Insurance license chapter 3

What settlement options are available in life insurance policies?

Cash payment (lump-sum), life income, interest only, fixed-period installments, and fixed-amount installments

What is the difference between absolute and collateral assignment?

An absolute assignment permanently transfers all rights of ownership to another person; a collateral assignment is a transfer of partial rights

Which of the following statements is true of both the fixed-period and fixed-amount settlement options?

Both guarantee that the principal and interest will be fully paid out

What happens to an unpaid policy loan at insured's death?

If there are outstanding loans at the time of the insured's death, the amount will be considered a debt to the policy and the death benefit will be reduced by the amount of indebtedness

What is the purpose of a grace period?

To prevent unintentional policy lapse for nonpayment of premium

When a death claim is submitted, the insurer discovered that the insured understated her age on the application for a life policy. What action will the insurer take?

Pay a reduced death benefit based on the insured's actual age

Accidental death and dismemberment rider

Pays the principal (face amount) for accidental death, and pays a percentage of that amount, or capital sum, for accidental dismemberment

All of the following are nonforfeiture options in life insurance policies except

Automatic premium loans

Which of the following is not a standard exclusion in life insurance policies?

Disability

Which provision of a life insurance policy states that the application is part of the contract?

Entire clause

All of the following are dividend options except

Extended term

Which feature in a life insurance policy allows the policyowner to stop paying premiums and take a paid-up policy with face amount less than that of the original policy?

Nonforfeiture options

Life refund

Option comes in either a cash refund form or an install ember refund form

The insured usually pays $1,200 annually for her life insurance premium. This year she has accumulated $175 dividends, and applied that to her next premium, reducing it to $1,025. What dividend option has the insured chosen?

Reduction of premium

Guaranteed insurability

Rider allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or birth of a child), without evidence of insurability for an additional premium

If a life insurance policy has an irrevocable beneficiary designation,

The beneficiary can only be changed with written permission if the beneficiary

A joint and full survivor settlement option on an annuity will pay until

The second insured dies

The following are not apart of the standard policy provisions

•ownership •assignment •free-look •beneficiary designation •exclusions

A spouse receives $5,000 a month until the principal and the interest on her husband's life insurance policy have been paid out. Which settlement option did this beneficiary choose?

Fixed amount

Estate

If none of the beneficiaries is alive at the time of the insured's death, or if no beneficiary has been named, the insured's _______ will automatically receive the proceeds of a life insurance policy

Under what circumstances will the contingent beneficiary receive the death benefit?

If the primary beneficiary dies before the insured

"Subject to the provisions on the following pages of this contract, the insurance company will pay the death benefit to the named beneficiary. The death benefit will be paid immediately on receipt of due proof of death of the insured and surrender of this policy." Which of the following provisions is quoted above?

Insuring clause

Collateral assignment

Involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction

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

What is the difference between a revocable and irrevocable beneficiary?

Irrevocable designation, however, has a vested interest in policy and may not be changed without the beneficiary's written consent

All of the following are true regarding the guaranteed insurability rider except

It is available automatically, for no extra premium

Single life

Provide a single beneficiary income for the rest of his/her life

Which of the following features allows an insurance policy to remain in fore for a specific number of days beyond the premium due date?

Grace period provision

What are the 3 nonforfeiture options in life insurance policies?

Cash surrender value, reduced paid-up insurance or extended term option

Cash Surrender Value

The policyowner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. This money is not taxable

Life with period certain

The recipient is provided with the "best of both worlds" in terms of a lifetime income and a guaranteed installment period

Under the waiver of premium rider, if the company agrees that the insured is totally disabled, how long is the waiting period?

6 months

Interest only

The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually). Temporary option

Fixed-period installments

A specified period of years is selected, and equal installments are paid to the recipient

Which of the following terms refers to the transfer of some or all of the ownership rights of a life insurance policy from one individual to another?

Assignment

What is a free-look period, and when does it begin?

It allows the policyowner a specified number of days after policy delivery to look over the policy, and if dissatisfied for any reason, return it for a full refund of premiums. The free-look period begins when the policyowner receives the policy, not when the insurer issues it.

What is the purpose of the Automatic Premium Loan provision?

It prevents the unintentional lapse of a policy due to nonpayment of the premium

Which of the following is true about the mandatory free-look period in a life insurance policy?

It starts when the policy is delivered

Which of the following allows an insurance company to deny coverage if the insured's death occurs in a war?

Policy exclusions

In order for policy assignment to be valid, which of the following must approve it?

Policyowner

Common Disaster Clause

Provided under the Uniform Simultaneous Death Law, has been adopted by most states to address this problem, in order to protect the policyowner' original intent, as well as to protect the contingent beneficiary

Uniform Simultaneous Death Law

Provides that the proceeds will be paid to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated

Life income

Provides the recipient with an income that he or she cannot outlive

Suicide

Provision in life insurance policies protects the insurer from individuals who purchase life insurance with the intention of committing __________

What constitutes the entire contract?

The policy and a copy of the application, along with any riders or amendments, form the entire contract

Cash payment

The insurer simply sends the policyowner a check for the amount of the dividend as it is declared, usually annually

Premium mode

The manner or frequency that the policyowner pays the policy premium

Settlement options

The methods used to pay the death benefits to a beneficiary upon the insured's death, or pay the endowment benefit if the insured lives to the endowment date

An annuitant had been receiving payments under a 10-year period certain annuity option, but died in the 6th year. What would happen to the balance of the annuity proceeds?

The payments would continue for 4 more years

Which riders increase the amount of the death benefit?

Accident Death rider- pays double or triple the amount of face value, Cost of living rider- automatically increases the amount of insurance based on an inflation index, Return of premium- pays back all the premiums in addition to the death benefit, and some others

Which nonforfeiture option is automatically selected if the policyowner has not made a selection?

If the policyowner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy

Which rider allows the early payment of a portion of the death benefit to the insured?

Accelerated death benefit rider

Reduction of premium

The insurer uses the dividend to reduce the next year's premium

Which of the following would pay premiums on a policy of the insured suffers a total disability?

Waiver of premium riders

A life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the

Incontestability clause

If the premiums on a child's policy are waived after the death of the policyowner, then this policy must have which of the following features?

Payor provisions

Fixed-amount installments

Pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted

The incontestability clause would not apply to which of the following?

Misstatement of age

Joint and survivor

Option guarantees an income for two or more recipients for as long as they live

Aviation

Most life insurance will cover an insured as a fare-paying passenger or a pilot on a regularly scheduled airline, but will exclude coverage for non commercial pilots, or require an additional premium for the coverage

Paid-up additions

The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy

Which dividend option increases the death benefits?

Paid-up additions increase the death benefit of the original policy by whatever amount the dividend will buy

Incontestability

Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years

Paid-up insurance

Usually, the insurer first accumulates the dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early

Accelerated death benefits allow the early payment of the death benefit if the insured had any of the following conditions

•a terminal illness •a medical condition that requires an extraordinary medical intervention (such as an organ transplant) for the insured to survive •a medical condition that without extensive treatment drastically limits the insured's life time •inability to perform activities of daily living •permanent institutionalizations or confinement to a long-term care facility •any other conditions approved by the Department of Insurance