Life License Chapter 3

What protects the insured from an unintentional policy lapse due to a nonpayment of premium?

Automatic premium loan

Julie pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. Julie 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 option

Is the interest earned on policy dividends taxable?

Yes

A long stretch of national economic hardship causes a 7% rate of inflation. Devonne notices that the face value of her life insurance policy has been raised 7% as a result. What is the name of the provision that caused this change?

Cost of Living Rider

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

Other-insured rider

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

Which type of beneficiary is changeable at any point?

Revocable

What statement can explain what an irrevocable beneficiaries is?

They can be changed only with the written consent of that beneficiary

What law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days)

Common Disaster

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

Copy of the original application.

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

Entire contract.

If Tom's policy allows him to make periodic additions to the face amount at standard rates, without providing insurabiliy, his policy includes a

Guaranteed insurabiligy option

An insured has a continuous premium whole life policy. She would use the policy dividends to pay off her policy sooner than would have been possible other wise. What dividend option could she use?

Paid-up option

The automatic premium loan provision is activated at the end of the

grace period

Life income joint and survivor settlement option guarantees

income for 2 or more recipients until they die

What best describes fixed-period settlement option?

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

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war of while serving in the military?

Military service or war

If life insurance policy has an irrevocable beneficiary designation,

The beneficiary can only be changed with written permission of the beneficiary.

The consideration clauses states that

the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.

The two types of assignments are

Absolute and collateral

When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount

Equal to the original policy for as long a period of the time that the cash values will purchase.

Sam has a life insurance policy from a participating company and receives quarterly dividends. Sam has instructed the company to apply his dividends to the policy to increase the death benefit. The dividend option that Sam has chosen is called

Paid-up additions

What determines the amount of each installment paid in a Life Income Option arrangement?

Recipient's life expectancy and amount of principal

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

Spendthrift provision

The paid-up addition option uses the dividend:

To purchase a smaller amount of the same type of insurance as the original policy.

Methods used to pay the death benefits to a beneficiary upon the insured's death are called

settlement options

What 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.

Which provision of a life insurance policy states the insure's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

Insuring Clause

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 instability is provided. What policy provision allows this?

Reinstatement Providison

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 policy owner should have her husbnad named as the

Revocable Beneficiary

If an insured continually uses the automatic premium loan option to pay the policy premium

The policy will terminate when the cash value is reduced to nothing

Interest-only option

the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals

What does nonforfeiture values guarantee for the policyowwner.

That the cash value will not be lost

Under which non forfeiture option does the company pay the surrender value and have no further obligations to the policy owner

Cash surrender

What are some nonforfeiture options

Cash surrender, Extended term, reduced paid-up

What determines the length of time that benefits will be received under the Fixed-Amount settlement option?

Size of each installment

What is the advantage of reinstating a policy instead of applying for a new one?

The original age is used for premium determination

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

In most states, if death results from suicide within a certain period,

the insurer is not obligated to pay the death benefit

The 10-day free-look period begins when

the policy is deliverd

"They can be changed only with the written consent of that beneficiary." is a statement describing

Irrevocable Beneficiaries

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

one-year term option

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

Incontestability Clauses However, it does not apply to statements relating to age, sex and identity

What provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

Insuring clasuse

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.

What is true about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income

What is a true statement about a policy assignment?

It transfers rights of ownership from the owner to another person.

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.

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

The reduction of premium option allows the policy holder to

apply policy dividends toward the next year's premium.

A policy owner may return a policy for any reason during the _______________ period and receive a full refund

free-look

policy loan option

is only found in policies that contain cash value

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

spendthrift clause

What policy would be classified as a traditional level premium contract?

straight whole life

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

It has the highest amount of insurance protection

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium.

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.

What is true about nonforfeiture values?

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

What two terms are associated directly with the premium?

Level or flexible

The insurer sets premium rates based upon

underwriting considerations

An absolute assignment is a

Transfer of all owner ship rights in a policy.

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index is called

Cost of living rider

When a policy is surrendered for its cash value

Coverage ends and the policy cannot be reinstatged

Payor Benefit rider is

primarily used with juvenile policies; otherwise, it functions like the waiver of premium rider.

What is an example situation that would be addressed by The Uniform Simultaneous Death with A common Disaster provision?

The insured and primary beneficiary are injured in the same car accident, and the beneficiary dies within 30 days of the insured.

What situation would be addressed by The Uniform Simultaneous Death with a Common Disaster provision?

The insured and primary beneficiary are injured in the same car accident, and the beneficiary dies within 30 days of the insured.

An insured is involved in a car accident and is disabled. If the policy contains a Waiver of Premium rider

The insured will have to pay premiums for 6 months, after which the premiums will be reimbursed and subsequent premiums will be waived.

What is true about a spouse term rider?

The rider is usually level term insurance

life income joint and survivor settlement option guarantees

income for 2 or more recipients until they die

Guaranteed insurabiligy rider allows the insured to

purchase additional coverage at specified future dates, or events without evidence of insurabiligy, for an additional premium

Third-party ownership

refers to situations when the owner and the insured are not the same person, and the insurance arrangement is between three parties: The company, the owner and the insured.