Chapter 3

minor

a person under legal age

activities of daily living (ADLs)

a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence

indemnity

a principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss

principal

the face value of the policy; the original amount invested before the earnings

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months (most insurers impose a 6-month waiting period from the time of disability until the first premium is waved)

The accelerated benefits provision will provide for an early payment of the death benefit when the insured

Becomes terminally ill

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

Common Disaster Clause

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

paid -up option

lump sum

payment of the entire benefit in one sum

consideration

something of value that each party gives to the other (bidding force in any contract)

assignment

transfer of rights of policy ownership

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

According to the Entire Contract Provision, a policy must contain

A copy of the original application for insurance

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

Which nonforfeiture option has the highest amount of insurance protection?

Extended term (the extended term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time)

The policyowner wants to make sure that upon his death, the life policy will pay a portion of proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option (with the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

NAIC

National Association of Insurance Commissioners, an organization composed of insurance commissioners from all states and jurisdictions formed to resolve insurance regulatory issues

Which of the following riders would not cause the Death Benefit to increase?

Payor Benefit Rider (Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increased DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.)

The interest earned on policy dividends is

Taxable (dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income)

Children's riders attached to whole life policies are usually issued as what type of insurance?

Term

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?

Term rider (term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner)

If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy.

The death benefit will be smaller