Life Insurance Traps
This type of life insurance provides lifetime coverage but has fixed premiums, fixed death benefit, and guaranteed cash value.
What is Whole Life Insurance?
Often confused with Universal Life
This beneficiary designation allows changes without consent.
What is a Revocable Beneficiary?
People assume all beneficiaries are revocable
This clause states when coverage begins for a sickness.
What is the Insuring Clause?
Candidates choose “Eligibility” instead
This phase of an annuity begins when income payments start.
What is the Annuitization Phase?
Confused with payout phase wording
This illegal practice replaces a policy using misleading information.
What is Twisting?
Twisting vs churning confusion
This nonforfeiture option uses cash value to buy a smaller amount of fully paid‑up insurance.
What is Reduced Paid‑Up Insurance?
Candidates mix this up with Extended Term
This type of beneficiary has priority over all others.
What is a Primary Beneficiary?
“Primary vs Preferred” confusion
This provision requires insureds to notify the insurer of a claim within a certain time.
What is Notice of Claim?
Confused with Proof of Loss
This annuity guarantees principal and a minimum interest rate.
What is a Fixed Annuity?
Indexed annuities muddy the waters
This occurs when an agent induces policy lapse to earn new commission.
What is Churning?
Reverse of twisting
This clause allows the insurer to void a policy only during the first two policy years.
What is the Incontestability Clause?
People forget the 2‑year limit
This occurs when the policyowner permanently transfers ownership rights.
What is an Absolute Assignment?
Exam likes this word “absolute”
This type of policy pays regardless of other insurance coverage.
What is Primary Insurance?
Secondary vs primary confusion
This annuity payout option ends at death and pays the highest income.
What is Life Only?
People forget “highest payout” rule
This document must be provided when replacing life insurance.
What is a Replacement Notice?
Exam uses exact wording
This rider allows the policyowner—not the insured—to purchase additional coverage later.
What is the Guaranteed Insurability Rider?
Many think it belongs to the insured
This designation pays benefits to surviving beneficiaries in equal shares.
What is Per Capita?
Often reversed with Per Stirpes
This plan requires referrals to see specialists.
What is an HMO?
PPOs don’t require referrals
This risk is assumed by the contract owner in a variable annuity.
What is Investment Risk?
Exam tests risk transfer knowledge
This act involves false statements about a competing insurer.
What is Defamation?
Candidates choose “misrepresentation”
This settlement option pays interest only, with the principal paid later.
What is the Interest‑Only Settlement Option?
Easy to confuse with fixed period
This designation pays benefits to a beneficiary’s heirs if they predecease the insured.
What is Per Stirpes?
Latin terms trip people up
This clause limits benefits for conditions treated before the policy was issued.
What is a Preexisting Conditions Clause?
Wording varies on exam
This tax applies to qualified annuity withdrawals made before age 59½.
This tax applies to qualified annuity withdrawals made before age 59½.
This authority allows an agent to collect initial premiums.
What is Express Authority?
Apparent vs express trips people up