Chapter 4 - Life Policy Provision and Options

After a life insurance policy has been in force for more than _____ years the policy is considered incontestable. A) 2 B) 4 C) 3 D) 1

A) 2

Typically, how many days can elapse before an overdue premium will cause a policy to lapse? A) 30 B) 7 C) 10 D) 28

A) 30

What are the two types of life insurance assignments? A) Absolute and collateral B) Revocable and irrevocable C) Entire amount and percentage amount D) Complete and partial

A) Absolute and collateral

For which of the following reasons may an insured return the policy for a full refund within the Free Look Period? A) Any reason B) Increase in premium C) Death of the agent D) Decline in financial rating of the insurance company

A) Any reason

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies and Alice names Dale as the new primary beneficiary. Alice dies, so who receives the policy proceeds? A) Dale B) Claire C) Bill's estate D) Alice's estate

A) Dale

The surrender charge schedule for a variable universal life policy generally ________ over time. A) Decreases B) Fluctuates C) Remains the same D) Increases

A) Decreases

All of the following are common exclusions, except: A) Driving B) Hazardous occupation C) Aviation D) Hazardous hobbies

A) Driving

The nonforfeiture option that provides the most amount of coverage is: A) Extended Term B) Reduced Paid-Up C) Cash surrender value D) Automatic Premium Loan

A) Extended Term

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? A) Fixed Period B) Joint Life C) Extended Term D) Life Income Only

D) Life Income Only

A beneficiary wants a guarantee that benefits will be paid for a period of 10 years or life whichever time period is greater. Which of the following options should the beneficiary select? A) 10-year Period Certain B) Joint Life Income C)Fixed Amount D) Life with 10-year Period Certain

D) Life with 10-year Period Certain

Provisions and clauses, unlike riders, are included in the contract for: A) A nominal charge B) A slight fee C) A premium D) No additional charge

D) No additional charge

If a life insurance policy lapses due to nonpayment of premium, then reinstatement requires: A) Proof of insurability only B) The payment of the next annual premium in full and in advance C) The payment of back premiums only D) The payment of back premiums, plus interest, and proof of insurability

D) The payment of back premiums, plus interest, and proof of insurability

Which of the following statements regarding life insurance policy exclusions is TRUE? A) Generally, aviation is excluded, except for fare-paying passengers on a commercial flight B) The war clause states coverage is provided if death is the result of war C) The status clause states that coverage is provided to individuals with military status D) Hazardous occupations are usually covered at a reduced benefit if death is the result of an insured's occupation

A) Generally, aviation is excluded, except for fare-paying passengers on a commercial flight

Taxation applies to any ________ on the cash value paid out as a withdrawal of a Universal Life policy. A) Interest B) Dividend C) Refund of premium D) Capital gain

A) Interest

A _______ Option protects the policyowner against total loss of benefits in the event of a lapsed policy. A) Nonforfeiture B) Spendthrift C) Dividend D) Settlement

A) Nonforfeiture

Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use? A) Revocable beneficiary B) Tertiary beneficiary C) Contingent beneficiary D) Irrevocable beneficiary

A) Revocable beneficiary

Which provision requires the application, the contract itself and any riders to be attached to establish a complete contract? A) The Entire Contract Provision B) The Incontestability Provision C) The Insuring Clause D) The Ownership Provision

A) The Entire Contract Provision

A universal life policy has a death benefit of $125,000 and a cash accumulation value of $15,000. Generally, what will happen to the policy if there is a $5,000 partial withdrawal? A) The death benefit or cash accumulation will be reduced by the partial withdrawal B) The policy will immediately be voided by the insurer C) The policy will be used as collateral for a loan from the insurer for which interest will be charged D) The policy will become paid up

A) The death benefit or cash accumulation will be reduced by the partial withdrawal

The Mode of Premium provision addresses: A) The frequency of premium payment B) The method of premium payment C) When premiums can be skipped D) Whether or not the insurer or producer will accept cash

A) The frequency of premium payment

Which of the following statements about policy dividends is TRUE? A) There are several dividend options to choose from B) Dividends can only be withdrawn at certain specified intervals C) Nonparticipating policies are eligible for dividends D) Dividends are guaranteed and taxable as income when received

A) There are several dividend options to choose from

All of the following regarding revocable beneficiaries is true, except: A) They have rights in the policy just like any other party to the contract B) Most beneficiaries are designated as revocable C) They have no vested interest in the policy D) The policyowner can change a revocable beneficiary at any time

A) They have rights in the policy just like any other party to the contract

What is the primary purpose of the free look period? A) To allow the applicant time to reconsider their purchase decision and to see if the policy was issued as applied for B) It forces producers to deliver policies in person to resell the policy to reduce returns and early policy lapses C) It is a marketing strategy of major insurers to get applicants to sign up for a policy D) It is a way to offer a legal rebate, 10-30 days of 'free' insurance

A) To allow the participant time to reconsider their purchase decision and to see if the policy was issued as applied for

A partial withdrawal is considered ______________. A) A policy loan B) A partial surrender of the policy C) A temporary event D) A one-time event

B) A partial surrender of the policy

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Claire dies, then Alice dies, so who receives the policy proceeds? A) The treasury of the state where Alice lives B) Alice's estate C) Bill D) Claire

B) Alice's estate

Which of the following beneficiary designations is a class designation? A) Bank of Springfield - creditor B) Any children of this marriage C) Mary Smith - spouse D) Frank Jones - son

B) Any children of this marriage

Which of the following is TRUE concerning reinstatement of a life insurance policy? A) Reinstatement may be completed at any time after the policy has lapsed B) Companies have the right to require medical examinations C) Back premiums need not be paid prior to granting reinstatement D) Proof of insurability is not required

B) Companies have the right to require medical examinations

Once issued, if the application is attached to the policy itself, it then becomes part of the ___________. A) Incontestability Clause B) Entire contract C) Consideration Clause D) Insuring Clause

B) Entire contract

The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force. A) Consideration B) Insuring C) Entire Contract D) Incontestability

B) Insuring

The insuring clause is found: A) On the last page of the policy B) On the first page of the policy C) Right before the copy of the application D) In front of a copy of the paramedical exam results

B) On the first page of the policy

How long, typically, is the grace period on a $500,000 level term life insurance policy? A) One year B) One month C) One week D) One quarter

B) One month

___________ in a policy allow the owner to name the beneficiary, choose a dividend option or settlement option, or borrow against the contract. A) Incontestable Clause B) Ownership Provision C) Insuring Clause D) Consideration Clause

B) Ownership Provision

Frank has a life insurance policy in which he chooses to have the dividends increase the death benefit. Which Dividend Option did he select? A) Acceleration of Endowment B) Paid-Up Additions C) Paid-Up Option D) Fixed Amount

B) Paid-Up Additions

Angela bought a policy from her friend, an insurance producer. After looking it over thoroughly, Angela only has one question. Will she receive dividends? She will if the policy is which of the following? A) Cash Value Policy B) Participating C) Nonparticipating D) Accumulating

B) Participating

All of the following are Settlement Options, except: A) Fixed Amount B) Reduced Paid-Up C) Fixed Period D) Life Income Joint and Survivor

B) Reduced Paid-Up

The __________ provision specifies what an insured must do, if a policy has lapsed, in order to put it back in force. A) Reconsideration B) Reinstatement C) Renewal D) Reissuance

B) Reinstatement

All of the following can determine the death benefit settlement option, except: A) The policyowner prior to death B) The insurer C) The beneficiary if the policyowner directs the insurer to permit him or her to choose D) The beneficiary if no option was designated

B) The insurer

Who retains all of the rights in a life insurance policy? A) The insurer B) The policyowner C) The beneficiary D) The insured

B) The policyowner

On a variable universal life policy what is the difference between the cash value and the cash surrender values? A) The investment performance B) The surrender charge C) The amount of any outstanding policy loan D) The interest earned

B) The surrender charge

K has a $50,000 traditional whole life policy in force with $25,000 of cash values. Her outstanding loan and loan interest total $5,000. If K surrenders the policy, K will receive: A) $30,000 B) $45,000 C) $20,000 D) $25,000

C) $20,000

K has a loan of $5,000 outstanding against her $25,000 traditional whole life policy. If K dies, how much will her beneficiaries receive? A) $5,000 B) $25,000 C) $20,000 D) $30,000

C) $20,000

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: A) $15,000 B) $65,000 C) $50,000 D) $35,000

C) $50,000

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Alice dies, so who receives the policy proceeds? A) Alice's estate B) The treasury of the state where Alice lives C) Bill D) Claire

C) Bill

The bank may require its borrowers to have a life insurance policy to secure a loan in the event of the borrower's death. Which provision gives the bank proportional protection but not control of the policy? A) Policy Loan Provision B) Consideration Clause C) Collateral Assignment D) Entire Contract Clause

C) Collateral Assignment

What provision describes the parts of the life insurance contract? A) Incontestability B) Insuring C) Entire Contract D) Consideration

C) Entire Contract

Which individual policy standard provision stipulates the conditions under which the insurer will not pay a claim while the policy was in force at the time of death of the insured? A) Free Look B) Consideration Clause C) Exclusions D) Misstatement of Age or Gender

C) Exclusions

Which of the following is FALSE about the Automatic Premium Loan Provision (APL)? A) The APL is treated like any other policy loan B) It is only available on cash value policies C) For it to be included in the policy, there is an additional premium charge D) It is designed to prevent unintentional policy lapse

C) For it to be included in the policy, there is no additional premium charge

Which of the following correctly describes the effect of the Common Disaster Clause? A) If the primary and contingent beneficiary die when the boat they were sailing in sinks, it is presumed that the primary beneficiary outlived the contingent beneficiary for claims paying purposes B) If an insured and contingent beneficiary both die in a train wreck, it is presumed that the insured died first in order to protect the primary beneficiary's right to claim the death benefit C) If an insured and primary beneficiary both are killed when the bus they are riding in goes over a cliff and if it cannot be determined who died first, the insured or primary beneficiary, the insured will be presumed to have survived the primary beneficiary so the contingent beneficiary will be able to receive the death proceeds D) If the insured and primary beneficiary are killed in an auto accident in which both were in the car at the time of the crash, an autopsy will be required in order to determine which passenger died first

C) If an insured and primary beneficiary both are killed when the bus they are riding in goes over a cliff and if it cannot be determined who died first, the insured or primary beneficiary, the insured will be presumed to have survived the primary beneficiary so the contingent beneficiary will be able to receive the death proceeds

Failure to repay a loan or loan interest will void a life insurance policy: A) If interest rates increase by more than 3% in any 1 year B) After the loan has been outstanding for more than 5 years C) If the total amount due equals or exceeds the policy's cash values D) After the insurer calls in the loan with 30 days advance notice

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

Life insurance benefits are usually paid ____________, unless another mode of settlement has been selected. A) In installments over a specified period of time B) Until the beneficiary dies C) In a lump sum D) In specified amounts over time

C) In a lump sum

When there is enough cash value within a life policy to pay the premium, the Automatic Premium Loan provision prevents the policy from: A) Renewing B) Surrendering C) Lapsing D) Converting

C) Lapsing

Z is the beneficiary of a life insurance policy. Rather than take a lump sum, Z wanted a lifetime payout. However, Z would feel bad if after he died, residual values were retained by the insurer rather than being paid out. Z should consider which of the following settlement options? A) Life with Period Certain B) Life Only C) Life Refund D) Joint Life

C) Life Refund

Burt named Liz as his beneficiary; however, he did not choose a Settlement Option. At the time of his death, who determines the option to be used to receive the benefits? A) Lump sum is the automatic option when no option was preselected prior to death of the insured B) The insurer decides when the election is not made by the policyowner prior to death C) Liz the beneficiary determines which option she would like to have D) Burt's estate, since no Settlement Option was chosen

C) Liz the beneficiary determines which option she would like to have

Which of the following death benefit settlement options pays out a benefit that is 100% income tax-free to the recipient? A) Fixed Period B) Life Income Only C) Lump Sum D) Fixed Amount

C) Lump Sum

If an insured dies during the policy's grace period, the insurer will: A) Pay the death benefit and waive the premium due B) Deny the claim C) Pay the death benefit, less the amount of premium due D) Pay the death benefit after the beneficiary has paid the premium due

C) Pay the death benefit, less the amount of the premium due

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? A) Cash B) Paid-Up Option C) Premium Reduction D) Accumulate at Interest

C) Premium Reduction

The nonforfeiture option that provides coverage for the longest period of time is: A) Extended Term B) Automatic Premium Loan C) Reduced Paid-Up D) Cash surrender value

C) Reduced Paid-Up

All of the following are traditional whole life policy nonforfeiture values, except: A) Extended term insurance B) Reduced paid-up insurance C) Renewable and convertible features D) Cash surrender values

C) Renewable and convertible features

The owner's rights include all of the following, except: A) Select dividend paying options on a participating policy B) Borrowing the cash values C) Selection of mortality table to use D) Name and change beneficiaries

C) Selection of mortality table to use

A policyowner has chosen the Fixed Amount Settlement Option. Which of the following best describes this option? A) Only the death benefit with no interest is paid B) The death benefit is paid in lump sum fashion C) The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds plus interest are depleted D) The insurer determines the number of periods that payments are made

C) The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds plus interest are depleted

Assignment is _______________. A) What the applicant is asked to do when completing the application B) What the insured is asked to do during the underwriting process C) The transfer of all or part of the ownership in a life insurance policy D) What the producer is asked to do prior to submitting the application for underwriting

C) The transfer of all or part of the ownership in a life insurance policy

The insurer's consideration is __________ while the applicant's consideration is ________. A) Issuing the policy / Submitting the application B) Providing claim forms / Submitting proof of death C) Their promise to pay the claim / The application and premium payment D) Hiring and training a producer / Listening to the sales presentation

C) Their promise to pay the claim / The application and premium payment

What is the primary purpose of the reinstatement provision? A) To help the insurer recoup back premiums B) For insurers to profit on the interest charge C) To put a policy back in force as if it had never lapsed D) To protect beneficiaries rights to future claims

C) To put a policy back in force as if it had never lapsed

Dividends if declared are paid __________. A) Semi-annually B) Quarterly C) Monthly D) Annually

D) Annually

The ____________ provision prevents a Whole Life Policy from lapsing, as long as there is adequate cash value, if the insured/policyowner forgets to pay the premium by the end of the grace period. A) Reinstatement B) Conservation C) Mode of Premium D) Automatic Premium Loan

D) Automatic Premium Loan

The policy loan amount cannot exceed the ____________. A) The loan balance B) The face amount of the policy C) The cumulative premiums paid D) Available cash surrender value

D) Available cash surrender value

If overdue premiums are not paid by the end of the grace period, a traditional Whole Life policy will automatically: A) Be reduced in face amount by the amount of the overdue premium B) Be canceled with no value C) Be cash surrendered D) Become extended term

D) Become extended term

Which of the following is FALSE regarding Settlement Options? A) A policyowner may change a previously chosen settlement option before the insured dies B) Settlement Options are used when the owner wants to convert a lump sum death benefit to an income stream for the beneficiary C) If the policyowner has chosen an option prior to death, the beneficiary cannot change it at time of claim D) Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary

D) Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary

If a beneficiary is designated as irrevocable, then all of the following require the irrevocable beneficiary's approval, except: A) Taking a policy loan B) Reducing the coverage C) Policy assignment D) Changing the mode of premium

D) Changing the mode of premium

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? A) Insuring Clause B) Spendthrift Clause C) Consideration Clause D) Common Disaster Clause

D) Common Disaster Clause

If an applicant for life insurance misstates his age on the application, what would be the consequence if/when it is discovered? A) Real age divided by actual age, multiplied by death benefit B) Premiums refunded with interest, no death benefit paid C) The policy will be voided D) Death benefit will be what the premium paid would have purchased at issuance at the correct age

D) Death benefit will be what the premium paid would have purchased at issuance at the correct age

All of the following are Dividend Options, except: A) One-year term B) Cash C) Paid-up additions D) Extended term

D) Extended term

If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due. A) Incontestability B) Reinstatement C) Settlement D) Grace

D) Grace

All of the following must be included in a whole life policy, except: A) Cash value accumulation B) Extended term provision C) Surrender value D) Guaranteed dividend table

D) Guaranteed dividend table

A married couple is interested in an annuity settlement option that will guarantee them both an income for as long as they live, an amount which reduces to 2/3 of that initial amount after one of them dies. What should they select? A) Joint Life Income B) Dual Life Income C) Life Income Period Certain D) Life Income Joint and Survivor

D) Life Income Joint and Survivor

All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except: A) An insured commits suicide 7 years after the policy was issued B) The insured was an experienced pilot who died in a plane crash but had a policy issued with an aviation rider for an additional premium C) The insurer discovers the gender of the insured was misstated D) The premiums have not been paid and have been overdue for 3 years

D) The premiums have not been paid and have been overdue for 3 years

What is the intent of the suicide clause? A) To pay out claims only if and when suicides are committed while sane B) To distinguish between sane and insane actions C) To be able to pay out claims to beneficiaries whenever such a tragic event occurs D) To discourage individuals from purchasing an insurance policy while contemplating suicide

D) To discourage individuals from purchasing an insurance policy while contemplating suicide

A partial withdrawal is permitted on which of the following policies? A) Whole Life B) Current Assumption Whole Life C) Variable Whole Life D) Universal Life

D) Universal Life