Life Policy Provisions, Riders and Options

Which of the following is TRUE about nonforfeiture values?

They are required by the state law to be included in the policy Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

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 If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

All of the following are true regarding the guaranteed insurability rider EXCEPT

The rider is available to all insureds with no additional premium

According to the Entire Contract provision, a policy must contain

A copy of the original application of insurance

What is a beneficiary

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.

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

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.

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

Entire Contract

Which of the following applies to the 10-day free-look privilege?

It permits the insured to return the policy for a full refund of premiums paid

If a settlement option is not chosen by the beneficiary or policyowner, which option will be used?

Lump Sum Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to

The contingent beneficiary A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

What is a fixed period installment

settlement option

What provision in an insurance policy extends coverage beyond the premium due date?

Grace Period Grace period is a mandatory provision found in all life and health insurance policies that provides coverage for a period of time after the premium becomes past due.

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 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.

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

One year term option The dividend is utilized to purchase one year term insurance.

Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy? a

It begins when the policy is delivered The 10-day free-look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.

All of the following are true regarding the guaranteed insurability rider EXCEPT

This rider is available to all insureds with no additional 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 "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 of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

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.

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

The full death benefit War or Military Service Clause specifically excludes or limits the insurer's liability for losses caused by war or active military service. If a life insurance policy does not have that exclusion, the benefits are paid to the beneficiary, as if the insured died of any other cause.

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.

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.

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 will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be. face amount of the policy, beneficiarys life expectancy, and projected interest rates woild be considered

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.

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

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 The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment The consideration clause 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.

What is true of the guaranteed insurability rider

The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

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

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

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured

The two types of assignments are

Absolute and collateral Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

Which is true of the guaranteed rider

The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death?

0% If an insured accepts an accelerated death benefit, the death benefit received by the beneficiary will be reduced by the amount paid by the accelerated death benefit, as well as the amount of earnings lost by the insurance company in interest income. Because it is legal for an insurer to pay 100% of the death benefit before an insured dies, it is possible that the beneficiary of a policy would not receive any benefits after the insured's death.

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.

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 father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

The insureds premiums will be waived until she is 21 if the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had concealed information during the application process. What can they do?

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

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

Reduced paid up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

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 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 or while serving in the military?

Military Service or war There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.

Which of the following statements about a suicide clause in a life insurance policy is TRUE?

Suicide is excluded for a specific period of years and covered thereafter In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit.

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.

If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a

Guaranteed insurability rider The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

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.

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

An absolute assignment is a

Transfer of all ownership rights in a policy Absolute Assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit?

The insureds contingent beneficiary Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.

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.

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and survivor A joint and survivor option pays while either beneficiary is still living.

What are dividend options

paid up additions, accumulated at interest, reduction of premium

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.

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.

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

To provide a guaranteed income for a certain amount of time When the fixed-period installments option is selected, the insurer agrees to pay the proceeds in equal installments over a specified period of time.

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy? A

$9800 In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

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 Under the Uniform Simultaneous Death Law, Common Disaster provision, the 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). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

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

Copy of the original application

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.

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 are term insurance covering all of the children in the family, including newly born children, and are convertible to permanent insurance upon a child reaching the maximum age without 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 insurabillity is not required 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.

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 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.

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

The same face amount as in the whole life policy ! Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

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 as a period of time that the cash values will purchase With this option, the cash value is used as a single premium to purchase the SAME face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

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

Fixed Amount When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.