chapter 2

A policy owner may generate taxable income from which of the following dividend options.

Accumulation of interest. while policy dividends are not taxable any interest paid on them is taxable income in the year the interest is credited to the policy.

E and F are business partners. Each takes out a $500,000 life insurance policy on the other, naming himself as primary beneficiary. E and F eventually terminate their business, and four months later E dies. Although E was married with three children at the time of death, the primary beneficiary is still F. However, an insurable interest no longer exists. Where will the proceeds from E's life insurance policy be directed to?

F

the part of life insurance policy guaranteed to be true is called an?

warranty

T took out a 50,000 life insurance policy with an accidental death and dismemberment rider. Five years later T commit suicide. How much will the insurer pay?

$50,000 the suicide occurred outside the suicide clause. Normally 1 to 2 years does the face amount will be paid.

A contract where one party either accepts or rejects the terms of a contract written by another party is called a contract of

A contract of adhesion is a contract offered intact to one party by another under circumstances requiring the second party to accept or reject the contract in total without having the opportunity to bargain over the wording. Insurance policies are contracts of adhesion and as such are construed strictly against the party writing them.

And insured's in ability to perform two or more activities of daily living may trigger which type of life policy rider?

A long-term care rider is triggered by the insured's inability to perform two or more activities of daily living.

When must insurable interest be present in order for a life insurance policy to be valid?

At the time of application

Insurance policies offered on a "take it or leave it" basis are considered what?

Contracts of Adhesion

When must insurable interest exist for a life insurance contract to be valid?

Inception of the contract

if a contract of adhesion contains questionable language, to whom would the interpretation be in favor of?

Insured

How are policy owner dividends treated in regards to income tax?

Interest on accumulations is taxed

Which of these arrangements allows one to bypass insurable interest laws?

Investor-Originated Life Insurance

Dividends paid from a life insurance policy are

Issued by the insurer dividends paid from a life insurance policy are issued by the insurer.

P is insured on a participating life policy which statement is true if peas premiums are waived due to a disability.

P will still received declared dividends even though premiums are waived because of the disability the insured will continue to receive dividends just as if the insured were still making the payments themselves.

Which of these is not a type of agent authority

Principal. Agent authority is what an agent is authorized to do on behalf of his company. The three types of agent authority include express implied and apparent authority.

What is the consideration given by an insurer in the Consideration clause of a life policy?

Promise to pay a death benefit

S buys a $10,000 whole life policy in 2003 and pays an annual premium of $100. S dies five years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?

Return of premium rider

Which of these life insurance riders allows the application to have excess coverage.

Term rider allows the applicant to have excess life coverage

Life and health insurance policies are

Unilateral contracts

When third-party ownership is involved, applicants who also happen to be the stated primary beneficiary are required to have

insurable interest in the proposed insured

Who makes the legally enforceable promises in a unilateral contract?

insurer

Which of these is NOT considered to be an element of an insurance contract?

negotiation

which of these is NOT a type of agent authorty ?

principal

the policy of adhesion can only be modified by whom?

the insurance company