Ch 3.2 Exam Review 2
A policyowner may generate taxable income from which of the following Dividend Options? - Cash - Reduced Premium - Accumulation at interest
Accumulation at interest
Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made? - Automatic Policy Loan - Assignment - Grace Period - Waiver of Premium
Automatic policy loan
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take? - Claim will be denied - Claim will be partially paid
Claim will be denied
Which of these is NOT an example of a nonforfeiture option? - Extended term - Reduced paid up - cash surrender - Life income
Life income
Which of these provisions require proof on insurability after a policy has lapsed? - Conversion - Reinstatement
Reinstatement
The automatic premium loan provision is designed to - avoid a policy lapse - allow a policyowner to request a policy loan
avoid a policy lapse
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n) - term rider - accidental death and dismemberment rider
accidental death and dismemberment rider
All of these statements concerning settlement options are true EXCEPT - increased proceeds can be provided through accumulation of interest - rapid depletion of proceeds can be avoided - proceeds can be administered by the insurance company - only the beneficiary may select
only the beneficiary may select
M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the - cash value - policy proceeds
policy proceeds
Which of the following is an example of a nonforfeiture option? - reduced paid up option - inflation option
reduced paid up option
How are policyowner dividends treated in regards to income tax? - Dividends are not taxable - Interest on accumulations is taxed
Interest on accumulations is taxed
A cost of living rider gives the insured - tax incentives - additional death benefits
additional death benefits
What does the insuring agreement in a Life insurance contract establish? - an insurers basic promise - the insurer's required reserve amount
an insurers basic promise
Variable whole life insurance can be described as - both an insurance and securities product - an insurance product only - a securities product only
both an insurance and securities product
The _____ has the right to change the life insurance policy's beneficiary. - insured - policyowner
policy owner
Which of these life insurance riders allows the applicant to have excess coverage? - Waiver of premium rider - Term rider
Term rider
The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and - the initial premium - agreeing to physical examination - disclosure of any medical conditions
the initial premium
An insurer may normally delay the payment of a cash value loan or surrender value for up to: - 2 months - 4 months - 6 months - 8 months
6 months
Which statement regarding the misstatement of age provision is considered to be true? - Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered - insurer may void the policy if a misstatement of age is discovered
Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered
How are surrender charges deducted in a life policy with a rear-end loaded provision? - Deducted when the policy is discontinued - Deducted form the policy's cash value
Deducted when the policy is discontinued
Additional coverage can be added to a Whole Life policy by adding a(n) - payor rider - decreasing term rider
decreasing term rider
T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay? - Nothing - $50,000
$50,000 because it was outside of the suicide clause period
M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take? - Deny the claim - Pay face amount minus the past due premium
Pay face amount minus the past due premium
The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n) - entire contract provision - insuring agreement
insuring agreement
Dividends paid from a life insurance policy are: - guaranteed - taxable - issued by the insurer - issued by the department of insurance
issued by the insurer
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT - K must provide evidence of insurability - K will forfeit the right to use the automatic loan provision upon reinstatement
K will forfeit the right to use the automatic loan provision upon reinstatement
Which of the following statements is CORRECT about accelerated death benefits? - The provision is usually provided with an increase in premium - Must have a terminal illness to qualify
Must have a terminal illness to qualify
L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will - adjust the death benefit to a reduced amount - deny the claim
adjust the death benefit to a reduced amount
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage? - 10 year increments - at future dates specified in the contract with no evidence of insurability required
at future dates specified in the contract with no evidence of insurability required
D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with? - Loan provision - Extended term
extended term
Which of the following nonforfeiture options offers the highest death benefit? - cash surrender - reduced paid up - extended term - dividend
extended term
In a life insurance contract, an insurance company's promise to pay stated benefits is called the - insuring clause - entire contract
insuring clause
The Accelerated Death Benefit provision in a life insurance policy is also known as a(n) - nonforfeiture option - living benefit
living benefit
Typically a life insurance death benefit is paid by a lump-sum payment. A(n) __________ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment. - settlement - dividend - conversion - aleatory
settlement
P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary? - Nothing. Claim will be denied - $50,000 minus any outstanding policy loans
$50,000 minus any outstanding policy loans
A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? - Straight life accumulates faster than limited pay life - 20 pay life accumulates cash value faster than straight life
20 pay life accumulates cash value faster than straight life
The Consideration clause in a life insurance contract contains what pertinent information? - Offer and acceptance - Amount of premium payments and when they are due
Amount of premium payments and when they are due
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take? - Beneficiary will be denied the claim - Beneficiary will be paid the death benefit
Beneficiary will be paid the death benefit (thanks to the incontestable clause)
A policy loan is made possible by which of these life insurance policy features? - Extended term provision - Cash value provision - Owner's rights provision
Cash value provision
How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period? - Claims are denied under the suicide clause of the policy - premiums are returned under the consideration clause
Claims are denied under the suicide clause of the policy
Which of these statements about a guaranteed insurability option rider is NOT TRUE? - Coverage can be added at specific events such as marriage or having a child - Evidence of insurability is required when the option is exercised
Evidence of insurability is required when the option is exercised
In a life insurance policy, which feature states that the policy will not cover certain risks? - Exception - Exclusion - Expulsion
Exclusion
N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot? - Misrepresentation - Exclusion
Exclusion
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period? - Refund of all the premiums paid, plus interest - Full face amount minus any past due premiums
Full face amount minus any past due premiums
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider? - Long term care - accelerated death benefit - waiver of premium
Long term care
Which of these is NOT considered to be a right given to a policyowner? - Surrendering the policies cash value - Modify a provision in the insurance contract
Modify a provision in the insurance contract
In a life insurance policy, which provision states who may select policy options, designate and name beneficiary, and be the recipient of any financial benefits from the policy? - Entire contract - Insuring clause - Owner's rights
Owner's rights
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability? - P will have to pay income taxes on the amount of premium waived - P will still receive declared dividends
P will still receive declared dividends
Which statement is true in regards to a policy loan? - Past due interest payments not paid after 3 months will void the policy - Past due interest on a policy loan is added to the total debt
Past due interest on a policy loan is added to the total debt
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the - Policy loan provision - automatic premium loan provision
Policy loan provision
What benefit does the Payor clause on a Juvenile Life policy provide? - Premiums are waived if juvenile becomes disabled - Premiums are waived if payor becomes disabled
Premiums are waived if payor becomes disabled
Which of these Nonforfeiture Options continue a build-up of cash value? - Extended term - Reduced Paid- up - Cash surrender
Reduced paid up
S buys a $10,000 whole life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy? - Accelerated death benefit - Return of premium rider - Family income rider
Return of premium rider
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? - Joint life - Variable universal life - Universal life
Variable universal life
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached? - Accelerated benefits - Waiver of Premium
Waiver of premium
A term life rider offers the insured: - additional life coverage - cash value - long-term care coverage
additional life coverage
What action can a policyowner take if an application for a bank loan requires collateral? - borrow against policy cash value and use it as a down payment - assign policy ownership to the bank
assign policy ownership to the bank
What action will an insurer take if an interest payment on a policy loan is not made on time? - cancel the policy if not paid within the grace period - automatically add the amount of interest due to the loan balance
automatically add the amount of interest due to the loan balance
S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT - type of life insurance - S's attained age - dividend amount used toward purchase - beneficiary's age
beneficiary's age
Which life insurance rider typically appears on a Juvenile life insurance policy? - waiver of premium rider - payor benefit rider
payor benefit rider
The _______ is authorized to assign a life insurance policy as collateral for a loan. - insured - policyowner - lender
policyowner
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called: - reinstatement - automatic premium loan
reinstatement
A life insurance policyowner would like to take out a policy loan against the cash value in his whole life policy. The interest rate applied to this loan may vary over time. This is referred to as a(n) _______ rate loan. - fluctuating - variable
variable
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? - Variable life - Universal life
variable life
A(n) ___ rider may be used to include coverage for children under their parents' life insurance policy. - payor - term
term
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? - Face amount plus interest - $20,000 death benefit
$20,000 death benefit
All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT - fixed period - interest only - fixed amount - life income
interest only
Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan? - Revocable assignment - Collateral assignment
Collateral assignment
D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?
Ex- wife
A long term care rider in a life insurance policy pays a daily benefit in the event of which of the following? - Critical illness - Terminal illness - Inability of the insured to perform more than 2 Activities of Daily Living
Inability of the insured to perform more than 2 Activities of Daily Living
The purpose of the ___ period clause is to avoid an unintentional lapse of a life insurance policy. - Grace - Reinstatement
Grace
All of these statements about the Waiver of Premium provision are correct EXCEPT: - A waiting period must pass before becoming eligible for benefits - A waiver of premium is available on both permanent and term insurance - Insured must be eligible for social security disability for claim to be accepted - Insured must be totally disabled to qualify
Insured must be eligible for social security for claim to be accepted
B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes? - Interest and dividends - Interest only - Dividends only - Neither interest nor dividends are taxable
Interest only
When is the face amount of a Whole Life policy paid? - at the policy's maturity date only - When the insured dies or at the policy's maturity date, whichever happens first
When the insured dies or at the policy's maturity date, whichever happens first
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of - additional term life coverage at any time - additional whole life coverage at specified times
additional whole life coverage at specified times
A whole life insurance policyowner does NOT have the right to: - take out a policy loan - change the grace period - assign the policy
change the grace period
Whose life is covered on a life insurance policy that contains a payor benefit clause? - parent - child - spouse
child
Which rider provides coverage for a child under a parent's life insurance policy? - payor benefit rider - child term rider
child term rider
The incontestable clause allows an insurer to - contest a claim at any time if the cause of death was accidental - contest a claim during the contestable period
contest a claim during the contestable period
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it? - Modified whole life - 20 pay life - decreasing term - endowment
decreasing term
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself? - Incontestable - Entire contract provision
entire contract provision
A Nonforfeiture clause gives the policyowner - lifetime income - guaranteed values even if the policy has lapsed
guaranteed values even if the policy has lapsed
K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose? - Paid up additional insurance - cash option - reduced premiums
paid up additional insurance
All of the following statements are true regarding a policy's Grace period EXCEPT - past due premiums are waived - policy loans may still be made - full coverage continues - grace period terms are stated in the policy
past due premiums are waived
B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will - pay the full face amount - pay the amount that the premium would have purchased at the correct age
pay the amount that the premium would have purchased at the correct age
Which of the following provisions guarantees that premiums will be waived if a juvenile life policyowner becomes disabled? - Family maintenance clause - Payor clause
payor clause
J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions? - Automatic premium loan provision - reinstatement provision
reinstatement provision
What is the Suicide provision designed to do? - protect the insurer from ever paying a claim that results from suicide - safeguard the insurer from an applicant who is contemplating suicide
safeguard the insurer from an applicant who is contemplating suicide
Which of the following statements about accumulated interest earned on dividends from an insurance policy is true? - Partially taxable - Taxed as ordinary income
taxed as ordinary income
The advantage of reinstating an original life policy is - the premiums are based on the current age of the insured - the premiums are based on a younger age
the premiums are based on a younger age
The free-look provision begins - upon the date of the sales presentation - upon the receipt of the policy to the producer - upon the receipt of the policy by the policyowner - upon completion of application
upon the receipt of the policy by the policyowner
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take? - Void the policy no matter when it is discovered - Void the policy if found during the contestable period - void the policy only if it is discovered during the contestable period and proven to be material
void the policy only if it is discovered during the contestable period and proven to be material
What does the ownership clause in a life insurance policy state? - who the policyowner is and what rights the policyowner is entitled to - who the beneficiary is and what rights the beneficiary is entitled to
who the policyowner is and what rights the policyowner is entitled to
A return of premium life insurance policy is - whole life and increasing term - interest- sensitive
whole life and increasing term
S buys a $50,000 whole life policy with a $50,000 AD&D rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary? - $100,000 - $50,000
$50,000
D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive? - Nothing, due to actively serving in the armed forces - the full face amount
the full face amount
