Life Insurance Policy Riders, Provisions, Options, and Exclusions

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this? Reinstatement provision

A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

Which two terms are associated directly with the premium? Level or flexible

A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member? Family term rider

A single rider that provides coverage on every family member is called a "family rider".

Under which of the following circumstances would an insurer pay accelerated benefits? An insured is diagnosed with cancer and needs help paying for her medical treatment.

Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

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

An insurance contract must contain a copy of the original application.

Which of the following premium payment modes will incur the lowest overall payment? Annual

Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

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 minor son of the insured

Because 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.

Nonforfeiture values guarantee which of the following for the policyowner? That the cash value will not be lost

Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.

Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

The interest earned on policy dividends is Taxable

Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

All of the following statements concerning dividends are true EXCEPT Dividend amounts are guaranteed in the policy.

Dividends cannot be guaranteed.

All of the following are dividend options EXCEPT Fixed-period installments.

Fixed-period installments is a settlement option, and not one of the dividend options.

Which of the following is NOT typically excluded from life policies? Death due to plane crash for a fare-paying passenger

Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline. Excluded: Self-inflicted death Death that occurs while a person is committing a felony Death due to war or military service

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called Guaranteed insurability.

Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability? Proof of insurability is not required.

If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? The balance of the loan will be taken out of the death benefit.

If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

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.

In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.

For how long is an insurance company allowed to defer policy loan requests? 6 months

Insurers writing variable life insurance policies may defer loan requests for up to 6 months. This excludes loan requests used to pay policy premiums.

What is the waiting period on a Waiver of Premium rider in life insurance policies? 6 months

Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Which of the following statements is TRUE concerning irrevocable beneficiaries? They can be changed only with the written consent of that beneficiary.

Once irrevocable beneficiaries are indicated for the policy, their written consent is required to change the beneficiary.

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

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

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights? Policyowner

Only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary.

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

Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium? If the father is disabled for more than 6 months

Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.

Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? Owner's Rights

Policyowners can learn about their ownership rights by referring to the policy.

The automatic premium loan provision is activated at the end of the Grace period.

Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members? Term rider

Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.

Which of the following statements is TRUE concerning the Accidental Death Rider? It will pay double or triple the face amount.

The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

What type of insurance would be used for a Return of Premium rider? Increasing Term

The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all of the premiums paid. Which rider is attached to the policy? Return of premium

The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement? $200,000

The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

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 then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? Collateral assignment

The business owner could make a collateral assignment of his or her life insurance policy to the bank.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? If the primary beneficiary predeceased the insured

The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? Guaranteed insurability option

The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years? 2 years

The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT The interest is not taxable since it remains inside the insurance policy

The interest credited under this option is TAXABLE, whether or not the policyowner receives it. True: The interest is credited at a rate specified by the policy. The policyholder has the right to withdraw the accumulations at any time. The annual dividend is retained by the company.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the Other-insured rider.

The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

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.

The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

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 policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.

Which of the following is true about the premium on the children's rider in a life insurance policy? It remains the same no matter how many children are added to the policy

The premium does not change on the inclusion of additional children; it is based on an average number of children.

Which is true about a spouse term rider? The rider is usually level term insurance.

The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? $100,000

The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

Regarding the free-look provision, the insurance company Must allow the policyowner to return the policy for a full refund.

This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.

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

Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called Waiver of premium.

Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

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.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

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.

When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

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 has chosen is called Paid-up additions.

When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

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

With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called Consideration

"Consideration" is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.

Which is NOT true about beneficiary designations? The beneficiary must have insurable interest in the insured.

A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.