13% Life Insurance Policy Provisions, Options and Riders

Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Absolute assignment

What are the dividend options in life insurance policies?

Cash Reduced Premium Accumulation at Interest Paid-Up Option One-Year Term Acceleration of Endowment

What happens to a policy's cash value under an extended term nonforfeiture option?

Cash Value is converted to same face amount as in the whole life policy

Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?

Cash surrender

What are the three nonforfeiture options in life insurance policies?

Cash surrender Reduced paid-up Extended term

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Collateral assignment

What type of beneficiary is next in line after the primary beneficiary?

Contingent beneficiary

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

Death benefit will be adjusted to the amount the insured could obtain for correct age

With the reduction of premium dividend option, how is the dividend used?

Dividend applied to next year's premium (reduces next year's premium)

What nonforfeiture option is automatically selected by the company is not chosen by the policyowner?

Extended term

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

Grace period

What required provision protects against unintentional policy lapse?

Grace period

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Incontestability

What does the term "double indemnity" mean?

Insurer will pay a benefit of twice the face amount

In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?

Longer the period, the smaller each installment will be

What settlement options are available in life insurance policies?

Lump-sum/Cash Fixed Period Fixed Amount Life Income Interest Only

Is the beneficiary required to have insurable interest in the insured?

No. Beneficiaries DO NOT have insurable interest in the insured.

What dividend option can increase the death benefit of the existing life policy?

Paid-up additions

An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Pay reduced death benefit

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Policyowner

Who has the right to the cash value of a life insurance policy?

Policyowner

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

Primary beneficiary

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specific period of time with proof of insurability?

Reinstatement

What are policy dividends?

Return of unused premiums

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?

Settlement options

What are representations on life insurance applications?

Statements made by the applicant that are true to the best of the applicant's knowledge

What is the purpose of a free-look period?

To allow insured to return the policy with full refund

What is the purpose of settlement options in life insurance policies?

To determine death benefit to be paid to beneficiary

What is the purpose of the Automatic Premium Loan provision?

To prevent lapse of a policy because of unintentional nonpayment of the premium

When can an insurance company use suicide as a defense against paying a death claim?

When committed within a period of time after the policy is purchased (usually 2 years)

When would a misrepresentation be considered material?

When it alters an underwriting decision

When will a contingent beneficiary receive death benefit from a life insurance policy

When primary beneficiary dies before the insured

What dividend option is automatically selected by the company if not chosen by the policyowner?

Paid-up additions

What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?

Policy premium in reinstated policy will be set according to the insured's original age

With the interest only settlement option, what happens to the policy's death benefit?

Policy proceeds are retained by the insurance company; only payment to beneficiary is interest

What is consideration on the part of the insurer?

Promise to pay policy benefits

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

Reduced paid-up

Statements on the application made by an applicant for a life insurance policy are known as what?

Representations

What type of beneficiary can be changed at any point by the policy owner?

Revocable

What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Waiver of premium

What are the most common exclusions in life insurance policies?

War and Military Service Hazardous Occupation Aviation

Who does the common disaster clause protect?

Contingent beneficiary

What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?

Entire contract

What is the disadvantage of selecting the life income settlement option?

If beneficiary dies shortly after the payments begin, principal balance will be forfeited

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

Lump-sum payment

To meet the requirement of the entire contract policy provision, an insurance policy must contain what?

Original insurance application

What is the name for a life insurance policy rider that provides coverage on the insured's family members?

Other-insured rider

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?

Paid to insured's estate

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

Paid to the insured's estate

An insured purchased a life policy, and then committed suicide 5 years later. Will the company pay the death benefit to the beneficiary?

Yes, because it was committed long after the restricting period