Life Insurance - Chapter 5: Individual Life Insurance Contract - Provisions and Options

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive

What is the purpose of a fixed-period settlement option?

To provide a guaranteed income for a certain amount of time

For how long is an insurance company allow to defer policy loan requests (excludes loan requests used to pay policy premiums

6 months

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what fact amount?

Equal to the cash value surrendered from the policy

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to

The insured's estate

The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the

Spendthrift clause

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy

These are beneficiary designations

Primary, contingent, and tertiary. Not "specified"

All the following are true regarding insurance policy loans

-The amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies -The policy will terminate if the loan plus interest equals or exceeds the cash value of the policy -Policyowners can borrow up to the full amount of their whole life policy's cash value -Loans cannot be made on policies that do not accumulate cash value

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?

$50,000. The term face would be the same as whole face amount.

These are true concerning dividends

1. Favorable investment results generate higher dividends 2. Not guaranteed 3. Lower insurance company costs generate higher dividends 4. They stem from favorable underwriting experience

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option. The insurance company retains the policy proceeds and pays interest on the proceeds to the recipients at regular intervals.

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain.

Which type of beneficiary is changeable at any point?

Revocable. -Irrevocable must give permission to the policyowner in order for the beneficiary to be changed. Primary and contingent refer to the succession of beneficiaries

What is true about a suicide clause in the life insurance policy?

Suicide is excluded for a specific period of years and covered thereafter

Exclusions

Aviation, hazardous occupations/hobbies, and war or military service; suicide excluded for 2 years

Per Stirpes means

By the bloodline, distributes the benefits of a beneficiary who died before the insured to the beneficiary's heirs

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

Fixed Period. A specified period of years is selected and equal installments are paid to the recipient.

This is true in regards to a single life settlement option

It provides income the beneficiary cannot outlive

This is true in regards to reinstatement provision

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. May be required to repay any outstanding loans and interest.

Under what nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Once the cash surrender value is paid, the contract is over.

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the

Entire contract = policy + application

This is true in regards to a policy assignment

It transfer rights of ownership from the owner to another person. Part of the policy = collateral assignment. Entire policy = absolute assignment

If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?

Lump sum

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured chose was

Paid-Up additions = annual dividend acts as a single premium each year to buy additional amount of insurance based on the insured's age

These are true in regards to beneficiary designations

-Beneficiary may be a natural person -The policy does not have to have a beneficiary named in order to be valid -Trusts can be valid beneficiaries -Beneficiary does not have to have insurable interest in the insured

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?

The policyowner can specify the way proceeds are split in the policy.

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death? A. The former wife of the deceased insured B. A minor son of the insured C. A business partner of the insured D. A wife of the deceased insured

B. A minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

Per Capita means

By the head, evenly distributes benefits among the living named beneficiaries

This is true about class designation

Beneficiaries are not identified by name e.g. "my children"

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?

The beneficiary will only receive payments of the interest earned on the death benefit. The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals.

According to the entire contract provision, what document must be made part of the insurance policy?

Copy of the original application

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed amount

What will be stated in the consideration clause of a life insurance policy?

The amount of premium payment

When both the insured and primary beneficiary died in the same car accident, but it is impossible to determine who died first. Who gets the death benefit?

The insured's contingent beneficiary.

Incontestability

2 years for the company to contest misstatements of the application

What is the other term for the case payment settlement option?

Lump sum

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time

Using a class designation for beneficiaries means

Naming beneficiaries as a group

When does a contingent beneficiary collect death benefit?

If the primary beneficiary predeceased the insured.

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die