Chapter 5: Provisions, Options & Riders

A life insurance policy normally contains a provision that restricts coverage in the event of death under all of the following situations EXCEPT: a.) fare-paying passenger b.) pilot of personal airplane c.) suicide d.) war

a.) fare-paying passenger

A provision that allows a policyowner to withdraw a policy's cash value interest free is a(n): a.) partial surrender b.) waiver of premium c.) automatic premium loan d.) grace period

a.) partial surrender

An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if: a.) the insured outlived the beneficiary b.) the beneficiary outlived the insured c.) no beneficiary was ever named d.) the insured and beneficiary died at the same time

a.) the insured outlived the beneficiary

All of the following are considered to be nonforfeiture options available to a policyowner EXCEPT: a.) Extended Term Insurance b.) Cash Surrender c.) Reduction of Premium d.) Reduced Paid-Up Insurance

c.) Reduction of Premium

Kurt is an active duty serviceman who was recently killed in an accident while home on leave. Which military service exclusion clause would pay upon his death? a.) Active b.) Status c.) Results d.) Leave

c.) Results

An insurer can be protected from adverse selection with which policy provision? a.) Insuring clause b.) Grace period c.) Suicide clause d.) Reinstatement

c.) Suicide clause

A whole life insurance policy accumulates cash value that becomes: a.) the policy loan value which the insured may borrow against b.) the death benefit c.) the source of funding for administration fees d.) a source of funding a term rider to the policy

a.) the policy loan value which the insured may borrow against

If an insured dies during the grace period with no premiums paid: a.) the policy would be payable, minus the premium amount b.) the policy would be payable only after the beneficiary makes past due premium payment c.) all past premiums will be refunded with interest d.) the claim would be denied

a.) the policy would be payable, minus the premium amount

A whole life policy option where extended term insurance is selected is called a(n): a.) dividend option b.) settlement option c.) nonforfeiture option d.) interest-only option

c.) nonforfeiture option

An endorsement found in an insurance plan which modifies the provisions of the policy is called a(n): a.) attachment b.) add-on c.) rider d.) supplement

c.) rider

Matt is applying for life insurance and requests a double indemnity rider. A double indemnity benefit will be payable to Matt's beneficiary if Matt: a.) is killed while committing a felony b.) dies of a stroke c.) dies instantly from a car accident d.) is injured in a skiing accident and dies 18 months later

c.) dies instantly from a car accident

Which of these is NOT a characteristic of the Accelerated Death Benefit option? a.) The face amount and policy premium are not affected by the payment b.) Before payment of the benefit is made, specific conditions must exist, such as suffering from a terminal illness c.) There may be a dollar limit on the maximum benefit d.) The benefit can be offered as a rider at a specific extra cost or may be at no cost

d.) The benefit can be offered as a rider at a specific extra cost or may be at no cost

When a life insurance policy is surrendered, how does the cost recovery rule apply? a.) The policy's cost basis is taxable b.) The insurer withholds the cost basis c.) The entire cash value is taxable d.) The policy's cost basis is exempt from taxation

d.) The policy's cost basis is exempt from taxation

A guaranteed issue insurance policy has no: a.) initial premium requirement b.) incontestable period c.) waiting period d.) medical underwriting

d.) medical underwriting

A provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a(n): a.) insuring clause b.) payor provision c.) reinstatement provision d.) nonforfeiture provision

d.) nonforfeiture provision

In a life insurance policy, the entire contract consists of: a.) policy and conditional receipt b.) policy and all sales material c.) policy and any verbal agreements d.) policy and attached application

d.) policy and attached application

An error was made on Mary's life insurance application. Which of the following areas are errors commonly made on applications for which the incontestable clause does NOT apply? a.) Marital status b.) Age c.) Address d.) Income

b.) Age

A life insurance policyowner was injured in an automobile accident which results in a total and permanent disability. Which rider would pay a monthly amount because of this disability? a.) Long-term care rider b.) Disability income rider c.) Annuity rider d.) Waiver of premium

b.) Disability income rider

Which of these would limit a company's liability to provide insurance coverage? a.) Waiver b.) Exclusion c.) Rider d.) Provision

b.) Exclusion

When does a life insurance policy's waiver of premium take effect? a.) Insured becomes unemployed b.) Insured becomes totally disabled c.) Insured has had policy in force for a specified number of years d.) Insured has become terminally ill

b.) Insured becomes totally disabled

In order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST: a.) remit all past-due premiums within the grace period b.) provide evidence of insurability to the insurer c.) resubmit a new life insurance application d.) provide a valid reason for the lapse

b.) provide evidence of insurability to the insurer

The two major actions required for a policyholder to comply with the Reinstatement Clause are: a.) provide evidence of insurability, agree to a new incontestable period b.) provide evidence of insurability, pay past due premiums c.) pay past due premiums, agree to a new incontestable period d.) pay past due premiums, agree to a reduction in coverage

b.) provide evidence of insurability, pay past due premiums

What is an insurance policy's grace period? a.) Period of time after the initial premium is paid and before the policy is issued b.) Period of time it takes for a policy's underwriting to complete c.) Period of time after a policy is issued and before it is delivered to policyowner d.) Period of time after the premium is due but the policy remains in force

d.) Period of time after the premium is due but the policy remains in force

A life insurance policyowner does NOT have the right to: a.) change a beneficiary b.) select a beneficiary c.) take out a policy loan d.) revoke an absolute assignment

d.) revoke an absolute assignment

Dorian exercised a nonforfeiture option by using his life policy's cash value to purchase an extended term insurance option. When the term insurance expires, a.) he has the option of resuming the original policy and paying the same premium b.) the coverage can be extended with a lump sum payment c.) all remaining cash values are paid to the policyowner d.) the protection ends

d.) the protection ends

The free-look provision gives the policyowner: a.) the right to return the policy for a partial refund within a specified number of days b.) the right to contest the terms of the policy c.) the right to change a policy provision d.) the right to return the policy for a full refund within a specified number of days

d.) the right to return the policy for a full refund within a specified number of days

Jerry is an insured who understated his age on his life insurance application, paying $12 per $1,000 of insurance instead of $15 per $1,000. If he dies, how will the adjusted death benefit be calculated? a.) 12/15th of the policy's face amount b.) 1/2 of the policy's face amount c.) 3/4 of the policy's face amount d.) Full face amount

a.) 12/15th of the policy's face amount

Which of the following is considered to be an alternative to a life settlement? a.) Accelerated death benefit rider b.) Waiver of premium rider c.) Extended term option d.) Decreasing term insurance

a.) Accelerated death benefit rider

If an insured dies because of an accident, which type of life insurance rider will provide additional coverage? a.) Accidental death rider b.) Payor rider c.) Accelerated rider d.) Extended term rider

a.) Accidental death rider

Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue? a.) Accumulation at Interest Option b.) Cash Dividend Option c.) Paid-Up Additions Option d.) One-Year Term Dividend Option

a.) Accumulation at Interest Option

What are collateral assignments normally associated with? a.) Bank loans b.) Policy loans c.) Insuring clause d.) Automatic premium loans

a.) Bank loans

In what part of an insurance policy are policy benefits found? a.) Declarations b.) Entire contract c.) Waivers d.) Conditions

a.) Declarations

Which policy provision protects the policyowner from unintentional lapse of the contract? a.) Grace period b.) Free look period c.) Incontestability d.) Settlement options

a.) Grace period

Barbara's policy includes a rider which allows her to purchase additional insurance at specific dates or events without evidence of insurability. This rider is called a(n): a.) Guaranteed insurability rider b.) Payor rider c.) Endowment rider d.) Family income rider

a.) Guaranteed insurability rider

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy? a.) Interest only b.) Reduced paid-up insurance c.) Extended term insurance d.) Cash surrender

a.) Interest only

Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE? a.) Net death benefit will be reduced if the loan is not repaid b.) No interest will be charged on loan balance c.) Term life policies are the only type of insurance that allows policy loans d.) A loan can be taken out for up to the face amount of the policy

a.) Net death benefit will be reduced if the loan is not repaid

Which situation accurately describes a reduced paid-up nonforfeiture option? a.) Policy has a decreased face amount b.) Face amount of the new policy equals that of the original policy c.) Cash value is surrendered to policyowner d.) Premiums must continue to be paid

a.) Policy has a decreased face amount

Which of the following is a reinstatement condition? a.) Proof of insurability b.) Changes in the insuring clause c.) Premium increase d.) Premium decrease

a.) Proof of insurability

A policyowner may exercise which of these dividend options that uses the dividend to pay all or part of the next premium due? a.) Reduction of premium dividend option b.) Extended term option c.) Paid-up option d.) Cash dividend option

a.) Reduction of premium dividend option

Bruce is involved in an accident and becomes totally and permanently disabled. His insurance policy continues in force without payment of further premiums. Which policy provision is responsible for this? a.) Waiver of premium provision b.) Insuring provision c.) Return of premium provision d.) Automatic premium loan provision

a.) Waiver of premium provision

All of these are common exclusions to a life insurance policy EXCEPT: a.) accidental death b.) military service c.) aviation d.) hazardous occupations

a.) accidental death

Ownership of a life insurance policy may be temporarily transferred with a(n): a.) collateral assignment b.) absolute assignment c.) transferable assignment d.) beneficiary assignment

a.) collateral assignment

Life insurance policies will normally pay for losses arising from: a.) commercial aviation b.) war c.) suicide d.) hazardous jobs

a.) commercial aviation

Which of the following is NOT a common life insurance policy rider? a.) extended term b.) automatic premium loan c.) waiver of premium d.) accidental death

a.) extended term

What does the grace period allow a life insurance policyowner to do? a.) Contest the terms of the policy after the issue date b.) Make a premium payment after the due date without any loss of coverage c.) Allows for a full refund after policy delivery d.) Make a policy loan interest payment after the due date without any loss of coverage

b.) Make a premium payment after the due date without any loss of coverage

What is an insurer required to do when faced with an error made under the Misstatement of Age provision? a.) Cancel the policy b.) Pay age-corrected benefits c.) Pay full benefits as stated in the policy d.) Bill the policyowner for back premiums

b.) Pay age-corrected benefits

How are acts of war and aviation treated under a group life insurance policy? a.) Optional rider b.) Policy exclusion c.) Covered hazard d.) Mandatory provision

b.) Policy exclusion

What does the guaranteed insurability option allow an insured to do? a.) Transfer ownership of the policy b.) Purchase additional coverage with no evidence of insurability required c.) Provides for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness d.) Allows the insured to convert a term life policy to whole life with no evidence of insurability required

b.) Purchase additional coverage with no evidence of insurability required

After a policy has lapsed, which provision allows the insured to continue coverage? a.) Entire contract provision b.) Reinstatement provision c.) Nonforfeiture provision d.) Grace period provision

b.) Reinstatement provision

Pat owns a 20-pay life policy with a paid-up dividend option. Which of the following statements is true? a.) The policy may be paid up early by using accumulated cash values b.) The policy may be paid up early by using policy dividends c.) The policy's premiums will increase after 20 years d.) The policy's cash values steadily decrease after 20 years

b.) The policy may be paid up early by using policy dividends

All of the following riders can increase the death benefit amount EXCEPT: a.) Cost of Living b.) Waiver of Premium c.) Accidental Death Rider d.) Guaranteed Insurability

b.) Waiver of Premium

All of these are valid policy dividend options for a life insurance policyowner EXCEPT: a.) cash outlay to the policyowner b.) accumulate without interest c.) reduction in policy premium d.) buy additional insurance coverage

b.) accumulate without interest

A life insurance rider that allows an individual to purchase insurance as they grow older, regardless of insurability, is called a(n): a.) guaranteed term rider b.) guaranteed insurability rider c.) accelerated benefit rider d.) cost of living rider

b.) guaranteed insurability rider

The automatic premium loan provision authorizes an insurer to withdraw from a policy's cash value the amount of: a.) any interest payable from an outstanding policy loan balance b.) past due premiums that have not been paid by the end of the grace period c.) the outstanding policy loan balance d.) any surrender charges owed by the policyowner

b.) past due premiums that have not been paid by the end of the grace period

A rider that assures premiums will be paid on a juvenile policy until the child reaches a specific age is called a(n): a.) waiver of premium rider b.) payor rider c.) automatic premium loan rider d.) juvenile waiver rider

b.) payor rider

Loans obtained by a policyowner against the cash value of a life insurance policy: a.) are treated as taxable income b.) would not be treated as taxable income c.) are limited by the face amount of the policy d.) would be subject to a Federal estate tax

b.) would not be treated as taxable income

If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies? a.) No death benefit is owed because of the misstatement of age b.) The full original death benefit listed on the policy c.) A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age d.) The original death benefit listed on the policy minus any outstanding loans and interest

c.) A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age

How is a life insurance policy dividend legally defined? a.) A return of excess premium and partially taxable b.) a return of excess premium and fully taxable c.) A return of excess premium and not taxable d.) a return of excess premium subject to capital gains tax

c.) A return of excess premium and not taxable

Which of these is considered to be a Living Benefit option in a life insurance policy? a.) Reinstatement b.) Waiver of premium c.) Accelerated death benefit d.) Payor benefit

c.) Accelerated death benefit

Which of the following does a policyowner NOT have a right to change? a.) Payment mode b.) Dividend option c.) Dividend schedule d.) Beneficiary

c.) Dividend schedule

What is the name of the provision which states that a copy of the application must be attached to the policy when issued? a.) Policy's summary b.) Buyer's guide c.) Entire contract d.) Entire policy

c.) Entire contract

Which of the following protects a policyowner from a misrepresentation caused by an innocent mistake? a.) Reinstatement clause b.) Entire Contract clause c.) Incontestable clause d.) Nonforfeiture clause

c.) Incontestable clause

What is the purpose for having an accelerated death benefit on a life insurance policy? a.) It allows for a spouse to be added as a rider to a life insurance policy b.) It allows for policy loans to be advanced to the insured in the event of unemployment c.) It allows for cash advances to be paid against the death benefit if the insured becomes terminally ill d.) It allows for a third party to purchase a life insurance policy at a discounted rate and immediately advance a portion of the death benefit

c.) It allows for cash advances to be paid against the death benefit if the insured becomes terminally ill

When an accidental death benefit is added to a whole life policy, how does this affect the policy's cash value? a.) Increases the policy's cash value b.) Decreases the policy's cash value c.) Policy's cash value is not affected d.) Policy loans will no longer be available

c.) Policy's cash value is not affected

James is the insured on a life insurance policy where his age was misstated on the application. Which of the following is CORRECT regarding the death benefit amount? a.) The original face amount will be paid to the beneficiary b.) The policy will be voided with no death benefits paid c.) The death benefit paid will be what the premium would have purchased at the correct age d.) The amount of premiums paid will be returned with interest

c.) The death benefit paid will be what the premium would have purchased at the correct age

Under a life insurance policy, what does the insuring clause state? a.) The agent's obligation to provide the proper amount of coverage b.) The insurer's obligation to return all premiums upon an approved death claim c.) The insurer's obligation to pay a death benefit upon an approved death claim d.) The agent's obligation to pay a death benefit upon an approved death claim

c.) The insurer's obligation to pay a death benefit upon an approved death claim

The double indemnity provision in a life insurance policy pertains to an insured's death caused by a(n): a.) sickness b.) suicide c.) accident d.) war

c.) accident

A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called a(n): a.) automatic premium loan b.) nonforfeiture option c.) collateral assignment d.) irrevocable assignment

c.) collateral assignment

A waiver of premium rider allows an insured to waive premium payments if the insured is: a.) temporarily disabled b.) unemployed c.) completely and permanently disabled d.) experiencing financial hardship

c.) completely and permanently disabled

All of these are standard exclusions found in a life insurance policy EXCEPT: a.) hazardous occupations b.) aviation c.) disability d.) war

c.) disability

The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid: a.) minus indebtedness and with interest b.) during the last 12 months c.) minus indebtedness and without interest d.) during the last 6 months

c.) minus indebtedness and without interest

Ron has a life insurance policy with a face value of $100,000 and a cost of living rider. If the consumer price index has gone up 4%, how much may Ron increase the face value of the policy? a.) $400 b.) $800 c.) $2,000 d.) $4,000

d.) $4,000

Which statement is true regarding policy dividends? a.) Dividends are always guaranteed b.) Nonparticipating policies issue dividends c.) Dividends are always taxable d.) A dividend option is selected by the insured at the time of policy purchase

d.) A dividend option is selected by the insured at the time of policy purchase

Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness? a.) Cash surrender b.) Nonforfeiture c.) Return of premium d.) Accelerated death benefit

d.) Accelerated death benefit

Of the following dividend options, which of these is taxable? a.) Reduction of premium b.) One year term c.) Paid-up additions d.) Accumulation at interest

d.) Accumulation at interest

Which of the following is NOT part of an insurance contract? a.) Policy b.) Application c.) Riders d.) Certificate of Authority

d.) Certificate of Authority

An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period? a.) Incontestable period b.) Probation period c.) Reinstatement period d.) Grace period

d.) Grace period

What time period allows an insured's life insurance policy to remain in force even if the premium was not paid on the due date? a.) Entire contract period b.) Free-look period c.) Reinstatement period d.) Grace period

d.) Grace period

Which of these is NOT considered to be a common life insurance nonforfeiture option? a.) Cash surrender b.) Extended term insurance c.) Reduced paid-up insurance d.) Life income annuity

d.) Life income annuity

Mike and Ike are 30 year old identical twins. Both are in excellent health. Each brother purchases a life policy that has a $750 annual premium. Mike buys a 10-year renewable term policy. Ike purchases a whole life policy. All of the following statements are true EXCEPT: a.) Mike's policy will develop no cash value over the policy's term b.) Ike may eventually take out a policy loan c.) Ike will have a level premium d.) Mike has the option of using his cash value to purchase a reduced amount of paid-up whole life insurance

d.) Mike has the option of using his cash value to purchase a reduced amount of paid-up whole life insurance

Which of these is NOT a valid policy dividend option? a.) Reduce premium b.) Paid-up additions c.) One-year term d.) Monthly income payments

d.) Monthly income payments

A life insurance policy can be surrendered for its cash value under which policy provision? a.) Payor options b.) Dividend options c.) Settlement options d.) Nonforfeiture options

d.) Nonforfeiture options

Which type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies? a.) Waiver of premium b.) Juvenile waiver c.) Guaranteed insurability d.) Payor benefit

d.) Payor benefit