Life Insurance Policy Provisions, Options And Riders

NAIC

National Association of Insurance Commissioners, and organization composed of insurance commissioners from all 50 states, the district of Columbia and the 4 U.S. territories, formed to resolve insurance regulation issues.

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

Paid-up option

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured.

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection.

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value.

Which of the following is TRUE about nonforfeiture values?

They are required by state law to be included in the policy.

Assignment

Transfer of rights of policy ownership.

The Waiver of Cost of Insurance rider us found in what type of insurance?

Universal Life

The Waiver of Cost of Insurance rider is found in what type of insurance?

Universal Life.

Trust

An arrangement in which funds or property are held by a person or corporation for the benefits of another person (trust beneficary)

Who can make changes to the policy once it is in effect?

An executive officer of the insurer

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called

Class designation.

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner decided to use her $250,000.00 life insurance policy to secure the loan. Which provision makes this possible?

Collateral assignment.

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common disaster.

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated.

All of the following are dividend options EXCEPT

Fixed-period installments.

An insured owns a $50,000.00 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 $20,000.00. What would be the face amount of the new term policy?

$50,000.00

Contingent Beneficiary

A beneficiary who has second claim to the policy proceeds after the death of the insured (usually after the death of the primary beneficiary)

Primary Beneficiary

A beneficiary who has the first claim to the policy proceeds after the death of the insiured.

Activities of Daily Living (ADL's)

A persons essential activities that include bathing, dressing, eating, transferring, toileting, continence.

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

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

Equal to the original policy for as long as the cash values will purchase.

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause.

Which nonforfeiture option has the highest amount of insurance protection?

Extended Term

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income.

What required provision protects against unintentional lapse of the policy?

Grace period.

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

Incontestability clause.

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.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the

Revocable beneficiary.

The dividend option in which the policyowner uses dividends to purchase a term policy for one yer is referred to as the

One-year term option.

Which of the following is true regarding the spendthrift clause in life insurance policies?

It can protect the policy proceeds from creditors of the beneficiary.

A life insurance policy does not have a war clause. If the insured is killed during time of war, what will the beneficiary receive from the policy?

The full death benefit.

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will pay double or triple the face amount.

Which of the following riders would NOT cause the Death Benefit to increase?

Payor Benefit Rider.

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium.

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provisions prevents the beneficiary from changing or borrowing from the planned installments?

Spendthrift provision.

Principal Amount

The face value of a policy; the original amount invested before the earnings.

How long will the beneficiary receive payments under the single life settlement option?

Until the beneficiary's death

Elijah and Mary are to receive the proceeds of a life insurance policy jointly until the first one dies. If either one should within a specified time, the other one will receive benefits until the end of the specified time. This settlement option is known as:

Joint Life with Term Certain.

The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT

The insured's age at death.