AD Banker Chapter Four

An insured has a $25,000 annual renewable term life policy, originally purchased on her birthday, April 1st of last year. She forgot to pay the $250 renewal premium, and dies in an accident on April 15. The beneficiary will receive:

$25,000 less the earned premium due

Which of the following beneficiary designations is a class designation?

Any children of this marriage

J has an event that could be subject to a claim. This event occurs on April 1 of this year. How long does J have to bring legal action against the insurer?

April 1 of next year

Which provision allows an insurer to borrow from the cash value of a policy in order to pay premiums due and prevent a lapse in coverage?

Automatic Premium Loan

The spendthrift laws of each state protect life insurance proceeds against the claims of which of the following?

Creditors of any beneficiary

If an applicant for life insurance misstates his age on the application, what would be the consequence if/when it is discovered?

Death benefit will be what the premium paid would have purchased at issuance at the correct age

Cash, Premium reflection , Accumulate at interest, Paid Up additions, 1 year term, and Paid Up Option are all forms of what?

Dividend options

Policy, riders, copy of application must be in writing and attached

Entire Contract

Insurer cannot contest statements (errors, misstatements, fraud) in application after 2 years

Incontestability

This provision identifies the parties, perils and promises of the contract:

Insuring Clause

A married couple is interested in a life insurance policy settlement option that will guarantee them both an income for as long as they live, an amount which reduces to 2/3 of that initial amount after one of them dies. What should they select?

Life Income Joint and Survivor

This is a designation that will pay a deceased beneficiary's share to the heirs of the beneficiary who predecease the insured

Per stirpes

The primary beneficiary is the first in line to receive the death benefit upon the death of the insured.

Primary beneficiary

Which of the following is NOT a Dividend Option? A) Accumulate at interest, B) Paid in cash, C) Paid-Up additions, or D) Reduced Paid up

Reduced Paid -Up (Non forfeiture Option Not a dividend)

Allows the owner to bring the policy up to date if it has lapsed due to nonpayment:

Reinstatement

What are the two types of beneficiaries.

Revocable and irrevocable

Fixed Amount, Interest Only, and Fixed Period are all forms of what?

Settlement options

The insuring agreement in a life insurance policy states which of the following?

The obligation of the insurance company to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force

What is the primary advantage to the policyowner in the reinstatement of a life insurance policy?

The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium

Policy loan provisions include all of the following, except: A) Outstanding loans will be deducted from the face amount at time of claim, B) The death benefit of a policy is automatically reduced when a loan is requested, C) Interest is charged annually or D) Unpaid interest is added to the value of the loan

The death benefit of a policy is automatically reduced when a loan is requested

The Mode of Premium provision addresses:

The frequency of premium payment

Which of the following policies allow for a partial withdrawal or partial surrender?

Universal Life

In a whole life policy, cash value must be made available to borrow against after _____ years.

3 Years

Tom elects the Life Income with 10-year Period Certain settlement option. Tom dies in year 6. The beneficiary receives payments for _______.

4 years

If no money is involved when the ownership of a policy changes, this is referred to specifically as a(n) __________.

Absolute Assignment

What is meant when a life insurance policy becomes incontestable?

After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original application for insurance

When can a policyowner make a change in the policy's coverage or other benefits if an irrevocable beneficiary has been named?

After the irrevocable beneficiary dies

Which of the following is FALSE regarding Settlement Options? A) A policyowner may change a previously chosen settlement option before the insured dies B) Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary, as received C) Settlement Options are used when the owner wants to convert a lump sum death benefit to an income stream for the beneficiary or D) If the policyowner has chosen an option prior to death, the beneficiary cannot change it at time of claim

Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary, as received; Only the interest would be taxed no the principal

If the beneficiary is concerned about a payout for a particular period of time, the _______ settlement option should be selected.

Fixed Period

Insured may return policy for a full refund typically within 10 days of receipt of policy

Free Look

Time Period after the premium due date before the policy lapses:

Grace period

The only way a death benefit can be 100% income tax-free is to be paid out __________.

In a lump sum

Under what conditions can a producer alter, change, modify or waive any policy provisions?

Never

An aunt and uncle purchase a life insurance policy on their niece, for whom they are the legal guardians. Both guardians perish in an accident some time later. Who receives the death benefit?

No claim is paid out since the niece has not died.

Cash Surrender, Reduced Paid -Up, and Extended Term are all forms of what?

Non Forfeiture Options

The insuring clause is found:

On the first page of the policy

What is a material misstatement?

One which would have caused the insurer to not issue the policy had it been known

Party who has all rights to cash, loan values, dividends and other benefits

Ownership Provision

A Whole Life policyowner elects to use his dividends to pay off the policy sooner than originally planned. Which option allows this to occur?

Paid-Up Option

If an insured dies during the policy's grace period, the insurer will:

Pay the death benefit, less the amount of premium due

Interest only, life income with refund, lump sum, and life income only are all forms of which of these life insurance policy options?

These are all forms of settlement options - how the beneficiary will receive the policy proceeds. Nonforfeiture options are concerned with cash value.

Which of the following is a reason why "class" designations of beneficiaries may be a problem?

They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds

What is one of the main reasons for a Universal Life policy to have a surrender charge?

This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy

All of the following are examples of an absolute assignment, except: A) A court orders the existing policyowner to change it to their ex-spouse B) Using a Life Insurance policy as collateral for a loan C) A business permits the change of ownership of a company owned policy over to a retiring executive or D) A donor transfers ownership of a paid-up policy to charitable organization as a donation

Using a Life Insurance policy as collateral for a loan because its a temporary or collateral loan

K has a $100,000 traditional whole life policy with $30,000 of cash values and a $10,000 loan outstanding. What is the maximum additional amount she could borrow from the policy at this time?

$20,000 since she already has a 10,000$ loan there is only 20,000$ of the 30,000$ cash value left.

Transfer of ownership rights

Assignment

Which of the following provisions is NOT a standard provision?

Backdating

The nonforfeiture option that, if exercised, terminates all coverage is:

Cash Surrender

Payment that is made in exchange for the contract; something of value

Consideration Clause

The contingent beneficiary receives the death benefit only if there is no primary beneficiary alive following the death of the insured. In other words, the benefit is payable to the contingent beneficiary only if the primary beneficiary predeceases the insured.

Contingent or secondary beneficiary

It is important to have properly named beneficiaries and ownership in order to:

Keep the policy proceeds out of the probate court and/or creditors hands

Dividend options do not include which of the following choices?

Lifetime income(Settlement option)

Benefits will be adjusted according to what premiums paid would have purchased at correct age or sex

Misstatement of Age

The frequency of premium payments

Mode of Premium Payment

Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy?

Partial surrender;Partial surrenders are typically available only on universal life insurance types of policies.

This is a designation that will pay surviving beneficiaries equally if a named beneficiary predeceases the insured

Per capita

2 year limit from policy issue before death due to suicide is covered:

Suicide Clause

The tertiary beneficiary receives policy proceeds if both the primary and the contingent beneficiaries predecease the insured.

Tertiary beneficiary

The grace period in a life insurance policy is typically 31 days and provides for the:

The payment of the premium after the due date without a penalty or lapse in coverage

Jerry has selected a Life Income 10 year Period Certain. What happens to the income payments if he dies in year 4 after starting to receive income benefit payments?

The payments continue for the balance of the Period Certain to a named beneficiary

A contingent beneficiary has the right to which of the following?

The policy proceeds only when there is no primary beneficiary

What is a revocable beneficiary?

The policyowner may change a revocable beneficiary at any time. This beneficiary does not have a vested interest in the policy. Most named beneficiaries are revocable and have no rights.

What is an irrevocable beneficiary?

The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. They may also not make changes to the policy that affect coverage or benefits without beneficiary consent.

All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except:A) The insured was an experienced pilot who died in a plane crash but had a policy issued with an aviation rider for an additional premium, B) The insurer discovers the gender of the insured was misstated, C) The premiums have not been paid and have been overdue for 3 years, D) An insured commits suicide 7 years after the policy was issued

The premiums have not been paid and have been overdue for 3 years

What is the main purpose of backdating a policy?

To Save Age