Insurance Planning for Financial Advisors Flashcards
7 cards from real Financial Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Insurance Planning for Financial Advisors flashcards as text
What type of life insurance provides coverage for a specified period and pays a death benefit only if the insured dies within that period?
Answer: Term life insurance
Term life insurance provides pure death benefit protection for a defined period (e.g., 10, 20, or 30 years) with no cash value component.
Which life insurance policy type combines a permanent death benefit with a cash value component that grows at a guaranteed interest rate?
Answer: Whole life insurance
Whole life insurance offers a guaranteed death benefit, guaranteed cash value growth at a fixed rate, and level premiums for the life of the insured.
Under IRC Section 101(a), life insurance death benefits paid to a named beneficiary are generally:
Answer: Received income-tax-free by the beneficiary
IRC Section 101(a) provides that life insurance proceeds paid by reason of death are excluded from the gross income of the beneficiary.
Which estate planning tool uses a trust to own life insurance policies so that the death proceeds are excluded from the insured's taxable estate?
Answer: Irrevocable Life Insurance Trust (ILIT)
An ILIT is an irrevocable trust that owns and is the beneficiary of life insurance policies, keeping proceeds outside the insured's gross estate for estate tax purposes.
A 'paid-up' life insurance policy means:
Answer: No further premiums are required and the policy remains in full force
A paid-up policy has accumulated sufficient cash value so that no additional premiums are needed to keep the policy in force until death.
Which fundamental insurance principle holds that a policyholder cannot profit from an insurance claim beyond their actual financial loss?
Answer: Principle of indemnity
The principle of indemnity states that insurance is designed to restore the insured to their pre-loss financial position, not to generate a profit.
A client wants permanent life insurance with the flexibility to adjust premium payments and death benefit amounts over time. Which policy type is most appropriate?
Answer: Universal life insurance
Universal life insurance allows policyholders to vary the timing and amount of premium payments and adjust the death benefit within policy limits.