OH-Life-Agent-Series-11-44 OHIO Life Insurance Agent Series 11-44 Question and Answers

Ohio law mandates that life insurance applications contain questions aimed at preventingStranger-Originated Life Insurance (STOLI), which involves investors purchasing policies for profit, rather than legitimate insurable interest.

"Applications must include questions to detect and deter STOLI transactions, which are prohibited as they lack insurable interest and are against public policy."

Term life insurance provides coverage for a specific period and is generally more affordable than whole life insurance. It is suitable when maximum protection is needed at a lower cost, especially if the insured cannot afford the higher premiums associated with permanent insurance. Term policies do not accumulate cash value but offer substantial death benefits during the term.

Awaiver of premium riderallows the insured to stop paying premiums if they become totally disabled,without changing any other termsof the policy. Coverage and cash value growth continue as if premiums were paid.

"The waiver of premium rider relieves the insured of premium payments during total disability. The policy remains in force, and all values continue to accumulate as if the premiums were being paid."

The IRS mandates that to maintain the tax-deferred status of funds, a rollover from one Traditional IRA to another must be completed within 60 days of receiving the distribution. Failing to do so may result in the distribution being treated as taxable income, and if the account holder is under age 59½, it could also be subject to a 10% early withdrawal penalty.

According to the Ohio Revised Code, the "owner" of a life insurance policy is defined as the person who has the right to designate the beneficiary of the policy and to change the designation. This means that the policy owner holds the authority to name or change the beneficiary at any time, unless the beneficiary designation is irrevocable.

The insured is the individual whose life is covered by the policy, but they may not necessarily be the owner. The producer (agent) facilitates the sale of the policy but does not have rights to designate beneficiaries. An assignee may have certain rights assigned to them, but unless specifically granted, they do not have the authority to name or change beneficiaries.

Under Ohio law, the superintendent of insurance has the authority to access the books, records, and documents of insurers and their agents during examinations or investigations. Agents are required to make these records available upon the superintendent’s request.

AChild Term Rideris an optional addition to a life insurance policy that provides term life insurance coverage for the insured's children. This rider offers a death benefit if a covered child passes away during the term specified in the rider. Typically, one rider covers all eligible children, including biological, adopted, and stepchildren, and remains in effect until each child reaches a certain age, often 18 or 25, depending on the policy terms. Upon reaching the maximum age, many policies allow for the conversion of the rider into a permanent life insurance policy for the child without requiring evidence of insurability.

This rider is distinct from other options:

Family Income Rider:Provides a steady income to beneficiaries for a specified period following the insured's death.

Family Maintenance Rider:Combines a lump-sum death benefit with monthly income payments to beneficiaries.

Guaranteed Insurability Rider:Allows the insured to purchase additional coverage at specified times without undergoing a medical exam.

Aflexible premium deferred annuity (FPDA)allows the annuitant to makevarying premium paymentsover time. The annuity starts paying out at a future date, making it suitable for retirement savings.

"Flexible premium deferred annuities permit payments of varying amounts over time before annuitization, offering flexibility for savers."

Single-Life Insuranceis a policy that insures one individual. The death benefit is paid upon the death of the insured person.

In contrast:

Survivorship Policycovers two individuals and pays the death benefit only after both have passed away.

Joint Life Contractalso insures two people but pays the death benefit upon the first death.

Under Ohio insurance laws, it is prohibited to use misleading or deceptive titles in insurance advertisements. Specifically, using a policy title that inaccurately describes the coverage can mislead consumers regarding the nature and extent of the insurance being offered. This practice is considered an unfair and deceptive act under Ohio Revised Code Section 3901.21

According to the Ohio Revised Code:

"No person shall make, issue, or circulate any estimate, illustration, circular, or statement misrepresenting the terms of any policy issued or to be issued."

Alimited pay life insurance policyallows the policyholder to pay premiums for ashorter, limited period(e.g., 10, 20 years), after which the policy ispaid-up for lifeand continues to provide coverage.

"A limited payment whole life policy has premiums payable for a specified number of years or to a specified age. After that period, no more premiums are required."

Nonforfeiture provisions in whole life insurance policies provide options to the policyholder if they stop paying premiums. One such option is extended term insurance, where the policy's cash value is used to purchase term insurance with the same face amount as the original policy for as long a period as the cash value allows.

According to the Ohio Life Insurance Study Guide:

"Under the nonforfeiture provision, a policyholder may choose extended term insurance, which uses the policy's cash value to provide term coverage equal to the original face amount for a limited time."

Thereduced paid-upoption allows the policyholder to use the cash value to buy asmaller amount of the same type of insurance, fully paid-up for life, withno more premiums required.

"Under the reduced paid-up insurance option, the policy cash value is used to purchase a smaller amount of permanent insurance that requires no further premium payments."

AFamily Term Insurance Riderextends coverage to the insured's family members, including the spouse and children, under a single policy. If the spouse covered under this rider passes away during the term, the policy pays a death benefit. This rider is an economical way to provide life insurance protection to family members without purchasing separate policies.

A "Life Annuity with Period Certain" guarantees income payments for the lifetime of the annuitant, with a minimum payment period specified (the "period certain"). If the annuitant dies before the end of this period, the remaining payments are made to a designated beneficiary for the rest of the period.

In this scenario, the annuity is set to pay income to the spouse for 20 years. If the spouse dies before the 20-year period concludes, the remaining payments continue to the children for the rest of the term. This structure aligns with the definition of a Life Annuity with a 20-Year Period Certain.

According to the Ohio Life Insurance Study Guide:

"A life annuity with period certain provides income for the life of the annuitant, but guarantees payments for a specified period. If the annuitant dies before the end of the period, payments continue to a beneficiary for the remainder of the period."

Juvenile life insurancerefers to policies purchased on the life of a minor. Theparent or guardian is typically the policyowner, and the goal is to provide early financial protection or guarantee future insurability.

"Juvenile insurance is written on the life of a minor, typically with a parent as the policyowner. It can provide early insurance coverage and secure future insurability."

Reinsurersprovide insuranceto insurance companies, helping themmanage risk exposureby sharing large or risky policies. This is known asreinsurance.

"Reinsurers insure insurance companies by accepting part of the risk from the primary insurer. This process is called reinsurance."

Universal life insurance policies offer flexible premium payments and adjustable death benefits. One of the features of universal life policies is the ability to make partial surrenders or withdrawals from the policy's cash value without terminating the policy. This allows policyholders to access funds for various needs while maintaining life insurance coverage. Therefore, the correct answer is B

A Market Value Adjustment (MVA) is a feature found in some fixed annuities that affects the surrender value of the contract based on changes in interest rates. If the annuity is surrendered before the end of the guaranteed period, the MVA can either increase or decrease the surrender value, depending on whether interest rates have fallen or risen since the contract was issued. This adjustment aligns the annuity's value with current market conditions, protecting both the insurer and the annuity holder from interest rate fluctuations.

The grace period in a life insurance policy is a specified duration after the premium due date during which the policy remains in force, even if the premium has not been paid. According to the Ohio Revised Code, every life insurance policy issued in the state must contain a provision for a grace period of one month (not less than 30 days) for the payment of every premium after the first. During this period, the insurance coverage continues, and if the insured dies within the grace period, the overdue premium may be deducted from the death benefit.

The accumulation period of an annuity is the phase during which the annuitant makes contributions to the annuity, and the funds grow on a tax-deferred basis. During this time, no distributions are made, and the value of the annuity increases based on the performance of the underlying investments or interest rates.

According to the Ohio Life Insurance Study Guide:

"The accumulation period is the time during which the annuitant makes payments into the annuity and the funds grow tax-deferred until the annuitization phase begins."

Life insurance premiums are calculated based on mortality (the likelihood of death), interest (investment earnings), and expenses (operational costs). Morbidity, which relates to illness rates, is primarily used in health insurance, not life insurance.

Implied authorityis not explicitly granted but is assumed to be given so the agent can fulfill their duties. It includes actions that are typical or necessary to carry out express authority.

"Implied authority is not specifically stated in the agency agreement but is necessary for the agent to carry out duties of the position."

An insurance agent's responsibilities in the underwriting process involve gathering necessary information for the insurer to assess risk. This includes completing applications accurately and collecting initial premiums. The final underwriting decisions, such as accepting or declining applications and setting premium amounts, are made by the insurance company's underwriters.

According to the Ohio Life Insurance Study Guide:

"The agent's role in underwriting includes completing the application, collecting initial premiums, and submitting the application to the insurer for approval."

The Guaranteed Insurability Rider (GIR) allows a policyowner to purchase additional insurance coverage at predetermined dates or life events (such as marriage or the birth of a child) without undergoing further medical underwriting. This rider is beneficial for individuals who anticipate the need for increased coverage in the future but want to secure the option now, regardless of potential changes in health status. The additional coverage amounts and option dates are specified in the rider agreement.

Insurance rates must be fair and based on actuarial principles. Rates that are excessive, inadequate, or unfairly discriminatory are prohibited. This ensures that premiums are equitable and reflect the risk profile of the insured.

According to the Ohio Revised Code:

"Rates shall not be excessive, inadequate, or unfairly discriminatory."

Lloyd's associations, also known as Lloyd's of London, are not insurance companies but rather a marketplace where members (syndicates) form groups to underwrite risks. These groups specialize in unique or complex risks that traditional insurers may not cover, such as marine, aviation, or catastrophe risks. The structure allows multiple underwriters to spread the risk.

According to theOhio Insurance Study Guide, Lloyd’s associations operate as an insurance marketplace that offers insurance for unusual or large risks. This arrangement makes them distinct from reciprocal insurers (who are essentially mutual insurers), risk retention groups (which are liability insurance companies owned by their members), and fraternal benefit societies (which provide insurance and other benefits to members of a lodge, religious group, or similar organization).

A tax liability ariseswhen the amount received upon surrender exceeds the total premiums paidinto the policy. This gain is considered taxable income.

"If the policy is surrendered for its cash value and the amount received exceeds the total premiums paid, the excess is subject to income taxation."

A Cost of Living Adjustment (COLA) rider is an optional feature that can be added to a life insurance policy to help protect the death benefit against inflation. This rider automatically increases the policy's face amount periodically, typically in line with the Consumer Price Index (CPI), ensuring that the purchasing power of the death benefit remains consistent over time.

In a whole life insurance policy, the cash value grows on a tax-deferred basis. This means that as long as the policy remains active, the policyholder does not pay income tax on the gains within the cash value. Taxes may apply if the policy is surrendered or lapses, and the amount received exceeds the total premiums paid into the policy.

A deferred annuity is characterized by premium payments made over time, with the income payments commencing at a future date. This allows the annuitant to accumulate funds on a tax-deferred basis before the payout phase begins. In contrast, an immediate annuity starts income payments shortly after a lump-sum premium is paid.

Ahazardis any situation or condition that increases theprobability or severity of a lossoccurring. Examples include poor health, dangerous hobbies, or a faulty heating system.

"Hazards are conditions or situations that increase the likelihood of a loss occurring. They can be physical, moral, or morale-related."

Insurance agents act as intermediaries between the insurer and the insured. One of their key responsibilities during the policy year is to assist policyholders in the claims process, ensuring that claims are filed correctly and followed up on promptly. This duty helps maintain trust and ensures that policyholders receive the benefits they are entitled to under their policies.

According to the Ohio Life Insurance Study Guide:

"Agents have a duty to assist policyholders in the claims process, including helping with the completion of claim forms and providing information on the status of claims."

Adjustable Life Insurance is a type of permanent life insurance that combines features of term and whole life insurance. It allows the policyowner to adjust two key policy features: the premium payment amount and the face amount (death benefit). This flexibility enables the policyowner to adapt the policy to changing financial needs and circumstances. Adjustments to the death benefit may require evidence of insurability, depending on the insurer's policies.

When dividends are left to accumulate at interest with the insurance company, the interest earned on these dividends is considered taxable income. While the dividends themselves are generally not taxable, the interest they generate is subject to taxation.

According to the Ohio Life Insurance Study Guide:

"Dividends left to accumulate at interest are taxable as income in the year the interest is credited."

Individuals leaving a group life insurance plan are generally allowed toconvert to an individual permanent policy without providing proof of insurability, provided theyapply within 31 daysof losing group coverage.

"A person has 31 days after termination of group coverage to convert to an individual permanent policy without evidence of insurability."

In Ohio, when a life insurance application is submitted without the initial premium payment (i.e., not prepaid), the coverage does not become effective immediately. Instead, the policy becomes effective on the date the policy is delivered to the applicant and the first premium is paid, provided the applicant's health status remains unchanged. This ensures that the insurer has received both the necessary payment and confirmation of the applicant's insurability before coverage begins.

According to the Ohio Life Insurance Study Guide:

"If the initial premium is not paid with the application, coverage becomes effective upon delivery of the policy and payment of the first premium, assuming the applicant's health has not changed."

The "Life Only" annuity payout option, also known as a straight life annuity, provides periodic payments to the annuitant for as long as they live. Upon the annuitant's death, all payments cease, and no further benefits are paid to any beneficiaries, regardless of how soon after annuitization the death occurs. This option typically offers the highest periodic payment amount because it carries the greatest risk to the annuitant, with no provision for return of principal or continuation of payments after death.

During the accumulation period of an annuity, the policyowner holds the rights to the contract, including the ability to surrender the annuity. Surrendering the annuity means the policyowner can terminate the contract and receive the accumulated value, subject to any applicable surrender charges or tax implications. The annuitant is the individual whose life expectancy is used to determine the annuity payments, but they do not have ownership rights unless they are also the policyowner.

AStraight Life Annuityprovides the highest monthly payout among annuity options because it offers income payments for the lifetime of the annuitant without any guarantees beyond the annuitant's life. This means that payments cease upon the annuitant's death, and no further benefits are paid to any beneficiaries. The absence of additional guarantees allows the insurer to offer higher periodic payments compared to other options that include survivor benefits or guaranteed payment periods.

Apparent Authorityarises when a third party reasonably believes, based on the agent's actions or representations, that the agent has the authority to act on behalf of the insurer, even if the agent does not have actual authority. This perception can bind the insurer to the agent's actions if the third party's belief is justified. Apparent authority is established through the agent's conduct and the insurer's representations, not through explicit agreements.

An advertisement maylegitimately include the insurer’s name, but it must not imply anygovernment endorsementor providefalse or misleading information. Benefit guarantees must be truthful and supported by the policy terms.

"All advertisements must clearly identify the insurer. Misleading statements, implying endorsement by the government, or false guarantees are prohibited."

In insurance terminology, exposure refers to the state of being subject to the possibility of loss. It represents the potential risk that an insurer assumes when providing coverage to an individual or entity. Exposure is a fundamental concept in underwriting and risk assessment, as it helps insurers determine the likelihood and potential severity of a loss occurring.

A hazard is any condition or behavior that increases the likelihood of a loss occurring. Hazards are categorized as physical, moral, or morale. For example, driving under the influence is a hazard because it elevates the chance of a car accident. In contrast, a peril is the actual cause of loss, such as fire or theft.

Anindexed annuityis tied to a market index such as the S&P 500. It offers returns based on market performance, while also providing aminimum guaranteed interest rate, combining aspects of both fixed and variable annuities.

"Indexed annuities are fixed annuities where the interest is linked to a market index. They offer the potential for higher returns while still protecting against loss through guaranteed minimum interest rates."

In a "Life Only" or "Straight Life" annuity payout option, the annuitant receives payments for the duration of their life. Upon the annuitant's death, all payments cease, and no further benefits are payable to any beneficiaries or the estate. This means that if the annuitant dies before receiving payments equal to the total value of the annuity, the remaining balance is forfeited to the insurer.

In a viatical settlement, a policyholder sells their life insurance policy to a third party for a lump sum that is less than the policy’s death benefit but more than its cash surrender value. The buyer then becomes the policy’s beneficiary and receives the full death benefit upon the insured’s death.

When an annuitant dies before the annuity's payout phase begins, the accumulated interest within the annuity is subject to income tax for the beneficiary. The beneficiary receives the premiums paid into the annuity tax-free, but any earnings or interest accrued are taxable as ordinary income. This taxation applies regardless of the beneficiary's relationship to the annuitant.

Surplus lines insurance provides coverage for unique or high-risk situations that standard (admitted) insurers are unwilling to insure. These policies are offered by non-admitted insurers through licensed surplus lines brokers.

A non-admitted insurer, also known as an unauthorized insurer, is an insurance company that has not been licensed or authorized by the state's Department of Insurance to conduct business within that state. As a result, policies issued by non-admitted insurers are not protected by the state's guaranty fund, which is designed to protect policyholders in the event of an insurer's insolvency.

Non-admitted insurers are typically utilized for surplus lines insurance, which covers unique or high-risk situations that admitted insurers are unwilling or unable to insure. While they provide necessary coverage options, consumers should be aware of the lack of guaranty fund protection.

The Fixed Period settlement option provides equal payments over a specified period, such as 10 years, until the entire death benefit is paid out. This option ensures that the beneficiary receives income for a predetermined time frame.

According to the Ohio Life Insurance Study Guide:

"Under the fixed period option, the insurer pays the death benefit in equal installments over a specified period. If the beneficiary dies before the period ends, the remaining payments go to a secondary beneficiary."

When underwriting a group life insurance plan, insurers assess the average age of the group members to determine the overall risk and appropriate premium rates. The average age influences the mortality risk profile of the group, which is a critical factor in the insurer's decision-making process.

In Ohio, individuals must obtain an insurance agent's license to engage in activities such as selling, soliciting, or negotiating insurance contracts. These activities involve direct interaction with consumers and the promotion or sale of insurance products. Underwriting, however, is the process of evaluating risk and determining the terms and pricing of insurance coverage. This function is typically performed by employees of insurance companies and does not require an agent's license.