Chapter 4 Exam - Life Policy Provisions and Options

Ted owns a $50,000 Whole Life Policy. At age 47, he decides to stop paying premiums on his policy when it has $15,000 of cash value and exercise the Extended Term Option. Ted's term benefit will be:

$50,000

Albert owned a $100,000 policy that had accumulated a cash value of $20,000, against which he had borrowed $10,000. If he dies with this loan outstanding, his beneficiary will receive which of the following amounts?

$90,000

All of the following are situations in which a life insurance company can legally get out of paying a death claim after the insured has died, except:

Five years after the policy was issued, the insurer discovered that the insured was actually older than was stated on the application

Which Settlement Option pays a specified dollar amount until benefits are exhausted?

Fixed Amount

If the policyowner specifies the time over which all settlement option installments are to be paid, he/she has chosen which Settlement Option?

Fixed Period

Which Settlement Option pays for a specified period, regardless of who may receive the payments?

Fixed Period

If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due.

Grace

If an insured dies during the policy's grace period, the insurer will:

Pay the death benefit, less the amount of premium due

Which of the following is the proper sequence of beneficiaries?

Primary, contingent, tertiary

All of the following are Settlement Options, except:

Reduced Paid-Up

If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit?

The insured's estate

Which of the following is responsible for paying the premiums due on a life insurance policy?

The policyowner

A partial withdrawal is permitted on which of the following policies?

Universal Life

If the premiums are not paid on a Traditional Whole Life policy that has been in force for decades with no loan outstanding, what happens?

Unless specified otherwise, the cash values buy extended term

How long, typically, is the reinstatement period from policy lapse?

3 years

A life insurance policy cannot be backdated more than ______ months.

6

Generally, an insurer may defer the granting of a policy loan for up to ______ months.

6

All of the following are nonforfeiture values, except:

Automatic premium loan

Which of the following provisions is NOT a standard provision?

Backdating

Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mind of being covered for the same $200,000 in death benefit although it may be for an abbreviated period of time. The Nonforfeiture Option Jamie should choose is:

Extended Term

Ed purchased a policy naming his children as per capita beneficiaries. Upon his death the proceeds are paid to:

His surviving children, who will share the proceeds equally

How long, typically, is the grace period on a $500,000 level term life insurance policy?

One month

Tom is the insured/owner of a $500,000 life insurance policy and dies leaving four surviving children, Mary, Carrie, Larry, and Barry, and each child receives $125,000 upon his death. This is an example of what type of distribution?

Per Capita

All of the following are TRUE of Policy Loan Rate provisions, except:

Policies with fixed interest loan rates have a maximum interest rate of 10%

Beth owns a 20-Pay Life participating policy. She has decided that the dividends should be applied toward future premiums. Which Dividend Option did she choose?

Premium Reduction

Lyle owns a $50,000 20-Pay Life Policy that he lets lapse at the end of the fourth year. The Nonforfeiture Option providing the longest period of coverage would be:

Reduced Paid-Up

Which of the following is NOT a Dividend Option?

Reduced Paid-Up

Which of the following statements about policy dividends is TRUE?

There are several dividend options to choose from

By law, what happens to any values remaining in a life insurance policy when it lapses due to non-payment of premiums?

They are the property of the owner and cannot be forfeited

Which statement is FALSE regarding Nonforfeiture Options?

They are used when the insured lives to the endowment date of the policy or at the insured's death

Maria's policy was issued with an incorrect age. She was actually older than what was listed in the policy. Which of the following will the insurer most likely do if she had died 5 years after policy issue, but prior to this discovery?

The insurer would pay out a reduced benefit in proportion to the underpayment of premium

Which of the following is TRUE regarding payment of premium?

The more frequent the payment, the greater the overall cost

A beneficiary receives ample income each month from the interest earned while retaining his/her principal. This is referred to as which of the following?

Capital Conservation

Mona let her permanent policy lapse. She discovered there was $2,498 in cash value remaining in the policy and decided to pay off some of her credit card debt. She exercised which Nonforfeiture Option?

Cash Surrender

What provision establishes that if both the insured and the primary beneficiary die in the same accident, and it cannot be determined who died first, the insured will be presumed to have survived the beneficiary and proceeds will be paid to a named contingent beneficiary of the insured, or to the insured's estate?

Common Disaster Clause

Failure to repay a loan or loan interest will void a life insurance policy:

If the total amount due equals or exceeds the policy's cash values

Albert, as the owner of a life insurance policy insuring his son David, wants a Settlement Option that, if David were to die, would provide guaranteed payments to Albert and his wife Lois, until both of them die. Albert should choose:

Life Income Joint and Survivor

Which of the following terms means that the policyowner can change the beneficiary designation at any time and for any reason?

Revocable

When is the earliest a beneficiary designation can be made?

At the time of policy application

Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option?

Life Income Only

John is the insured. His wife Mary is the primary beneficiary. Their three children are the contingent beneficiaries. John and Mary are killed in a common accident. The proceeds of John's policy would be paid to:

The children