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

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."

Theexclusion ratiodetermines the portion of each annuity payment that isnot taxable(return of principal) and the portion that istaxable(earnings), especially relevant fornonqualified annuities.

"For nonqualified annuities, the exclusion ratio is used to determine the portion of the annuity payment that is taxable income."

Estate conservation refers to using life insurance proceeds to preserve an estate and prevent the forced liquidation of assets to pay taxes, debts, or other final expenses. By having life insurance in place, the policyholder ensures that the beneficiaries have sufficient liquidity to cover these obligations without selling off property or investments.

TheAutomatic Premium Loan (APL) provisionis a feature in many whole life insurance policies. If a policyholder fails to pay a premium by the end of the grace period, the insurer automatically takes a loan against the policy's cash value to cover the premium payment. This prevents the policy from lapsing due to non-payment. Interest accrues on the loan, and if not repaid, the loan amount plus interest is deducted from the death benefit.

Statements made by the proposed insured on a life insurance application are considered representations, not warranties. Representations are statements believed to be true to the best of the applicant’s knowledge. They are not guaranteed to be absolutely true and do not void the contract unless they are material misrepresentations made with intent to deceive.

Paid-up additions (PUAs) are a dividend option in whole life insurance policies that allow policyholders to use dividends to purchase additional amounts of paid-up life insurance. These additions increase both the policy's cash value and death benefit. Each paid-up addition is a miniature whole life policy that requires no further premiums and participates in future dividends. This compounding effect can significantly enhance the policy's value over time. Therefore, the correct answer is C.

The primary purpose of licensing insurance agents is to protectthe publicby ensuring that agents meet minimum qualifications and adhere to ethical standards. The Ohio Department of Insurance oversees the licensing process to maintain public trust and ensure that agents are competent to sell insurance products.

Alimited payment policyallows the policyholder to pay premiums only for apredetermined number of yearsor until a certainage, after which no further premiums are required, though coverage continues.

"Limited payment whole life policies require premiums to be paid for a limited period, such as 20 years or until age 65. After this, no further premiums are due, but coverage remains in force for life."

Under Ohio regulations governing viatical settlements, insurers are required to respond to a verification of coverage request within 30 calendar days. This ensures timely processing and supports consumer protection during transactions involving the sale of life insurance policies.

The Joint and Survivor settlement option provides periodic income payments for the lifetime of two individuals, typically spouses. As long as at least one of the two insureds is alive, payments continue. This option is commonly used in retirement planning to ensure continuous income for the surviving spouse.

In an executive bonus plan, the employer provides a bonus to the employee, which the employee uses to purchase a life insurance policy. The premiums paid by the employer are considered a form of compensation and are therefore taxable income to the employee. This means the employee must report the premium amounts as income on their tax return. The employer, on the other hand, can typically deduct the bonus as a business expense.

This structure allows the employee to own the policy, name the beneficiaries, and access the policy's cash value, while the employer benefits from a tax deduction.

In agroup annuity, the employer holds the master contract, and individual employees typically do not receive separate contracts. Instead, they receive certificates outlining their benefits under the group plan.

Therefore, the statement that "each employee signs and receives an individual contract" is incorrect.

Aparticipating whole life insurance policyis issued by amutual insurerand may pay policy dividends to the policyholder. These dividends represent areturn of divisible surplus. Mutual insurers are owned by their policyholders and typically issue participating policies.

"A participating policy allows the policyholder to share in the insurer’s surplus earnings. These policies are most often issued by mutual insurers and return dividends which represent a portion of the divisible surplus."

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."

TheOhio Superintendent of Insurancemay issue acease and desist orderagainst a licensee if a violation of insurance law is suspected and substantiated through a hearing process. This is a legal measure to stop the unlawful conduct.

"If, after a hearing, the Superintendent determines a person has committed or is about to commit an unfair or deceptive act, they may issue a cease and desist order."

Awaiveris defined as theintentional and voluntary relinquishment of a known right. In insurance, this often occurs when an insurer chooses not to enforce a policy provision.

"A waiver is the intentional relinquishment of a known right. It may occur when an insurer voluntarily gives up a right under the policy."

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."

Standard premium payment frequencies accepted by life insurance companies typically include monthly, quarterly, semi-annually, and annually. Bi-weekly premium payments are not commonly offered due to administrative complexities and are generally not an available option for policyowners.

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.

Agents must provide apolicy summarythat includes details about thelong-term care benefits, costs, and provisions at the time of application.

"A policy summary outlining the coverage, benefits, and cost of long-term care riders must be provided to the applicant during the application process."

Anattending physician’s statement (APS)is requested by the insurerwhen an applicant’s health history suggests additional information is needed for underwriting. Theapplicant’s consent is requiredfor the insurer to obtain the APS.

"An attending physician’s statement may be ordered by the insurer when more information is required for underwriting. It must be authorized by the applicant."

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."

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."

Agents have a fiduciary responsibility to act promptly in matters involving client funds. Failure to refund premiums or other monies in a timely manner is considered misconduct and may result in administrative actions, including suspension or revocation of the agent's license by the state insurance department.

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.

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.

Concealment refers to the intentional omission of material facts that are crucial to the underwriting process of an insurance policy. In the context of insurance, if an applicant knowingly fails to disclose pertinent information, such as a pre-existing health condition, it can lead to the voiding of the policy or denial of a claim.

According to the Ohio Life Insurance Study Guide:

"Concealment occurs when an applicant intentionally fails to disclose a material fact, which, if known, would have influenced the insurer's decision to issue the policy or determine the premium."

The Ohio Life and Health Insurance Guaranty Association (OLHIGA) provides protection to policyholders in the event that a member insurer becomes insolvent. According to Ohio Revised Code Section 3956.08, the association may guarantee, assume, reissue, or reinsure the policies of an impaired or insolvent insurer to ensure the payment of contractual obligations. This protection is specifically activated when an insurer is declared insolvent and is unable to fulfill its obligations to policyholders.

Decreasing term insuranceis specifically designed for situations like mortgages. Thedeath benefit decreases over time, mirroring the decreasing balance of a mortgage. It is cost-effective and commonly used for mortgage protection.

"Decreasing term insurance provides a death benefit that decreases over time, typically used to cover a loan or mortgage, ensuring it is paid off if the insured dies before full repayment."

According to the Ohio Department of Insurance guidelines, each insurance licensee is required to complete24 credit hoursof continuing education during eachtwo-year license renewal period. This includesat least 3 hours in approved ethics training.

"Licensees must complete a total of 24 credit hours of continuing education every two years, including a minimum of 3 hours in ethics."

Risk sharinginvolvesdistributing risk among a group, such as in mutual insurance companies or professional groups pooling money for coverage. This differs from risk transfer (insurance) or risk avoidance.

"Risk sharing occurs when a group of individuals or entities pools resources to mutually cover potential losses, such as pooling funds to cover professional liability."

Competency to enter into a contract, including insurance contracts, requires that the individual has reached the legal age of majority and possesses the mental capacity to understand the contract's terms. In Ohio, the legal age of majority is 18 years. Therefore, individuals 18 years or older are presumed competent to enter into binding contracts unless proven otherwise. This ensures that the parties involved have the legal capacity to understand and agree to the contractual obligations.

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.

A waiver of premium rider allows the policy to remain in force without premium payments if the insured becomes totally disabled and meets the terms of the rider. Once activated, the insurance company waives the premium payments, and the policy continues as if payments were being made. The cash value and death benefit remain unaffected, ensuring full policy performance.

Whole life insurance policies accumulate cash value over time, which policyholders can borrow against. When Bettie takes a loan of $30,000 against her policy's cash value, she is not required to repay the loan during her lifetime. However, any outstanding loan amount, plus interest, will be deducted from the death benefit paid to her beneficiaries upon her death. It's important to note that while repayment is not mandatory, unpaid loans can reduce the policy's death benefit and, if the loan balance exceeds the cash value, may cause the policy to lapse

Inkey person insurance, theemployeris the policyowner, premium payer, and beneficiary. The policy is designed to help the business recover from the loss of a crucial employee.

"In a key person life insurance policy, the employer is the applicant, policyowner, premium payer, and beneficiary. The purpose is to protect the business from financial losses resulting from the death of a key employee."

AFixed Annuityprovides a guaranteed, level benefit payment for the term of the annuity. Payments do not fluctuate because they are determined based on a fixed interest rate and the terms of the contract.

"A fixed annuity pays a guaranteed rate of interest and provides level benefit payments throughout the annuitization period, offering safety and predictability for the annuitant."

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.

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.

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."

The accumulation phase is the period in an annuity contract during which the annuitant makes payments or contributions to the annuity. During this phase, the funds accumulate on a tax-deferred basis, meaning that taxes on earnings are deferred until distributions begin. This phase continues until the annuitant decides to begin receiving payments, at which point the annuity enters the payout or distribution phase

Underwriting is the process by which insurers evaluate the risk of insuring a potential policyholder. This involves the selection of risks, classification of those risks into categories (such as preferred, standard, or substandard), and the determination of appropriate premium rates. The goal of underwriting is to ensure that the insurer maintains a balanced and profitable risk

According to Ohio insurance law, agents are required to maintain accurate records and provide them upon request to the Superintendent of Insurance. This authority ensures regulatory compliance and supports investigations into insurance practices.

AClass designationis used when a group of individuals is identified as beneficiaries without naming each one individually, such as “all of my children.” This allows for inclusion of future children or changes in family composition.

"A class designation identifies a group of individuals as beneficiaries, like 'all of my children,' instead of naming each person individually. It ensures that any future members of the class are included."

Extended termis anonforfeiture option, not a settlement option. Settlement options includefixed period,life income with period certain, andpure life income, which determine how policy proceeds are paid out.

"Settlement options refer to how the death benefit proceeds are paid to beneficiaries. Options include fixed period, life income, and life income with period certain. Extended term is a nonforfeiture option, not a settlement option."

Roth Individual Retirement Accounts (IRAs) are funded with after-tax dollars, meaning that contributions are not tax deductible. This is in contrast to traditional IRAs, where contributions may be tax deductible depending on the individual's income and participation in an employer-sponsored retirement plan. The primary advantage of a Roth IRA is that qualified distributions, including earnings, are tax-free, provided certain conditions are met

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."

Adverse selection occurs when individuals with higher-than-average risk are more likely to seek or continue insurance coverage. In group life insurance, insurers use underwriting guidelines and participation requirements (e.g., minimum group size, employer-employee relationship) to avoid insuring groups that disproportionately consist of high-risk individuals. The goal is to ensure a balanced risk pool.

Akey disadvantage of fixed annuitiesis that while they offer guaranteed payments, thefixed payment amount may not keep up with inflation, reducing purchasing power over time. This is a common concern for retirees relying on steady income.

"A disadvantage of fixed annuities is that they do not offer protection against inflation, meaning the real value of payments can diminish over time."

Interest-sensitive life insurance policies, such as universal life policies, often include a provision for partial surrenders. This allows policyowners to withdraw a portion of the policy's cash value without incurring interest charges. The amount withdrawn reduces the policy's cash value and death benefit accordingly.

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."

Life insurance provides aguaranteed death benefit, which is aspecified sum of moneypaid to the named beneficiary upon the death of the insured.

"The primary function of life insurance is to provide a guaranteed amount of money to the beneficiary upon the death of the insured."

In the context of insurance applications, representations are statements made by the applicant regarding their personal information, including health history, family health history, occupation, and hobbies. These statements are considered to be true to the best of the applicant's knowledge and belief. Representations are not warranties but are used by the insurer to assess the risk associated with insuring the applicant. Misrepresentations can lead to the voiding of the policy if they are found to be material to the risk and were made with intent to deceive.