Chapter 3 Quiz Q's - Life Policy Riders, Provisions, Options, and Exclusions

What is the waiting period on a Waiver of Premium rider in life insurance policies? A) 30 days B) 3 months C) 5 months D) 6 months

ANSWER: D EXPLANATION: Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

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

ANSWER: D EXPLANATION: Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to A) The insurance company. B) The insured's estate. C) The insured's firstborn child. D) Both children who share equally on a per-capita basis.

ANSWER: B EXPLANATION: Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate.

What type of insurance would be used for a Return of Premium rider? A) Decreasing Term B) Annually Renewable Term C) Increasing Term D) Level Term

ANSWER: C EXPLANATION: The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

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) Guaranteed insurability option B) Dividend options C) Guaranteed renewable option D) Nonforfeiture options

ANSWER: A EXPLANATION: The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

The Ownership provision entitles the policyowner to do all of the following EXCEPT A) Set premium rates. B) Receive a policy loan. C) Assign the policy. D) Designate a beneficiary.

ANSWER: A EXPLANATION: The insurer sets premium rates based upon underwriting considerations.

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to A) The insured's spouse. B) The policyowner. C) The insurance company. D) The contingent beneficiary.

ANSWER: D EXPLANATION: A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death? A) A business partner of the insured B) The wife of the deceased insured C) The former wife of the deceased insured D) A minor son of the insured

ANSWER: D EXPLANATION: Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

What is the purpose of a free-look period in insurance policies? A) It allows the insured 10 days to pay the initial premium. B) It allows the insurer to temporarily suspend coverage after an insured's disability. C) It allows the insurer to cancel coverage if a misrepresentation is discovered. D) It allows the insured to reject the policy with a full refund.

ANSWER: D EXPLANATION: The free-look provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? A) Reinstatement B) Reduced paid-up option C) Automatic premium loan D) Extended term

ANSWER: C EXPLANATION: Automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Which is TRUE about the cash surrender nonforfeiture option? A) Funds exceeding the premium paid are taxable as ordinary income. B) After the cash surrender, the insured is covered for a grace period of 1 month. C) The policy remains active for some time after the policyholder opts for cash surrender. D) The policyholder receives the original cash value of the policy.

ANSWER: A EXPLANATION: The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

What is the benefit of choosing extended term as a nonforfeiture option? A) It allows for coverage to continue beyond maturity date. B) It can be converted to a fixed annuity. C) It has the highest amount of insurance protection. D) It matures at age 100.

ANSWER: C EXPLANATION: Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

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

ANSWER: D EXPLANATION: The free look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? A) If the insured died from accidental means B) If the primary beneficiary predeceases the insured C) The primary and contingent beneficiaries share death benefits equally D) With the primary beneficiary's written consent

ANSWER: B EXPLANATION: The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

Which of the following is TRUE about nonforfeiture values? A) A table showing nonforfeiture values for the next 10 years must be included in the policy. B) Policyowners do not have the authority to decide how to exercise nonforfeiture values. C) They are required by state law to be included in the policy. D) They are optional provisions.

ANSWER: C EXPLANATION: Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy? A) The death benefit will be larger. B) The death benefit will be smaller. C) The death benefit will be forfeited. D) The death benefit will be the same as the original face amount.

ANSWER: B EXPLANATION: If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

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

ANSWER: C EXPLANATION: Absolute Assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

The two types of assignments are A) Complete and partial. B) Complete and proportionate. C) Absolute and collateral. D) Absolute and partial.

ANSWER: C EXPLANATION: Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A) It decreases over the term of the policy. B) It remains the same as the original policy, regardless of any differences in value. C) It is reduced to the amount of what the cash value would buy as a single premium. D) It is increased when extra premiums are paid.

ANSWER: C EXPLANATION:In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death.

Who can request changes in premium payments, face value, loans, and policy plans? A) Producer B) Policyowner C) Contingent beneficiary D) Beneficiary

ANSWER: B EXPLANATION: Mandatory provisions give these rights to the policyowner.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? A) Jumping Juvenile B) Juvenile Premium Provision C) Waiver of Premium D) Payor Benefit

ANSWER: D EXPLANATION: If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the A) Revocable beneficiary. B) Secondary beneficiary. C) Contingent beneficiary. D) Irrevocable beneficiary.

ANSWER: A EXPLANATION: The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.

If a life insurance policy has an irrevocable beneficiary designation, A) The beneficiary can only be changed with written permission of the beneficiary. B) The beneficiary cannot be changed for at least 2 years. C) The owner can always change the beneficiary at will. D) The beneficiary cannot be changed.

ANSWER: A EXPLANATION: If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

Which of the following information will be stated in the consideration clause of a life insurance policy? A) The conditions for insurability B) The amount of premium payment C) The parties to the contract D) The time period allowed for the payment of premium

ANSWER: B EXPLANATION: The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.