Life & Health Insurance Exam With Complete
Solutions Graded A+
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.
Equity index universal life insurance
Combines most of the features, benefits, and security of traditional life insurance with the potential of
earned interest based on the upward movement of an equity index.
Cash value
The equity amount or "savings" accumulation in a whole life policy.
Endowment policy
Is a contract providing for payment of the face amount at the end of a fixed period, at a specified age
of the insured, or at the insured's death before the end of the stated period.
Face amount plus cash value policy
, Contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to
the policy's cash value.
Juvenile Insurance
Written on the lives of children who are within specified age limits and generally under parental
control.
Non-medical life insurance
Typically does not require a medical exam and tends to be more expensive than medically
underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although
insurers typically will not require a medical exam, they will still inquire about the applicant's medical
history and lifestyle.
Target premium
Is a suggested premium used in Universal Life policies. It does not guarantee there will be adequate
funds to maintain the policy to any time, especially to life. It may give an indication of what will be
needed (under conservative estimates), to maintain the policy.
Accidental death benefit rider
Pays a multiple of the death proceeds if the cause of death is a covered accidental event.
Accelerated benefits rider
Allows the insured to receive a portion of the death benefit before death if the insured has a terminal
illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death
benefit will decrease the death benefit when death occurs.
Accumulate interest options
Allows dividends to accumulate interest. Interest is the ONLY thing you can be charged tax on.
Automatic premium loan provision
An overdue premium is automatically borrowed from the cash value after the grace period expires.
Cash option
The "cash" dividend option allows the policy owner to cash out the dividends they receive.
Cash surrender option
A nonforfeiture option that allows whole life insurance policy owners to receive a payout of their
policy's cash values.
Collateral assignment
Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan
balance that may exist at the insured's death.
Consideration clause
Solutions Graded A+
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.
Equity index universal life insurance
Combines most of the features, benefits, and security of traditional life insurance with the potential of
earned interest based on the upward movement of an equity index.
Cash value
The equity amount or "savings" accumulation in a whole life policy.
Endowment policy
Is a contract providing for payment of the face amount at the end of a fixed period, at a specified age
of the insured, or at the insured's death before the end of the stated period.
Face amount plus cash value policy
, Contract that promises to pay at the insured's death the face amount of the policy plus a sum equal to
the policy's cash value.
Juvenile Insurance
Written on the lives of children who are within specified age limits and generally under parental
control.
Non-medical life insurance
Typically does not require a medical exam and tends to be more expensive than medically
underwritten policies. The insurer will average out everyone's risk and charge accordingly. Although
insurers typically will not require a medical exam, they will still inquire about the applicant's medical
history and lifestyle.
Target premium
Is a suggested premium used in Universal Life policies. It does not guarantee there will be adequate
funds to maintain the policy to any time, especially to life. It may give an indication of what will be
needed (under conservative estimates), to maintain the policy.
Accidental death benefit rider
Pays a multiple of the death proceeds if the cause of death is a covered accidental event.
Accelerated benefits rider
Allows the insured to receive a portion of the death benefit before death if the insured has a terminal
illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death
benefit will decrease the death benefit when death occurs.
Accumulate interest options
Allows dividends to accumulate interest. Interest is the ONLY thing you can be charged tax on.
Automatic premium loan provision
An overdue premium is automatically borrowed from the cash value after the grace period expires.
Cash option
The "cash" dividend option allows the policy owner to cash out the dividends they receive.
Cash surrender option
A nonforfeiture option that allows whole life insurance policy owners to receive a payout of their
policy's cash values.
Collateral assignment
Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan
balance that may exist at the insured's death.
Consideration clause
