3.- Policy Provisions, Riders, Options and Exclusions

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

The policyowner

Which of the following is true about Nonforfeiture values?

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

What is the purpose of a free look period in insurance policies?

it allows the insured to reject the policy with a full refund

Which of the following statements is TRUE about a policy assignment?

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

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

Lump sum

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

Equal to the original policy for as long as the cash values will purchase

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 clause

When an insured under a life insurance policy dies, the designated beneficiary receives the face amount of the policy as well as a refund of all the premiums paid. Which rider is attached to the policy?

Return of premium

The two types of assignments are

absolute and collateral

Nonforfeiture values guarantee which of the following for the policyowner?

That the cash value will not be lost

Under which of the following circumstances would an insurer pay accelerated benefits?

An insured is diagnosed with cancer and needs help paying for her medical treatment

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

grace period

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 $250k life insurance policy to secure the loan. Which provision makes this possible?

Collateral assignment

All of the following are dividend options EXCEPT

Fixed period installments

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

The same face amount as in the whole life policy

Free Look

this provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The free look period starts when the policyowner receives the policy.

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

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

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?

The beneficiary will only receive payments of the interest earned on the death benefit.

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.

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

War or military service

According to the Entire Contract provision, a policy must contain

A copy of the original application for insurance

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will pay double or triple the face amount

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Cash surrender once cash surrender value is paid, the contract is over

Which of the following is not typically excluded from life policies?

Death due to plane crash for a fare-paying passenger

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?

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

What is the term for how frequently a policyowner is required to pay the policy premium?

Mode

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?

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.

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 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

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

Which of the following allows the insurer to relieve a minor insured from premium payments if the minors parents have died or become disabled?

Payor benefit

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 proof of insurability. However, the coverage is purchased at the insureds attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40

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

What is the other term for the cash payment settlement option?

lump sum

What is the waiting period on a waiver of premium rider in life insurance policies?

6 months

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.

What type of insurance would be used for a Return of premium rider

Increasing term

which of the following statements is true about a policy assignment?

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

Which of the following is true about Nonforfeiture values?

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

The accelerated benefits provision will provide for an early payment of the death benefit when the insured

Becomes terminally ill

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

Fixed Period *(Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.)

An insured purchased a life policy 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

All of the following are true statements regarding the accumulation period at interest EXCEPT

The interest is not taxable since it remains inside the insurance policy. *the interest credited under this option is TAXABLE, whether or not the policyowner receives it

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insured's death?

A minor son of the insured

Which of the following components must a life insurance policy have to allow policy loans?

Cash value *The policy loan options found only in policies that contain cash value

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

Entire contract

Which option is being utilized when the insurer accumulates dividend at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

Paid-up option

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider

What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy?

It determines who receives policy benefits if the primary beneficiary is deceased.

Entire Contract

The entire contract provision stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract. No statements made before the contract was written can be used to alter the contract. Neither the insurer nor the insured may change policy provisions once the policy is in effect without both parties agreeing to it and the change being affixed to the contract.

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

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.

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 insurability is provided. Which policy provision allows this?

Reinstatement provision A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

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

Size of each installment The size of each installment determines the length of time that benefits are received under the Fixed Amount settlement option.

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.

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.

An insured purchased a 15-year level term life insurance policy with a face amount of $100k. The policy contained an accidental death rider, offering double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?

$200k

Which of the following statements about the reinstatement provision is true?

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

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.

All of the following statements concerning dividends are the EXCEPT

Dividend amounts are guaranteed in the policy *Dividends cannot be guaranteed

All of the following are Nonforfeiture options EXCEPT

Interest only *Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option

Regarding the free-look provision, the insurance company

Must allow the policyowner to return the policy for a full refund

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 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

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.

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

To provide a guaranteed income for a certain amount of time

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

adjustment in the amount of death benefit

Collateral assignment

involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. A collateral assignment is a partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assigned rights are returned to the policyowner.

Absolute assignment

involves transferring all rights of ownership to another person or entity

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?

$9,800

An insured committed suicide 6 months after his life insurance policy was issued. The insurer will

Refund the premiums paid. *If the insured commits suicide within a certain period of time following the policy effective date, the insurer's liability is limited to a refund of premium.

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

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

Copy of the original application

At the fine 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

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

Owners Rights

All of the following are true regarding insurance policy loans EXCEPT

Policy loans can be made on policies that do not accumulate cash value

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

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

contingent beneficiary

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 best describes fixed-period settlement option?

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

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

It has the highest amount of insurance protection *Under this option the insurer uses the policy cash value to convert to term insuirance for the same face value amount as the former permanent policy

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?

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.

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced 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. However, it does not apply to statements relating to age, sex and identity

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that toe that the insured misstated 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 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.

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 insurability is not required.

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

The original age is used for premium determination

An absolute assignment is a

Transfer of all ownership rights in a policy

What required provision protects against unintentional policy lapse?

grace period

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

paid up option

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years?

2 years *The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

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

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?

It will be paid to the insured's estate.

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.

Which of the following settlement options in life insurance is known as straight life?

Life income * the life income option, also known as straight life, provides the recipient with an i come that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, they payments stop at the beneficiary's death

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.

A 40 year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarried and dies at age 61, leaving 2 grown up children. Assuming he never changed the beneficiary, the policy proceeds will go to

The insured's estate

Insuring Clause

The insuring clause sets forth the basic agreement between the insurer and the insured. It states the insurers promise to pay the death benefit upon the insured's death. The insuring clause usually is located on the policy face It defines who the parties to the contract are, the premium to be paid, how long coverage is in force and the amount of death benefit

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

This rider is available to all insureds with no additional premium.

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

Children's riders attached to whole life policies are usually issued as what type of insurance?

Term *Childrens term riders provide term insurance with coverage expiring when the minor reaches a certain age

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

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

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

Revocable beneficiary

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured. *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 interest in the policy holder. *The beneficiary may be a natural person, the policy does not have to have a beneficiary in order to be valid and trusts can be valid beneficiaries

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

Automatic premium loan *This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium

Which nonforfeiture option has the highest amount of insurance protection?

Extended term

A father purchase 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

Who can request changes in premium payments, face values, loans and policy loans?

Policyowner

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?

$50,000

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

Automatic premium loan

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause. Exclusions are restrictions of coverage as stated in 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.

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

Paid-up additions. When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next years premiums, thus reducing it to $900. What option does this describe?

Reduction of Premium

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Set premium rates

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 to 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 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

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 insured's 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.

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

Which of the following premium payment modes will incur the lowest overall payment?

annual