Life Policy Provisions , Riders, and Options Quizzes

An absolute assignment is a Transfer of some ownership rights in a policy. Change of beneficiary. Change of insurer. Transfer of all ownership rights in a policy.

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.

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 Reinstatement clause. Insuring clause. Misstatement of Age clause. Incontestability clause.

Incontestability clause If an insurer wishes to contest any statements on an application, they must do so within the first two years.c

What is the waiting period on a Waiver of Premium rider in life insurance policies? 30 days 3 months 5 months 6 months

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

Which two terms are associated directly with the premium? -Fixed or variable -Term or permanent -Renewable or convertible -Level or flexible

-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.

If a life insurance policy has an irrevocable beneficiary designation, AThe owner can always change the beneficiary at will. BThe beneficiary cannot be changed. CThe beneficiary can only be changed with written permission of the beneficiary. DThe beneficiary cannot be changed for at least 2 years.

If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

The interest earned on policy dividends is Nontaxable. Tax deductible. 40% taxable, similar to a capital gain. Taxable.

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

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called Joint and survivor. Fixed period. Fixed amount. Joint life.

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

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

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

All of the following are true regarding insurance policy loans EXCEPT -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. -Policy loans can be made on policies that do not accumulate cash value. -The amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies.

-Policy loans can be made on policies that do not accumulate cash value. The policy loan option is only found in policies that contain cash value.

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? -It is permanent insurance. -The policy covers only the natural children of the insured. -Each child covered must show evidence of insurability. -It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.

-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.

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? Extended term Fixed amount Fixed period Life income period certain

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.

If a settlement option is not chosen by the beneficiary or policyowner, which option will be used? Fixed amount Lump sum Life income Fixed period

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.

Which of the following best describes fixed-period settlement option? -The death benefit must be paid out in a lump sum within a certain time period. -Income is guaranteed for the life of the beneficiary. -Both the principal and interest will be liquidated over a selected period of time. -Only the principal amount will be paid out within a specified period of time.

-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.

Which of the following best describes fixed-period settlement option? -Only the principal amount will be paid out within a specified period of time. -The death benefit must be paid out in a lump sum within a certain time period. -Income is guaranteed for the life of the beneficiary. -Both the principal and interest will be liquidated over a selected period of time.

-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.

When a policy is surrendered for its cash value, -It can be reinstated by paying back all policy loans -and premiums. -It can only be reinstated as a term policy. -Coverage ends and the policy cannot be reinstated. -Coverage ends but the policy can be reinstated at any time.

-Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid? -The time varies from one policy to another. -It was already too late when J received the policy because the 10-day free-look period had expired. -Anytime, because the agent did not deliver the policy promptly. -February 28th, or 10 days after the time the policy is delivered.

-February 28th, or 10 days after the time the policy is delivered. The 10-day free-look period begins when the policy is delivered.

Which is TRUE about the cash surrender nonforfeiture option? -After the cash surrender, the insured is covered for a grace period of 1 month. -The policy remains active for some time after the policyholder opts for cash surrender. -The policyholder receives the original cash value of the policy. -Funds exceeding the premium paid are taxable as ordinary income.

-Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

Which of the following statements about the reinstatement provision is true? -It permits reinstatement within 10 years after a policy has lapsed. -It provides for reinstatement of a policy regardless of the insured's health. -It guarantees the reinstatement of a policy that has been surrendered for cash. -It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

-It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? -The policy beneficiary takes over the loan payments. -The policy is rendered null and void. -The balance of the loan will be taken out of the death benefit. -The policy beneficiary receives the full death benefit.

-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.

If a life insurance policy has an irrevocable beneficiary designation, -The owner can always change the beneficiary at will. -The beneficiary cannot be changed. -The beneficiary can only be changed with written permission of the beneficiary. -The beneficiary cannot be changed for at least 2 years.

-The beneficiary can only be changed with written permission of the beneficiary. If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

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 premiums will become tax deductible until the insured's 18th birthday. -Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. -The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. -The insured's premiums will be waived until she is 21.

-The insured's 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.

What is the advantage of reinstating a policy instead of applying for a new one? -The cash values have gained interest while the policy was lapsed -The original age is used for premium determination -Proof of insurability is not required -The face amount can be increased

-The original age is used for premium determination The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

An individual borrowed money at the bank to send his daughter to college. Instead of purchasing Credit Life insurance, he used an existing life insurance policy to secure the debt. This would be called a/an Collateral Assignment. Temporary Assignment. Change of Beneficiary. Assignment of Ownership.

Collateral Assignment Collateral Assignment is transferring partial rights under the policy to another person.

The automatic premium loan provision is activated at the end of the Grace period. Free-look period Elimination period. Policy period.

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.

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. Waiver of cost of insurance. Supplemental add on. Cost of living.

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.

What type of insurance would be used for a Return of Premium rider? Annually Renewable Term Increasing Term Level Term Decreasing Term

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.

Which 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? Entire contract clause Beneficiary clause Consideration clause Insuring clause

Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

Which settlement option allows the insurer to retain the face amount but pay some income based on gain on the proceeds to the beneficiary at regular intervals? Life income Fixed amount Fixed period Interest only

Interest only With the "interest only" option, the insurer retains policy proceeds and pays interest on the proceeds to the beneficiary at regular intervals. The insurer will usually guarantee an interest rate and even pay in excess of the rate quoted.

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? Her parents' federal income tax receipts Medical exam and parents' medical history Proof of insurability is not required. Medical exam

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.

Under an extended term nonforfeiture option, the policy cash value is converted to A higher face amount than the whole life policy. The same face amount as in the whole life policy. The face amount equal to the cash value. A lower face amount than the whole life policy.

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.

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? Second-to-Die Common Disaster Accidental Death Survivor Life

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.

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? -The primary and contingent beneficiaries share death benefits equally -With the primary beneficiary's written consent -If the insured died from accidental means -If the primary beneficiary predeceases the insured

-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 is true about the premium on the children's rider in a life insurance policy? -It decreases when the oldest child reaches the age of 21. -It increases when a newborn baby is added to the policy. -It decreases when an adopted child is added to the policy. -It remains the same no matter how many children are added to the 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.

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 daughter is disabled for any length of time -If the father is disabled for more than 6 months -If the father is disabled for at least a year -If the daughter is disabled for more than 3 months

-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 information will be stated in the consideration clause of a life insurance policy? -The conditions for insurability -The amount of premium payment -The parties to the contract -The time period allowed for the payment of premium

-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.

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 Primary beneficiary. Irrevocable beneficiary. Revocable beneficiary. Secondary beneficiary.

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.

The insured undder 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? $0 $50,000 (50% of the policy value) $100,000 $300,000 (triple the amount of policy value)

$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.

Which of the following is NOT typically excluded from life policies? -Death due to plane crash for a fare-paying passenger -Self-inflicted death -Death that occurs while involved in a felony -Death due to war or military service

-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.

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 Payor rider. Cost of living rider. Accelerated benefit rider. Living need rider.

Cost of living rider The cost of living rider addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured. The face value of the policy may be increased by a cost of living factor tied to an inflation index such as the Consumer Price Index.

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? Dividend options Guaranteed renewable option Nonforfeiture options Guaranteed insurability option

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

Under which of the following circumstances would an insurer pay accelerated benefits? -A couple is nearing retirement and needs a steady stream of income. -An insured is looking for a way to put her daughter through college. -A couple wants to build a house and would like to make a larger down payment. -An insured is diagnosed with cancer and needs help paying for her medical treatment.

-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.

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? Joint and survivor Single life Fixed-amount Life income with period certain

Life Income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

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 Jumping Juvenile Juvenile Premium Provision Waiver of Premium

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.

Nonforfeiture values guarantee which of the following for the policyowner? That the death benefit will be paid in a lump sum That the policy premiums will never increase That the cash value will not be lost That the dividends will be paid annually

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.

All of the following are true regarding the guaranteed insurability rider EXCEPT -The insured may purchase additional insurance up to the amount specified in the base policy. -It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. -This rider is available to all insureds with no additional premium. -The insured may purchase additional coverage at the attained age.

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.

Which of the following statements is TRUE concerning the Accidental Death Rider? -It is only available in group insurance. -It will pay double or triple the face amount. -It is also known as a triple indemnity rider. -This rider is only available to insureds over the age of 65.

-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.

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 Face amount of the policy. The insured's age at death. The beneficiary's life expectancy. Projected interest rates.

The insured's age at death. The insureds age at death will not be considered, but the longer the life expectancy of the recipient. The lower the payments will be

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? AThe premiums will become tax deductible until the insured's 18th birthday. BSince it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. CThe insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. DThe insured's premiums will be waived until she is 21.

The policy loan option is only found in policies that contain cash value.