Ch 4

Entire contract To be regarded a part of the contract, the application for insurance must be included with the rest of the policy. It may not be incorporated 'by reference'.

Once issued, if the application is attached to the policy itself, it then becomes part of the ___________.

Universal Life A partial withdrawal of cash value is permitted in a Universal or a Variable Universal Life policy.

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

The Paid-Up Additions purchased under this Option have their own values and do not change the face amount of the original policy. Each additional segment of insurance contains both a death benefit and increasing cash surrender value, and by purchasing paid-up additions, larger dividends may be paid in the future. Paid up additions do not eliminate need to pay premiums on the original policy.

Concerning the Paid-Up Additions Dividend Option, all of the following are true, except:

4 years

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

Contractual provisions explain what the contract consists of, what duties and responsibilities the parties to the contract have, how the policy works, and basically spell out the agreement between the policyowner and the insurance company.

Contractual provisions explain all of the following

Paid-Up Option The Paid-Up Option is designed so that at a future point the base policy is fully prepaid (i.e. no more premiums are due). In Paid-Up Additions, only the additions are paid up, not the base policy. Only a Whole Life can achieve paid-up status.

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

Accept the beneficiary change As the policyowner, Sylvia is free to change a revocable beneficiary at any time. She may also name a new beneficiary if an irrevocable beneficiary dies before the insured. A beneficiary is not required to have an insurable interest in the insured.

Sylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will:

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

What is a material misstatement?

To put a policy back in force as if it had never lapsed

What is the primary purpose of the reinstatement provision?

Fixed Amount The Fixed Amount option pays benefits at a specified dollar amount (such as $1,000/month) until the benefits are exhausted.

Which Settlement Option pays a specified dollar amount until benefits are exhausted?

They are used when the insured lives to the endowment date of the policy or at the insured's death Distribution options used when the insured lives to the endowment date of the policy or at the insured's death are Settlement Options, not Nonforfeiture Options.

Which statement is FALSE regarding Nonforfeiture Options?

The insurer must pay out the death benefit of the policy to the named beneficiary After the policy has been in force for 2 years, except for cases of nonpayment of premium, meaning the policy has lapsed, the insurer cannot contest any claim. The policy has become incontestable.

After a life insurance policy has been in force for 5 years the insured dies. During the claims process, the insurer discovers that the insured did not disclose material health information that had it known, would have caused the application to be rejected. What can the insurer do at this point in time?

In an absolute assignment, a new owner is named. This is considered a permanent assignment.

An _________ assignment is considered permanent.

The policyowner needs to contact the insurance company and request a change in premium mode

An insured has paid premiums annually on her life insurance policy. She would now like to change to a monthly premium payment. What must occur to effect this change?

Paid-Up Additions Frank's objective is to use his dividends to increase the death benefit. Paid-Up Additions purchases single premium additional permanent benefits at the insured's attained age. The additional insurance is added to the face amount and it generates cash values and dividends as if the paid-up additional benefit was part of the original policy.

Frank has a life insurance policy in which he chooses to have the dividends increase the death benefit. Which Dividend Option did he select?

The Misstatement of Age or Sex Provision prevents the policy from automatically being voided, but protects the insurer's right to protect its interests by adjusting the death benefit based on what the actual premiums paid would have purchased had the correct age been known.

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

The consideration clause states what each party exchanges in the contract. The policyowner must pay something of value (premium) in exchange for the insurer's promise to pay the benefits. Policies are issued in consideration of the application and the payment of premium(s).

The insurer's consideration is __________ while the applicant's consideration is ________.

Reduced Paid-Up Extended term provides the most amount of coverage for the least amount of time, whereas reduced paid-up provides the least amount of coverage for the longest period of time.

The nonforfeiture option that provides coverage for the longest period of time is:

It is available on any type of life insurance policy The Automatic Premium Loan Provision is available on cash value policies only.

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, except:

K's new loan balance is $1,050 The cash value is used as collateral against the loan. Interest will be charged annually, and if unpaid, will be added to the balance of the unpaid loan. $1,000 x 5% = $1,050.

K has a $10,000 traditional whole life policy with a loan outstanding of $1,000 and a 5% interest charge. At the end of the first year of the loan, K did not pay the loan interest. What is the result of K's inaction?

Reinstatement A policy lapse occurs at the expiration of the grace period. The Reinstatement Provision permits the policy to be put back into force if proof of insurability can be provided and all past due premiums and interest are paid. Any outstanding policy loan may also have to be paid or reassumed.

The __________ provision specifies what an insured must do, if a policy has lapsed, in order to put it back in force.

Claire

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Alice dies, so who receives the policy proceeds?

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

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 application and policy The entire contract is comprised of the policy itself, the application and any riders attached. The Agent's Report and APS are not included.

Which of the following two documents always constitutes part of the entire contract?

Extended Term Extended term provides the most amount of coverage for the least amount of time, whereas reduced paid-up provides the least amount of coverage for the longest period of time.

The nonforfeiture option that provides the most amount of coverage is:

The insurer

All of the following can determine the death benefit settlement option, except:

Any children of this marriage A class designation is when the beneficiary is not directly identified by name.If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due.

Which of the following beneficiary designations is a class designation?

Frank's objective is to use his dividends to increase the death benefit. Paid-Up Additions purchases single premium additional permanent benefits at the insured's attained age. The additional insurance is added to the face amount and it generates cash values and dividends as if the paid-up additional benefit was part of the original policy.

Frank has a life insurance policy in which he chooses to have the dividends increase the death benefit. Which Dividend Option did he select?

The payment of back premiums, plus interest, and proof of insurability

If a life insurance policy lapses due to nonpayment of premium, then reinstatement requires:

Lapsing The owner always has a right to borrow from the cash value. The APL provision gives the insurer the right to invade the policy cash value to prevent a lapse.

When there is enough cash value within a life policy to pay the premium, the Automatic Premium Loan provision prevents the policy from:

Fixed Period As the name implies, Fixed Period establishes that the policy proceeds are guaranteed to be paid over a set period (i.e., 30 years) regardless of who may receive the payments.

Which Settlement Option pays for a specified period, regardless of who may receive the payments?

Companies have the right to require medical examinations To reinstate a lapsed policy, back premiums plus interest need be paid and proof of insurability is required. The right to request reinstatement has a time limit, typically 3 to 5 years from policy lapse.

Which of the following is TRUE concerning reinstatement of a life insurance policy?