Ch. 3 Life Insurance Policy Riders, Provisions, Options, and Exclusions

A partnership buy-sell agreement in which each partner purchases insurance on the life of each of the other partners is called a A. Split-dollar plan B. Stock redemption plan C. Cross-purchase plan D. Key person plan

C. Cross purchase plan

What is true about a spouse term rider? A. The rider is usually level term insurance B. Coverage is allowed for an unlimited time C. The rider is decreasing term insurance D. Coverage is allowed up to age 75

A. The rider is usually level term insurance

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? A. Nonforfeiture options B. Guaranteed insurability option C. Dividend options D. Guaranteed renewable option

B. Guaranteed insurability option

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? A. Each child covered must show evidence of insurability B. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age C. It is permanent insurance D. The policy covers only the natural children of the insured

B. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age

What is the advantage of reinstating a policy instead of applying for a new one? A. The cash values have gained interest while the policy was lapsed B. The original age is used for premium determination C. Proof of insurability is not required D. The face amount can be increased

B. The original age is used for premium determination

What is the purpose of key person insurance? A. To maintain an account that insures the owner of a company remains solvent B. To lessen the risk of financial loss because of the death of a key employee C. To provide health insurance to the families of key employees D. To insure retirement benefits are available to all key employees

B. To lessen the risk of financial loss because of the death of a key employee

An absolute assignment is a A. Change of insurer B. Transfer of all ownership rights in a policy C. Transfer of some ownership rights in a policy D. Change of beneficiary

B. Transfer of all ownership rights in a policy

All of the following are business uses of life insurance EXCEPT A. Funding against financial loss caused by the death of a key employee B. Funding against business continuation agreements C. Funding against company's general financial loss D. Compensating executives

C. Funding against company's general financial loss

A life insurance policy used to fund an agreement that contractually establishes the intent of someone to purchase a business upon the insured business owner's death is a A. Split-dollar plan B. Stock redemption plan C. Buy-sell agreement D. Key person policy

C. Buy-sell agreement

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? A. Life with period certain B. Fixed amount C. Interest only D. Fixed period

D. Fixed Period

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? A. Fixed-amounts B. Life income with period certain C. Joint and survivor D. Single life

Life income with period certain

Which of the following is true about the mandatory free look in a Life Insurance policy? A. It commences when the policy is delivered B. It commences when the application is signed C. It applies only to term life insurance D. It is optional on all life insurance policies

A. It commences when the policy is delivered

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident, and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? A. Pay a reduced death benefit B. Pay the full death benefit C. Pay nothing; there was a misrepresentation in the application D. Pay the full death benefit and refund the excess premium

A. Pay a reduced death benefit

Group life insurance is a single policy written to provide coverage to members of a group. Which of the following statements concerning group life is CORRECT? A. Premiums are determined by age, occupation, and individual underwriting B. 100% participation of members is required in noncontributory plans C. Each member covered receives a policy D. Coverage cannot be converted when an individual leaves the group

B. 100% participation of members is required in noncontributory plans

All of the following are personal uses of life insurance EXCEPT A. Cash accumulation B. Buy-sell agreement C. Survivor protection D. Estate creation

B. Buy-sell agreement

A key person insurance policy can pay for which of the following? A. Hospital bills of the key employee B. Costs of training a replacement C. Loss of personal income D. Workers comp

B. Costs of training a replacement

Which of the following is the best reason to purchase life insurance rather than annuities? A. To create regular income payments B. To liquidate a sum of money over a lifetime C. To create an estate D. To liquidate a sum of money over a period of years

C. To create an estate

Which of the following is NOT an example of a business use of Life Insurance? A. Executive Bonuses B. Key Person C. Workers Comp D. Buy-Sell Funding

C. Workers Compensation

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? A. $0 B. $50,000 (50% of policy value) C. $100,000 D. $300,000 (triple policy value)

C. $100,000

Who can make a fully deductible contribution to a traditional IRA A. Someone making contributions to an educational IRA B. A person whose contributions are funded by a return on investment C. An individual not covered by an employer sponsored plan who has earned income D. Anybody; all IRA contributions are fully deductible regardless of income level

C. An individual not covered by an employer sponsored plan who has earned income

All of the following are examples of third-party ownership of a life insurance policy EXCEPT A. A company purchases a life insurance policy on their manager, who is an important part of the operation B. When an insured purchased a new home, the insured made an absolute assignment of a life insurance policy to the mortgage company C. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan D. An insured couple purchases a life insurance policy insuring the life of their grandson

C. An insured borrows money from the bank and makes a collateral assignment of a part of the death benefit to secure the loan

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? A. Reduction of premium B. Accumulation at interest C. Paid up option D. One-year term

C. Paid up option

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to A. Pay back all premiums owed plus interest B. Receive payments for a fixed amount C. Purchase a single premium policy for a reduced face amount D. Purchase a term rider to attach to the policy

C. Purchase a single premium policy for a reduced face amount

An employee quits her job where she has a balance of $10,000 in her qualified plan. If she decides to do a direct transfer from her plan to a Traditional IRA, how much will be transferred from one plan administrator to another and what is the tax consequence of a direct transfer? A. $8,000, no tax consequence B. $8,000, tax on growth only C. $10,000, tax on growth only D. $10,000, no tax consequence

D. $10,000, no tax consequence

According to the Entire Contract provision, a policy must contain A. A declarations page with a summary of insureds B. Buyer's guide to life insurance C. Listing of the insured's former insurers for incontestability provisions D. A copy of the original application for insurance

D. A copy of the original application for insurance

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? A. Insurable interest B. Modification clause C. Ownership provision D. Collateral assignment

D. Collateral assignment

An employee has group life insurance through her employer. After 5 years, she decides to leave the company and work independently. How can she obtain an individual policy? A. She will be covered under the group plan, but will have to pay an individual policy premium B. She can only convert her coverage without proof of insurability C. She must apply for a new policy, which requires her to provide proof of insurability D. She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan

D. She can convert her group policy to an individual policy without proof of insurability within 31 days of leaving the group plan

A corporation is the owner and beneficiary of the key person life policy. If the corporation collects the policy benefit, then A. The benefit is subject to the exclusionary rule B. IRS has no jurisdiction C. The benefit is received as taxable income D. The benefit is received tax free

D. The benefit is received tax free

Which of the following is NOT true of life settlements? A. They could be used for key person coverage B. They could be sold for an amount greater than the current cash value C. They involve insurance policies with large face amounts D. The seller must be terminally ill

D. The seller must be terminally ill

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in A. Adjustment in the amount of death benefit B. No change whatsoever C. Automatic lapse D. Recession of the policy

A. Adjustment in the amount of death benefit