NC Life Insurance - Policy Provisions, Options, and Other Features - Chapter Quiz

All of the following statements concerning dividends are true EXCEPT A. Lower insurance company costs generate higher dividends. B. They stem from favorable underwriting experience. C. Favorable investment results generate higher dividends. D. Dividend amounts are guaranteed in the policy.

D. Dividend amounts are guaranteed in the policy. Dividends cannot be guaranteed.

An insured owns a $50,000 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. What would be the face amount of the new term policy? A. $20,000 B. $25,000 C. $50,000 D. The face amount will be determined by the insurer.

C. $50,000 The face of the term policy would be the same as the face amount provided under the whole life policy.

The paid up addition option uses the dividend A. To reduced the next year's premium B. To accumulate additional savings for retirement C. To purchase a smaller amount of the same type of insurance as the original policy D. To purchase a one-year term insurance in the amount of the cash value

C. 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

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 A. Accelerated benefits B. Cost of living C. Guaranteed insurability D. Waiver of cost of insurance

C. 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.

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

C. 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.

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

A. 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 is true about a spouse term rider? A. The rider is decreasing term insurance B. Coverage is allowed up to age 75 C. The rider is usually level term insurance D. Coverage is allowed for an unlimited time

C. 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.

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? A. One-year term B. Reduction of premium C. Accumulation at interest D. Paid-up option

D. 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 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? A. Dividend Options B. Guaranteed renewable option C. Nonforfeiture option D. Guaranteed insurability option

D. 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 statements about a suicide clause in a life insurance policy is true? A. Suicide is covered for a specific period of years and excluded thereafter B. Suicide is covered as long as the policy is in force C. Suicide is excluded as long as the policy is in force D. Suicide is excluded for a specific period of years and excluded thereafter

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

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

D. 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 convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability

Children's riders attached to whole life policies are usually issued as what type of insurance? A.Variable Life B. Adjustable life C. Whole life D. Term

D. Term Children's term riders provides term insurance with coverage expiring when the minor reaches a certain age.

A policy owner who is also the insured wants to name her husband the beneficiary of her life policy. She also wishes to retain in all of her rights of ownership. The policy owners should have her husband named as the A. Contingent beneficiary B. Irrevocable beneficiary C. Revocable beneficiary D. Secondary beneficiary

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

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

A. 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.

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

D. This rider is available to all insureds with no additional premium 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 based policy. This rider usually expires at the insured's age 40.