CH12 Quiz

Which of the following statements about the assignment of a life insurance policy is (are) true? I.Under a collateral assignment, the policyowner assigns a life insurance policy to secure a loan. II.Under an absolute assignment, only limited ownership rights in a policy are transferred.

I only

Which of the following statements about dividend options is (are) true? I.The interest on dividends left to accumulate with the insurer is not considered to be taxable income. II.Paid-up additions are additional units of whole life insurance.

II only

Which of the following statements about life insurance policy loans is (are) true? I.Interest is not required on a life insurance policy loan, as the policyholder is borrowing his or her own money. II.If there is an outstanding loan when the insured dies, payment to the beneficiary is reduced by the amount of the loan.

II only

Which of the following statements about the ownership of a life insurance policy is (are) true? I.Under the ownership clause, the policyholder and beneficiary equally share all contractual rights in the policy while the insured is living. II.The policyholder can designate a new owner by filing an appropriate form with the insurance company.

II only

Which of the following statements is (are) true regarding exclusions in life insurance contracts? I.Life insurance policies are remarkably restrictive, including numerous exclusions. II.A life insurer may exclude death attributable to certain activities or hobbies disclosed on the application.

II only

Which of the following statements about the entire contract clause is true?

It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties.

Which of the following statements about the assignment of a life insurance policy is true?

The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary.

All of the following statements about the interest settlement option are true EXCEPT

The minimum guaranteed interest rate is usually equal to the prime rate.

Which of the following statements about life insurance settlement options is true?

Under the fixed amount option, the beneficiary can be given the right to increase or decrease the fixed amount.

Tim purchased a 10-payment whole life insurance policy 15 years ago. Tim would like to donate this paid-up policy to a charity. Under which policy provision can Tim transfer all ownership rights in the policy to the charity?

absolute assignment

Advantages of selecting the paid-up additions dividend option in a life insurance policy include which of the following? I.Evidence of insurability is not required to purchase additional insurance. II.The additions are purchased at net rates without a loading for expenses.

both I and II

Reasons for NOT purchasing an accidental death benefit rider include which of the following? I.Most people die as a result of a disease rather than from an accident. II.The economic value of a human life is not increased if death occurs because of an accident.

both I and II

Which of the following statements about a typical accidental death benefit rider is (are) true? I.Accidental injury must be the cause of death for the increased benefit to be paid. II.The accidental death must occur prior to some specified age for the increased benefit to be paid.

both I and II

Sources of life insurance dividends include which of the following? I.Excess interest earned on the assets necessary to maintain legal reserves II.Favorable mortality experience

both I and iI

The cost-of-living rider typically bases increases in the policy face value on changes in the

consumer price index

A life insurance contractual provision protects the beneficiary by not permitting the insurer to introduce outside information to deny payment of the claim. Such outside information might be notes that the agent took while the insured completed the application. This contractual provision is the

entire contract clause

Which of the following is a standard nonforfeiture option?

extended term insurance

Bruce lied about his health history when he purchased a life insurance policy. He died 3 years after the policy was issued. Which life insurance policy provision will require the life insurer to pay the beneficiary even though Bruce lied on the application?

incontestable clause

Janet is the beneficiary of her uncle's $200,000 life insurance policy. When her uncle died, Janet selected a settlement option that pays monthly benefits for as long as she lives. If Janet dies before receiving $200,000, payments will continue to a contingent beneficiary until a total of $200,000 has been paid. What settlement option did Janet select?

life income with guaranteed total amount

A life insurance policyholder may no longer need life insurance. Such a policyholder may sell the policy to a third party for more than its cash value. The purchaser becomes the new beneficiary and is responsible for subsequent premium payments. Such a financial transaction is called a(n)

life settlement

Which of the following statements about beneficiary designations is (are) true? I.The primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured. II.If a revocable beneficiary designation is used, the policyowner must obtain the beneficiary's permission to change the beneficiary.

neither I nor II

Which of the following statements about life income settlement options is (are) true? I.Under a joint-and-survivor income option, payments cease at the death of the first annuitant II.Under a life income with guaranteed period, a contingent beneficiary is guaranteed a minimum number of payments regardless of when the primary beneficiary dies.

neither I nor II

Which of the following is a common dividend option found in a participating life insurance policy?

paid-up additions

A large life insurance policy acquired by a group of investors with the specific intention of selling the policy in the secondary life insurance market for a substantial profit is called a(n)

stranger-owned life insurance policy

Becky is considering the purchase of a whole life policy on her own life. She is concerned that if she becomes disabled, paying premiums will become a burden. Which provision can Becky attach to her life insurance policy to address this concern?

waiver-of-premium provision