4. Life Insurance Policy Provisions, Options, and Riders

The death benefit will be adjusted to the amount that the insured could obtain for her correct age.

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

The longer the period selected, the smaller each installment will be

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

No. Beneficiaries do not have insurable interest in the insured

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

Representations

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

A copy of the original insurance application

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

Cash surrender

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

Return of unused premiums

What are policy dividends?

The insurer will pay a benefit of twice the face amount

What does the term 'double indemnity' mean?

A promise to pay policy benefits

What is consideration on the part of the insurer?

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

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

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

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

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

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

When the primary beneficiary dies before the insured

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

Paid-up additions

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

Extended term

Which nonforfeiture option is automatically selected if the policy owner has not made a selection?

Reduced paid-up

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

Absolute assignment

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

Policiyowner

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

The contingent beneficiary

Who doe the common disaster clause protect?

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

What are representations on life insurance applications?

War and military service, hazardous occupation, and aviation

What are the most common exclusions in life insurance policies?

Primary beneficiary

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

Revocable

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

Paid-up additions

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

The cash value is converted to the same face amount as in the whole life policy

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

The proceeds are paid to the insured's estate

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

Other-insured rider

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

To allow the insured to return the policy with a full refund

What is the purpose of a free-look period?

To determine how the death benefit will be paid to the beneficiary

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

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

What is the purpose of the Automatic Premium Loan provision?

Grace period

What required provision protects against unintentional policy lapse?

Lump-sum/cash, fixed period, fixed amount, life income, interest only

What settlement options are available in life insurance policies?

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

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

The dividend is applied to the next year's premium (it reduces the next year's premium)

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

Cash surrender, reduced paid up, and extended term

What are the three nonforfeiture options in life insurance policies?

Entire contract

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?

Yes, since the suicide was committed long after the restricting period

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

Waiver of premium

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

Reinstatement

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

Grace period

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

Settlement options

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

Policyowner

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

Contingent beneficiary

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

Pay a reduced death

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?

Lump-sum payment

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

It will be paid to the insured's estate

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?

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, on-year term, and acceleration of endowment

What are the dividend options in life insurance policies?

Incontestability

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?

Collateral assignment

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

When it may alter the underwriting decision

When would a misrepresentation be considered material?