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TEXAS (LIFE & HEALTH) CHAPTER #3 EXAM QUESTIONS WITH CORRECT ANSWERS
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TEXAS (LIFE & HEALTH) CHAPTER #3 EXAM QUESTIONS WITH CORRECT ANSWERS
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TEXAS (LIFE & HEALTH) CHAPTER #3EXAM QUESTIONS WITH CORRECT
ANSWERS
Insurable Interest - Answer-A financial interest in the life of another person; possibility of
losing something if that person dies.
3 Factors determine insurable interest? - Answer-Insuring his/her own life. Insuring the
life of family member. Insuring the life of business partner, key employee
Survivor Protection - Answer-(Personal Life Insurance) One way to provide funds to
keep up with current lifestyle if primary income earner dies. Requires careful
examination of current assets and liabilities.
Estate Creation - Answer-(Personal Life Insurance) Can create an immediate estate.
Important to young families who haven't had time accumulate assets.
Cash Accumulation - Answer-(Personal Life Insurance) Used to accumulate specific
amounts of monies for specific needs. An example would be whole life policy.
Liquidity - Answer-(Personal Life Insurance) Refers to availability of cash to be the
insured. Can often be borrowed against at any time.
Estate Conservation - Answer-(Personal Life Insurance) Proceeds may be used to pay
state inheritance taxes and federal estate tax so not necessary to sell off assets.
Viatical Settlements - Answer-Allows someone living with a life threatening condition to
sell their existing life policy to someone else. The seller of the policy to a broker is called
the "viators"
Human Life Value Approach - Answer-This method will give the insured an estimate of
what would be lost to the family in the invent of premature death. (wages, inflation,
retirement)
Needs Approach - Answer-This method based on the predicted immediate needs of a
family after premature death of the insured.
Debt Cancellation - Answer-(Needs Approach) Insurance may be used to create a fund
to pay off debt
Emergency Reserve Funds - Answer-(Needs Approach) Insurance may be used to pay
for sudden expenses during funeral, such as travel expenses and lodging for traveling
family
, Education Funds - Answer-(Needs Approach) Insurance used to continue paying for
children's school. Could also be to pay for widow to go back to school.
Retirement Fund - Answer-(Needs Approach) Cash values of matured life insurance
can be source of retirement income.
Bequests - Answer-(Needs Approach) Leave funds to their church, organization, school,
etc
Blackout Period - Answer-The time during which the surviving spouse and/or children
do not receive social security survivor benefits. Begins when last child reaches 16 until
widow reaches 60.
Liquidation vs Retention - Answer-Selling assets to raise capital is liquidation. Under
retention approach, insured purchases enough insurance to pay income benefits w/out
having to liquefy your assets.
Buy-Sell Agreement - Answer-A legal contract that determines what will be done with a
business in the event that an owner dies or becomes disabled.
Stock Redemption Plan - Answer-Under corporate ownership the business owns the
policy and will buy the deceased % of the business and increase the interest of
surviving partners. (Called "entity plan" for partnerships)
Entity Plan - Answer-The same as the stock redemption plan, except it's a partnership
and not corporate ownership
Cross Purchase Plan - Answer-Each partner agrees to sell his/her business interest to
the surviving partners, and each surviving partner agrees to buy
Key Person Insurance - Answer-The business would use the money for additional costs
of running business and replacing employee
Executive Bonus - Answer-Is an arrangement where the employer offers to give the
employee a wage increase in the amount of the premium on a new life policy
Group vs Individual Life - Answer-Individual is written on a single life. Group Life is
issued to the sponsoring organization. Each individual receives certificate instead of a
policy
Permanent Life Insurance - Answer-Permanent Life is a whole life policy that remains in
effect to the age of 100. They also can include a savings or investment element
Term Life Insurance - Answer-Temporary life insurance for a specific period of time.
Provides pure life and nothing else
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