Ch. 5: individual life insurance contract- provisions & options

The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the

Spendthrift Clause

Which of the following applies to the 10-day free-look privilege?

it permits the insured to return the policy for a full refund of premiums paid

An insured committed suicide one year after his life insurance policy was issued. The insurer will

refund the premiums paid

Which settlement option provides a single beneficiary with income for the rest of his/her life?

single life

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

Which type of beneficiary is changeable at any point?

Revocable

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 automatic premium loan provision is activated at the end of the

grace period

An absolute assignment is a

transfer of all ownership rights in a policy

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

Military service or war

The two types of assignments are

Absolute and collateral: absolute assigns the entire policy, collateral assigns a part or all of the benefits

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

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

Owner's Rights

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

Cash option

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

Cash surrender

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called

Class designation

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common Disaster

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

Copy of the original application

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

Coverage ends and the policy cannot be reinstated

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

Death due to plane crash for a fare-paying passenger

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

Entire Contract

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.

Which nonforfeiture option has the highest amount of insurance protection?

Extended term

J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid?

February 28th, or 10 days after the time the policy is delivered.

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.)

How does an insured typically decide which settlement option to choose for his/her beneficiary?

He/she typically decides by determining if the beneficiary will need one payment or a "steady stream" of income.

An insured purchased a life 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

Which of the following policy components contains the company's promise to pay?

Insuring clause

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

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

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

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

All of the following are Nonforfeiture options EXCEPT

Interest only

Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy?

It begins when the policy is delivered

Which of the following is true regarding the spendthrift clause in life insurance policies?

It can protect the policy proceeds from creditors of the beneficiary. The spendthrift clause in a life insurance policy prevents the beneficiary's reckless spending of benefits, and protects the policy proceeds from creditors of the beneficiary or policyowner.

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

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

Lump sum

Using a class designation for beneficiaries means

Naming beneficiaries as a group

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

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

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 remarries 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. Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate.

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

The original age is used for premium determination

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

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value.

The termination of marital property rights may be reversed for all of the following reasons EXCEPT

The spouse named as beneficiary has obtained or consented to a final decree or judgment of an annulment, divorce or separation.

Which of the following is TRUE about nonforfeiture values?

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

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

What required provision protects against unintentional lapse of the policy?

grace period

Which two terms are associated directly with the premium?

level or flexible

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

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had concealed information during the application process. What can they do?

Pay the full death benefit because it was after 2 years

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 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 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

Nonforfeiture values guarantee which of the following for the policyowner?

That the cash value will not be lost. Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment

If a life insurance policy has an irrevocable beneficiary designation,

The beneficiary can only be changed with written permission of the beneficiary

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

lump sum

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 type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and survivor

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

Set premium rates

An insured wants to change from an annual premium mode to a monthly premium mode. Which of the following is true?

The change can only be made on the policy's anniversary

A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy?

The full death benefit

Surrender Charges Which of the following is true if the policyowner exercises his/her right to surrender his/her life insurance policy for its current cash value? Assume that the policyowner and insured are the same person.

The insured is no longer covered under the surrender policy

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to

The insured's estate

Which of the following statements is TRUE concerning irrevocable beneficiaries?

They can be changed only with the written consent of that beneficiary.

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 $250,000 life insurance policy to secure the loan. Which provision makes this possible?

collateral assignment

Life income joint and survivor settlement option guarantees

income for 2 or more recipients until they die

Which of the following is true regarding a single life settlement option?

it provides income the beneficiary cannot outlive