Chapter 3

According to the Entire Contract provision, a policy must contain

a copy of the original application for insurance

Which two terms are associated directly with the premium?

Level or flexible

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

What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy?

It determines who receives policy benefits

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.

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

Refund the premiums paid

Which of the following is true about the mandatory free look in a Life Insurance policy?

It commences when the policy is delivered

What is the name of the clause that is understood to give Congress the power to pass any law that is necessary to carry out its expressed powers?

Military service or war

All of the following statements concerning dividends are true EXCEPT: A) They stem from favorable underwriting experience. B) Favorable investment results generate higher dividends. C) Dividend amounts are guaranteed in the policy. D) Lower insurance company costs generate higher dividends.

C) Dividend amounts are guaranteed in the policy.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

One-year term option

All of the following are true regarding the guaranteed insurability rider EXCEPT

The rider is available to all insureds with no additional premium.

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy.

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

Becomes terminally ill

If a settlement option is not chosen by the beneficiary or policyowner, which option will be used? A) Lump Sum B) Life Income C) Fixed Period D)Fixed Amount

A) Lump Sum

Which nonforfeiture option has the highest amount of insurance protection?

Extended Term

The two types of assignments are

Absolute and Collateral

Which of the following settlement options in life insurance is known as straight life? A)Life Income B) Single Life C)Life with period certain D)Fixed Amount

A) Life Income

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? A) Life income with period certain B) Joint and Survivor C) Single Life D) Fixed-amount

A) Life Income with period certain

The primary beneficiary of her husband's life policy found that no settlement option was stated in the policy on the date of her husband's death. Who will select the settlement option in this case? A) The insurance company B) The Court C) The Beneficiary D) The benefit must be paid in a lump sum

C) The Beneficiary

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed insurability option

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months

Which of the following riders is often used in business life insurance policies when the policywowner needs to change the insured under the policy?

Substitute Insured rider

Which of the following is TRUE about nonforfeiture values?

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

An absolute assignment is a

Transfer to all ownership rights in a policy

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? A) The beneficiary will only receive payments of the interest earned on the death benefit. B) The beneficiary must pay interest to the insurer. C) The beneficiary will receive the lump sum, plus interest. D)The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments.

A) The beneficiary will only receive payments of the interest earned on the death benefit.

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time

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

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

Coverage ends and the policy cannot be reinstated.

What is the purpose of a suicide provision within a life insurance policy?

To protect the insurer from persons who purchase life insurance with the intention of committing suicide

What is the purpose of a fixed-period settlement option?

To provide a guaranteed income for a certain amount of time

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will double or triple the face amount.

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?

$100,000

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

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection

If a life insurance policy has an irrevocable beneficiary designation,

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

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die.

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

6 Months

The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT A) The insured's age at death. B) The beneficiary's life expectancy C) Projected interest rates. D) Face amount of the policy

A) The insured's age at death.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A) The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. B) The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time C)The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. D) One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies

A) The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

Methods used to pay the death benefits to a beneficiary upon the insured's death are called A) Death benefit Options B) Settlement Options C)Designation Options D) Beneficiary Provisions

B) Settlement Options

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

Cash option

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause

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

Family term rider

An insured has a life insure 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 pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?

Reduction of Premium

The interest earned on policy dividends is

Taxable

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

The amount of premium payment

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?

The beneficiary will only receive payments of the interest earned on the death benefit.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit?

The insured's contingent beneficiary

The rider in a whole life policy that allows the company to forgo collecting premium if the insured is disabled is called

Waiver of premium

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

Family term rider

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy

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

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

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

All of the following are dividend options EXCEPT A) Accumulated at interest B) Reduction of premium C)Paid-up additions D) Fixed-period installments

Fixed period installments

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death befit proceeds will be paid

The contingent beneficiary

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

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

The interest is not taxable since it remains inside the insurance policy

Which is true about a spouse term rider?

The rider is usually level term insurance

What is the other term for the cash payment settlement option? A) Lump sum B) Principal amount C) Face amount D) Proceeds

A) Lump Sum

Which of the following premium payment modes will incur the lowest overall payment?

Annual

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?

Automatic Premium Loan

Under which of the following circumstances would an insurer pay accelerated benefits?

An insured is diagnosed with cancer and needs help paying for her medical treatment.

The policyowner pays for her life insurance annually. Until now, she has a collected a nontaxable dividend check each year. She has decided that she would rather use the dividend to help pay for her next premium. What option would allow her to do this? A) Accumulation at interest B) Cash Option C) Reduction of premium D) Paid-up addition

C) Reduction of premium

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

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called

Guaranteed Insurability

If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a

Guaranteed Insurability rider.

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?

Policyowner

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

Set premium rates

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

The insured's estate

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?

$9,800

What provision in an insurance policy extends coverage beyond the premium due date?

Grace period

What is the purpose of a free-look period in insurance policies?

It allows the insured to reject the policy with a full refund

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

Owner's Rights

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? A)Paid-up option B) Accumulation at Interest C)Paid-up additions D) Dividend Accumulation option

A) Paid-up option

All of the following are true regarding insurance policy loans EXCEPT

Policy loans can be made on policies that do not accumulate cash value.

Which of the following statements is TRUE concerning irrevocable beneficiaries?

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

Which of the following is true of a children's rider added to an insured's permanent life insurance policy?

It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.

When an insured under life insurance policy died, the designated beneficiary received the face amount of the policy as well as a refund of all of the premiums paid. Which rider is attached to the policy?

Return of premium

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

What is the purpose of settlement options? A) They determine how death proceeds will be paid. B) They are guarantees built into the policy. C) They guarantee a return of excess premiums. D) They provide the beneficiary with the income he/she cannot outlive.

A) They determine how death proceeds will be paid

what is the purpose of a fixed-period settlement option? A) To provide a guaranteed amount of money each month B) To provide a guaranteed income for a certain amount of time C) To settle the insurance company's liability D) To provide a guaranteed income for life

B) To provide a guaranteed income for a certain amount of time

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed Amount

If a beneficiary whats 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

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.

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

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit.

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

The full death benefit

A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 20 years later. He never marries and dies at 61, leaving 2 grown-up children. Assuming he never changed the beneficiary , the policy proceeds will go to

The insured's estate

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

Cash Surrender

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

An insured purchased a 15-year level term life insurance policy with a face amount of 100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?

$200,000

Who can request changes in premium payments, face value loans, and policy plans?

PolicyOwner

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

The insured's premiums will be waived until she is 21

What is the term for how frequently a policyowner is required to pay the policy premium?

Mode

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the 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? A) Life income with period certain B) Joint and Survivor C) Fixed amount option D) Interest only option

D) Interest only option

Which of the following is true about the premium on the children's rider in a life insurance policy?

It remains the same no matter how many children are added to the policy.

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use?

Paid-up option

Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option? A) Predetermined length of time stated in the contract B) Length of income period C) Amount of interest D) Size of each installment

D) Size of each installment

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

Equal to the original policy for as long as the cash values will purchase

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?

A minor son of the insured

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

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?

$50,000

What is the name of the 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

Which of the following describes attachments made to policies that either add or modify coverage?

Riders

Nonforfeiture values guarantee which of the following for the policyowner?

That the cash value will not be lost

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called A)Joint Life B)Joint and Survivor C)Fixed Period D)Fixed Amount

B) Joint and survivor.