Life and Health - Chapter 4 Quiz - Life Policy Provisions and Options

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 Cash Paid-Up Option Accumulate at Interest

Premium Reduction The Dividend Option that allows the dividends to be applied toward the next premium due is Premium Reduction. Relevant content:4.6 Life Policy Options

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

Absolute and collateral The two types of assignment are Collateral (temporary), and Absolute (permanent). Relevant content:4.1 Standard Provisions-Individual Policies Only

Which statement is FALSE regarding Nonforfeiture Options? They add flexibility to a cash value policy They protect the policyowner against total loss of benefits if the policy should lapse or be cancelled They are used when the insured lives to the endowment date of the policy or at the insured's death The 3 nonforfeiture options are Cash Surrender, Reduced Paid-Up, and Extended Term

They are used when the insured lives to the endowment date of the policy or at the insured's death Distribution options used when the insured lives to the endowment date of the policy or at the insured's death are Settlement Options, not Nonforfeiture Options. Relevant content:4.6 Life Policy Options

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? $120,000 $110,000 $80,000 $90,000

$90,000 Any outstanding loans at the insured's death will be deducted from the face amount (death benefit) along with any interest due. Relevant content:4.3 Provisions Specific to Cash Value Policies

How long, typically, is the reinstatement period from policy lapse? 1 year 3 years 2 years Indefinitely

3 years Typically, the reinstatement period is three years, but it can be up to 5 years with some policies or some insurers. Relevant content:4.2 Payment of Premium Provisions

Which Settlement Option pays for a specified period, regardless of who may receive the payments? Life Income with Period Certain Paid-Up Additions Fixed Period Fixed Amount

Fixed Period As the name implies, Fixed Period establishes that the policy proceeds are guaranteed to be paid over a set period (i.e., 30 years) regardless of who may receive the payments, the policyowner or the beneficiary.

The _________ period keeps a policy in force for a short time after the premium due date, allowing policyowners a little extra time to pay an overdue premium without a lapse in coverage. Settlement Grace Reinstatement Nonforfeiture

Grace The grace period is designed to prevent unintentional policy lapse by allowing overdue premiums to be paid, typically within one month of the premium due date, while the coverage remains in effect. Relevant content:4.2 Payment of Premium Provisions

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? The policy becomes a reduced paid-up policy The insurer mails a check to the policyowner in the amount of the policy's cash value Unless specified otherwise, the cash values buy extended term The policy lapses and is of no value to the policyowner

Unless specified otherwise, the cash values buy extended term Upon non-payment of premium due, the extended term option kicks in automatically and is paid for by the cash values of the policy. The policy has nonforfeiture values which are available to the policyowner. Relevant content:4.6 Life Policy Options

Generally, an insurer may defer the granting of a policy loan for up to ______ months. 9 12 3 6

6 An insurer, by law, can defer granting a policy loan for up to 6 months. Relevant content:4.3 Provisions Specific to Cash Value Policies

Which Settlement Option pays a specified dollar amount until benefits are exhausted? Paid-Up Option Life Income Life Income with Period Certain Fixed Amount

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. Relevant content:4.6 Life Policy Options

Frank, the owner of a life insurance policy, chooses a Settlement Option whereby the proceeds of his policy will be paid out over 20 years. Frank has chosen: Life Income Joint and Survivor Life Income Period Certain Fixed Amount Fixed Period

Fixed Period The Fixed Period settlement option pays out proceeds over a specified period of time. Relevant content:4.6 Life Policy Options

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

For it to be included in the policy, there is an additional premium charge The Automatic Premium Loan provision automatically becomes effective at the end of the grace period to prevent the policy from lapsing. There is no charge for having this provision in a cash value policy. Relevant content:4.2 Payment of Premium Provisions

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 Period Certain Life Income Joint and Survivor Joint Life Fixed Amount

Life Income Joint and Survivor Albert's desire would be Life Income Joint and Survivor, as he is concerned with payments continuing until both he and Lois have died. Relevant content:4.6 Life Policy Options

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? Lump sum is the automatic option when no option was preselected prior to death of the insured The insurer decides when the election is not made by the policyowner prior to death Burt's estate, since no Settlement Option was chosen Liz the beneficiary determines which option she would like to have

Liz the beneficiary determines which option she would like to have 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. Relevant content:4.6 Life Policy Options

A life insurance policy lists the names of 3 people as primary beneficiaries. Other than listing the person's names, which of the following is the most important next step? Include the beneficiary's middle name or initial Make certain the names are listed in alphabetical order Specify the occupation of each beneficiary Indicate what percentage of the death benefit each is entitled to receive

Indicate what percentage of the death benefit each is entitled to receive Percentage should be used instead of dollar amounts just in case the policy has an outstanding loan or premium at the time of death. Relevant content:4.5 Beneficiary Provisions

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: One-Year Term Extended Term Paid-Up Additions Reduced Paid-Up

Extended Term One-Year Term and Paid-Up Additions are dividend options, not nonforfeiture options. Since Jamie's concern is to sustain a like amount of death benefit, she should choose Extended Term. Relevant content:4.6 Life Policy Options

Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose: Fixed Amount Interest Fixed Period Life Income Only

Life Income Only The option that will guarantee the beneficiary an income as long as she/he lives is Life Income Only. Relevant content:4.6 Life Policy Options

Which of the following is FALSE regarding Settlement Options? Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary If the policyowner has chosen an option prior to death, the beneficiary cannot change it at time of claim Settlement Options are used when the insured wants to convert a policy's cash values into a living benefit A policyowner may change a previously chosen settlement option before the insured dies

Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary Only the interest would be taxed to the beneficiary, not the principal. Relevant content:4.6 Life Policy Options

When a policy lapses due to nonpayment of premium, which nonforfeiture option is the automatic option? Reduced paid-up Automatic premium loan Cash surrender value Extended term

Extended term The automatic nonforfeiture option is extended term. Automatic premium loan is a policy provision which must be elected by the policyowner in advance of the policy lapsing. Relevant content:4.6 Life Policy Options

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

If the total amount due equals or exceeds the policy's cash values Failing to repay a loan or loan interest will not void a policy until the total amount due becomes greater than the policy's cash value. Relevant content:4.3 Provisions Specific to Cash Value Policies

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? Nonparticipating Cash Value Policy Participating Accumulating

Participating Dividends are declared under participating policies, are paid as declared, and are not guaranteed. The dividends are a return of excess premiums paid. Relevant content:4.6 Life Policy Options

When is the earliest a beneficiary designation can be made? Upon policy renewal Upon policy delivery At the time of policy application At time of claim

At the time of policy application Beneficiaries are indicated for the first time when the application for life insurance is completed for submission to the home office of the insurer. Relevant content:4.5 Beneficiary Provisions

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? Extended Term Paid-Up Option Reduced Paid-Up Paid-Up Additions

Reduced Paid-Up The Nonforfeiture Option that would allow Beth to stop making premium payments and continue to be covered to age 100, but for a reduced face amount, is Reduced Paid-Up. Paid-Up Additions and the Paid-Up Option are Dividend Options. Relevant content:4.6 Life Policy Options

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

There are several dividend options to choose from Dividends are declared under participating policies. They are not guaranteed, and if received, the dividend itself is generally not taxable. They can be withdrawn any time there is an accumulation. Relevant content:4.6 Life Policy Options

By law, what happens to any values remaining in a life insurance policy when it lapses due to non-payment of premiums? They are forfeited back to the insurance company The state treasury claims the values Any remaining values are split between the state treasury and the state Guarantee Association They are the property of the owner and cannot be forfeited

They are the property of the owner and cannot be forfeited One of the policyowner's rights has to do with the cash value and that right does not end when the policy lapses with any value remaining in it.

A beneficiary receives ample income each month from the interest earned while the insurance company retains the principal. This is referred to as which of the following? Capital Gains Capital Conservation Net Capital Conservative Earnings

Capital Conservation The Interest Only settlement option leaves the principal (capital) with the insurer, thus conserving the capital, and the interest income generated is taxed as ordinary income. Relevant content:4.6 Life Policy 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? Fixed Period Joint Life Life Income Only Extended Term

Life Income Only Life Income Only guarantees payment for the lifetime of the recipient. Extended term is a nonforfeiture option. Relevant content:4.6 Life Policy Options

Sylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will: Require Sylvia to prove insurability Decline the change due to lack of insurable interest Require Sylvia to prove that her best friend is financially dependent on her Accept the beneficiary change

Accept the beneficiary change As the policyowner, Sylvia is free to change a revocable beneficiary at any time. She may also name a new beneficiary if an irrevocable beneficiary dies before the insured. A beneficiary is not required to have an insurable interest in the insured. Relevant content:4.5 Beneficiary Provisions

Which provision allows an insurer to borrow from the cash value of a policy in order to pay premiums due and prevent a lapse in coverage? Partial Withdrawal Spendthrift Reinstatement Automatic Premium Loan

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. Relevant content:4.2 Payment of Premium Provisions

All of the following are nonforfeiture values, except: Automatic premium loan Reduced paid-up Cash surrender Extended term

Automatic premium loan Nonforfeiture values go into effect after a policy lapses. The automatic premium loan will keep a policy from lapsing. Relevant content:4.6 Life Policy Options

When does a change in beneficiary take effect? The date the change of beneficiary form is mailed by the policyowner to the insurer The date the policyowner receives the change of beneficiary form from the insurer The date the policyowner signs the request to change the beneficiary The date the home office of the insurer receives the request for a beneficiary change

The date the policyowner signs the request to change the beneficiary Even if the insured dies prior to the time the insurer receives the change of beneficiary form, the change actually goes into effect as of the date the change of beneficiary form is signed by the policyowner. Relevant content:4.5 Beneficiary Provisions

Which of the following is responsible for paying the premiums due on a life insurance policy? The policyowner The producer The beneficiary The insured

The policyowner It is the policyowner's responsibility to pay the premiums due in full and on time. Relevant content:4.1 Standard Provisions-Individual Policies Only

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

On the first page of the policy The insuring clause is typically found on the front or first page of the policy. Relevant content:4.1 Standard Provisions-Individual Policies Only

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

Reduced Paid-Up Reduced Paid-Up is a Nonforfeiture Option, not a Settlement Option. Relevant content:4.6 Life Policy Options

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

One month Typically, the grace period runs one month (30 or 31 days) from the premium due date. Relevant content:4.2 Payment of Premium Provisions

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

Universal Life Policies on a universal life platform allow for partial withdrawals. Relevant content:4.3 Provisions Specific to Cash Value Policies

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

Lump Sum The only settlement option that pays out its benefit 100% income tax-free to the beneficiary is the lump sum option. 4.6 Life Policy 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: $65,000 $50,000 $15,000 $35,000

$50,000 The Extended Term Option uses the present cash value of the policy, upon its lapse, to automatically buy a single premium term policy of the same face amount for a specified number of years and days as listed in the policy's nonforfeiture table. Relevant content:4.6 Life Policy Options

Individual life policies typically pay out a death benefit if death is a result of suicide after they have been in force for _____ years. 4 2 6 5

2 Two years is typically the standard suicide limitation period for individual life policies. In some states it may be different. Relevant content:4.1 Standard Provisions-Individual Policies Only

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

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 is cancelled. Relevant content:4.6 Life Policy Options

All of the following are Dividend Options, except: Cash Reduced paid-up One-year term Paid-up additions

Reduced paid-up Reduced paid-up is a nonforfeiture option, not a dividend option. Relevant content:4.6 Life Policy Options

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

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. Relevant content:4.6 Life Policy Options

The interest earned on dividends is: Nontaxable Taxable Tax-deferred Tax-deductible

Taxable The dividends themselves are generally not taxable, but any interest earned on the dividends is taxable. Relevant content:4.6 Life Policy Options

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 Reduced Paid-Up Fixed Amount Extended Term

Cash Surrender Mona surrenders the policy for its cash value and then uses that cash value to reduce her debt load. Relevant content:4.6 Life Policy Options

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: Within 6 months after the policy issue date, the insurer discovers material misrepresentations made on the application which, had they been known, the policy would not have been issued The insured dies when he crashes his plane into the ground 2 hours after receiving his pilot's license Five years after the policy was issued, the insurer discovered that the insured was actually older than was stated on the application The insured died by suicide 9 months after the policy was issued

Five years after the policy was issued, the insurer discovered that the insured was actually older than was stated on the application There is no time limit when it comes to misstatement of age or gender. The insurer must pay the claim but can reduce the amount of the payout based on a ratio of what was paid to what should have been paid. Relevant content:4.1 Standard Provisions-Individual Policies Only

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, except: It must be elected by the policyowner It becomes effective, if elected, at the end of the grace period It can be cancelled at any time by the policyowner It is available on any type of life insurance policy

It is available on any type of life insurance policy The Automatic Premium Loan Provision is available on cash value policies only. Relevant content:4.2 Payment of Premium Provisions