aspects of a universal life
insurance policy. A customer who wants a policy that gives them the most options
and the most control would be looking for a Universal Life Policy. Universal
policies use gains to fund the cash value and give the policy owner options for
flexible premiums and adjustable death benefits.
Variable Life Insurance Life insurance in which the benefits are a function of the returns being generated
on the investments selected by the policyholder.
Questions and CORRECT Answers
Concept of insurance The transfer of risk from one party to another through a legal contract.
Law of Large Numbers The larger the number of risks insured in the same risk pool; the more predictable
losses become.
Peril An immediate, specific event that causes a loss.
Loss An unintended, unforeseen reduction, or destruction of financial or economic
value.
Hazard Creates an increased possibility that a peril (a cause of a loss) will actually occur.
Occurrence Is any event that causes a loss.
Risk Risk is defined as thepotential or uncertainty for loss.
Speculative risk A situation in which either profit or loss is possible, not insured.
Industrial life insurance Issues very small face amounts, such as $1,000 or $2,000. Premiums are paid
weekly and collected by debit agents. They were designed for burial coverage.
, Ordinary life insurance Life insurance of commercial companies not issued on the weekly premium basis.
It is made up of several types of individual life insurance, such as temporary
(term), permanent (whole).
Group life insurance Insurance written for members of a group, such as a place of employment,
association, or a union. Coverage is provided to the members of that group under
one master contract. The group is underwritten as a whole, not on each individual
member. One of the benefits of group life coverage is usually there is no evidence
of insurability required.
Term life insurance Life insurance that pays a death benefit if the policyholder dies within a specific
time period but has no remaining value at the end of this time.
Whole life insurance Sometimes called straight life insurance or ordinary life insurance; can provide
lifetime insurance coverage; in this case, fixed premiums are paid for life; pays
interest on the cash value portion with a guaranteed minimum interest rate during
life of the contract.
Joint survivor or last survivor life policies Cover the lives of two individuals and saves on premium costs by averaging the
ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the
death benefit upon the death of the last insured person. For example, say B and M
purchase a joint life survivor policy. If B were to die first and then M died 10 years
later, no benefits would be paid out from the policy until M died. A Joint Life and
Survivor policy covers two lives but only pays benefits after the death of the last
insured.
Family maintenance policy Pays a monthly income from the date of death of the insured to the end of the
preselected period.
Family income policy Combines Whole Life insurance with a Decreasing Term
Rider also written on the same person.
Adjustable life policy Whole life insurance policy, but you can change your policy as your needs
change. You can change your premium payments to increase or decrease
coverage.
Universal life insurance policy Incorporates flexible premiums and an adjustable death benefit. The investment
gains from a Universal Life Policy usually go toward the cash value. The policy
owner can use the cash value to manipulate the flexible aspects of a universal life
insurance policy. A customer who wants a policy that gives them the most options
and the most control would be looking for a Universal Life Policy. Universal
policies use gains to fund the cash value and give the policy owner options for
flexible premiums and adjustable death benefits.
Variable Life Insurance Life insurance in which the benefits are a function of the returns being generated
on the investments selected by the policyholder.
