Life & Health Chapter 4 Exam

What are the Nonforfeiture Options in a Decreasing Term Policy? a. Increased options b. There are none c. Same as Whole Life d. Reduced Paid-Up only

b. There are none There are no Nonforfeiture Options in a Term Policy, as Term policies do not accumulate a cash value.

Which Settlement Option pays a specified dollar amount until benefits are exhausted? a. Fixed Period b. Paid-Up Option c. Life Income d. Fixed Amount

d. Fixed Amount The key words are specified dollar amount. Fixed Amount pays benefits at a specified dollar amount (such as $1,000/month) until the benefits are exhausted.

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: a. Paid-Up Additions b. Reduced Paid-Up c. Extended Term d. Paid-Up Option

b. Reduced Paid-Up Reduced Paid-Up provides the longest period of coverage. Extended Term would provide the most protection. The other two answers are not Nonforfeiture Options.

Albert owned a $100,000 policy that had accumulated a cash value of $9,850, of which he had borrowed $2,500. His beneficiary will receive which of the following amounts? a. The face amount, less the loan and accrued interest b. $107,800 c. $87,920 d. $90,420

a. The face amount, less the loan and accrued interest Any outstanding loans not paid upon the insured's death will be deducted from the face amount (death benefit) along with any interest due.

Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy, but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection? a. Fixed Amount b. Extended Term c. Reduced Paid-Up d. Paid-Up Option

b. Extended Term Extended Term would allow the present cash value of the policy to buy a single premium term policy of the same face amount for as long as period as it will buy. Fixed Amount is a Settlement Option, and Paid-Up Option is a Dividend Option.

A retiree elected the Ten Years Certain and Life Income Option. He dies the dash after receiving 119 monthly payments. The contingent payee will receive: a. No more payments b. Five more payment c. One more payment d. Ten more payments

c. One more payment Since the retiree died within the period certain (10 years or 120 months), then the contingent payee would receive only one or more payment since the retiree has received 119 monthly payments. If the retiree had lived beyond the 10 years, then they would have been paid a benefit as long as they lived.

All of the following are Settlement Options, except: a. Fixed Period b. Reduced Paid-Up c. Interest Only d. Life Income Joint and Survivor

b. Reduced Paid-Up Reduced Paid-Up is a Nonforfeiture Option, not a Settlement Option.

The cash received by the policyowner when he/she terminates a policy is known as what? a. Accrued Premium Value b. Loan Value c. Paid-Up Insurance Value d. Cash Surrender Value

d. Cash Surrender Value The Cash Surrender Value is the Nonforfeiture Option that allows the owner to withdraw the cash value upon the surrender of the policy.

Which Settlement Option pays for a specified period, regardless of who may receive the payments? a. Reduced Paid-Up b. One-Year Term c. Paid-Up Additions d. Fixed Period

d. Fixed Period Anytime the policyowner specifies payments to be guaranteed for a specific period regardless of who may receive the payments, policyowner or beneficiary, is the Fixed Period Settlement Option.

Which is not a Dividend Option? a. Reduced Paid-Up b. Paid-Up Additions c. Paid in Cash d. Accumulate at Interest

a. Reduced Paid-Up Reduced Paid-Up is a Nonforfeiture Option; the other answer chronicles are Dividend Options.

An investor receives ample income each month from the interest earned while retaining his/her principal. This is referred to as which of the following? a. Net Capital b. Capital Gains c. Conservative Earnings d. Capital Conservation

d. Capital Conservation The Interest Option of settlement leaves the principal (capital) with the insurer, thus conserving the capital, and the interest income generated is taxed as ordinary income.

Which provision allows an insure to borrow from the cash value of a policy to pay premiums due and prevent the lapse of coverage? a. Nonforfeiture Option b. Automatic Premium Loan c. Spendthrift Clause d. Partial Withdrawal

b. Automatic Premium Loan The Automatic Premium Loan Provision enables the insurer to borrow automatically from the policy's cash value, at the end of the grace period, to cover a premium payment to prevent the policy from lapsing.

The premiums paid to add the Automatic Premium Loan (APL) Provision has the following effect on a life policy: a. No effect, there is not a premium for APL. b. Pays premium by loan to increase the death benefit. c. Reduces administration cost. d. Increases cash value.

a. No effect, there is not a premium for APL. The Automatic Premium Loan Provision is available on cash value policies only, with no additional premium.

Which of the following statements is true? a. There are several dividend options. b. Dividends can only be withdrawn at certain specified intervals. c. Dividends are guaranteed and taxable as income when received. d. Dividends are declared under nonparticipating policies only.

a. There are several dividend options. Dividends are declared under participating policies; they are not guaranteed; if received the dividend itself is not taxable; and they can be withdrawn anytime there is an accumulation.

All of the following are Dividend Options, except: a. Waiver of Premium b. Paid-Up Additional Insurance c. One-Year Term d. Cash

a. Waiver of Premium Waiver of Premium is a rider available to most life insurance policies.

Mona let her permanent policy lapse. She discovered there was $2,498 in cash remainaing in the policy and decided to reduce her debt load. She exercised which Nonforfeiture Option? a. Accumulation at Interest b. Cash Surrender c. Fixed Amount d. Accelerated Endowment

b. Cash Surrender The only Nonforfeiture Option listed is Cash Surrender. Mona surrenders the policy for its cash value and then uses that cash value to reduce her debt load.

If the policyowner specifies the time over which all installments are to be paid, he/she has chosen which Setllement Option? a. Extended Term b. Fixed Period c. Fixed Amount d. Acceleration of Endowment

b. Fixed Period The key word is time. Anytime the policyowner specifies payments to be guaranteed for a specific period regardless of who may receive the payments, policyowner or beneficiary, is the Fixed Period Settlement Option. Acceleration of Endowment is a Dividend Option, and Extended Term is a Nonforfeiture Option.

What effect, if any, does the Dividend Option-Acceleration of Endowment have on a policy? a. This is not a Dividend Option b. Makes the endowment date sooner c. None d. Increase premium outlay

b. Makes the endowment date sooner Acceleration of Endowment uses dividends to reduce (shorten) the period for the policy to mature or endow.

Beth exercised an owner's option on a life policy to stop paying premiums but continue to be covered until she was age 100. Which Nonforfeiture Option did she choose? a. Extended Term b. Application to Reduce Premiums c. Reduced Paid-Up d. Paid-Up Option

c. Reduced Paid-Up The Nonforfeiture Option that would allow Beth to stop paying premiums and continue to be covered at age 100, but for a reduced face amount, is Reduced Paid-Up. Application to Reduce Premiums and Paid-Up Option are Dividend Options.

Beth owns a 20-Pay Life participating policy. She has chosen the Settlement Option that guarantees payments over a specified period and the dividends are applied toward future premiums. Which Dividend Option did she choose? a. Fixed Period b. Paid-Up Option c. Fixed Amount d. Premium Reduction

d. Premium Reduction The Dividend Option that allows the dividends to be applied toward the next premium due is Premium Reduction. Fixed Period and Fixed Amount are Settlement Options.

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. Joint Life b. Fixed Period c. Life Income Only d. Paid-Up Additions

c. Life Income Only Life Income Only guarantees payment for the lifetime of the recipient. Paid-Up Additions is a Dividend Option.

The interest earned on dividends is: a. Taxable b. Tax deductible c. Nontaxable d. 40% taxable, similar to a capital gain

a. Taxable The dividends themselves are not taxable, but any interest earned on the dividends is taxable.

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. Burt's estate, since no Settlement Option was chosen. b. Liz c. The insurer d. Statutes require the proceeds be laid lump sum when an option is not chosen.

b. Liz If the owner of the policy does not select a Settlement Option while alive, then the beneficiary may choose an option at the time of claim.

Which of the following terms correctly matches the given definition? a. Paid-Up Additions - cash value is used to buy a single premium permanent policy. b. Paid-Up Option - dividends are used to pay up a policy sooner than scheduled. c. Life Income Period Certain - term insurance cash value distribution. d. One-year Term - cash value is used to buy a single premium term policy.

b. Paid-Up Option - dividends are used to pay up a policy sooner than scheduled. One-year Term and Paid-Up Additions are incorrect as they are Dividend Options, and dividends (not the cash value) are used to fulfill the objective. Life Income Period Certain is incorrect because term insurance has no cash value.

When is the Automatic Premium Loan Provision activated? a. At the beginning of the underwriting period. b. At the end of the grace period. c. At the end of the policy period. d. At time of reinstatement.

b. At the end of the grace period. The Automatic Premium Loan provision automatically becomes effective at the end of the grace period to prevent the policy from lapsing.

There are considerable differences in life insurance policies. Which of the following helps to establish basic continuity? a. Options b. Beneficiaries c. Rates d. Premiums

a. Options Life insurance policy options (Settlement, Nonforfeiture, and Dividend) establish basic continuity to the interpretation of life insurance policies.

Settlement Options may be used if the insured dies or if the insured: a. Pays policy annually. b. Is covered strictly with Term Insurance. c. Is alive at maturity and receives the face amount. d. Exercises the Irrevocable Option.

c. Is alive at maturity and receives the face amount. Settlement options are used when the insured lives to the endowment date or at the insured's death.

Ted owns a $50,000 Whole Life Policy. At age 47, he decides to stop playing premiums on his policy and exercise the Extended Term Option. Ted's term benefit will be: a. $25,000 b. $50,000 c. $47,000 d. Varies from company to company

b. $50,000 The Extended Term Option uses the present cash value of the policy, upon its lapse, to buy a single premium term policy of the same face amount.

A ____ Option protects the policyowner against total loss of benefits in the event of a lapsed policy and add flexibility to a cash value policy. a. Settlement b. Nonforfeiture c. Dividend d. Spendthrift

b. Nonforfeiture Nonforfeiture Options are found in life insurance policies that generate a cash value, and protect the owner against total loss of that cash value, if the policy should lapse or it is cancelled.

Frank's policy lists his wife as beneficiary. Upon Frank's death, she is to receive a stipulated amount until the benefit is exhausted. While he pays premiums, he chooses to have the dividends increase the death benefit. Which of the following Dividends Options was chosen? a. Fixed Amount b. Paid-Up Additions c. Acceleration of Endowment d. Paid-Up Option

b. Paid-Up Additions Frank's objective is to use his dividends to increase the death benefit. Paid-Up Additions purchases single premium additional permanent benefits at the insured's attained age. The additional insurance is added to the face amount and it generates cash values and dividends as if the paid-up additional benefit was part of the original policy.

Angela bought a policy from her friend. After looking it over thoroughly, Angela only has one question. Will she receive dividends? Yes, if it is which of the following? a. Nonparticipating b. Participating c. Cash Value d. Accumulating

b. Participating Dividends are declared under participating policies, are paid as declared, and are to guaranteed. The dividends are a return of excess premiums paid.

A beneficiary wants a guarantee that benefits will be paid for a period of ten years before the funds are exhausted, which of the following options should the beneficiary select? a. Fixed Amount b. Fixed Time c. Fixed Period d. Fixed Income

c. Fixed Period Anytime the policyowner specifies payments to be guaranteed for a specific period regardless of who may receive the payments, policyowner or beneficiary, is the Fixed Period Settlement Option.

What happens to the nonforfeiture values when a policy lapses for nonpayment of premium? a. Values are recalculated by actuaries. b. Coverage is rescinded. c. The values are returned to the policyowner. d. The insurer considers them for profit sharing.

c. The values are returned to the policyowner. Nonforfeiture means not to be given up. The purpose of Nonforfeiture Options is to protect the policyowner against total loss of benefits if the policy should lapse or if it is cancelled.