Chapter 5 Quizes
California law requires an insurance company's dividends be credited 1 To participating policies on the anniversary date of the policy provided all premiums are current. 2 To policyholders of policies issued by stock companies. 3 To extended term policies on the anniversary date of the policy provided all premiums are current. 4 To all reduced paid-up policies on the anniversary date of the policy provided all premiums are current.
1
The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the 1 Spendthrift clause. 2 Incontestability clause. 3 Benefit protection clause. 4 Beneficiary protection clause.
1
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the 1 One-year term option. 2 Paid-up additions. 3 Paid-up option. 4 Accelerated endowment.
1
The two types of assignments are 1 Absolute and collateral. 2 Complete and proportionate. 3 Complete and partial. 4 Absolute and partial.
1
Under an extended term nonforfeiture option, the policy cash value is converted to 1 The same face amount as in the whole life policy. 2 A lower face amount than the whole life policy. 3 A higher face amount than the whole life policy. 4 The face amount equal to the cash value.
1
What is the purpose of a suicide provision within a life insurance policy? 1 To protect the insurer from persons who purchase life insurance with the intention of committing suicide 2 To deter the policyowner from committing suicide 3 To protect the policyowner 4 To limit the insurer's liability after the 2 year waiting period
1
What limits the amount that a policyowner may borrow from a whole life insurance policy? 1 Cash value 2 Face amount 3 Amount stated in the policy 4 Premiums paid
1
Which is TRUE about the cash surrender nonforfeiture option? 1 Funds exceeding the premium paid are taxable as ordinary income. 2 The policy remains active for some time after the policyholder opts for cash surrender. 3 After the cash surrender, the insured is covered for a grace period of one month. 4 The policyholder receives the original cash value of the policy.
1
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? 1 Owner's Rights 2 The Entire Contract Provision 3 Assignment Rights 4 The Consideration Clause
1
Which of the following information will be stated in the consideration clause of a life insurance policy? 1 The amount of premium payment 2 The parties to the contract 3 The time period allowed for the payment of premium 4 The conditions for insurability
1
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? 1 A minor son of the insured 2 The wife of the deceased insured 3 A business partner of the insured 4 The former wife of the deceased insured
1
Which of the following statements is TRUE about a policy assignment? 1 It transfers rights of ownership from the owner to another person. 2 It authorizes an agent to modify the policy. 3 It permits the beneficiary to designate the person to receive the benefits. 4 It is the same as a beneficiary designation.
1
Which settlement option provides a single beneficiary with income for the rest of his/her life? 1 Single Life 2 Lump Sum 3 Retained Assets 4 Fixed Amount
1
Grace period This provision allows the policyowner ________ from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.
10 days
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? 1 Ownership provision 2 Collateral assignment 3 Insurable interest 4 Modification clause
2
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 1 Contingent beneficiary. 2 Revocable beneficiary. 3 Secondary beneficiary. 4 Irrevocable beneficiary.
2
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 1 Utmost good faith. 2 Consideration. 3 Conditions. 4 Acceptance.
2
An insured receives an annual life insurance dividend check. What term best describes this arrangement? 1 Annual Dividend Provision 2 Cash option 3 Reduction of Premium 4 Accumulation at Interest
2
An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this? 1 Waiver of premium provision 2 Reinstatement provision 3 Incontestable clause 4 Grace period
2
How long will the beneficiary receive payments under the single life settlement option? 1 Until the insured's age 100 2 Until the beneficiary's death 3 Until the insured's death 4 For a specified period of time
2
If a life insurance policy has an irrevocable beneficiary designation, 1 The beneficiary cannot be changed. 2 The beneficiary can only be changed with written permission of the beneficiary. 3 The owner can always change the beneficiary at will. 4 The beneficiary cannot be changed for at least 2 years.
2
If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used? 1 Life income 2 Lump sum 3 Fixed amount 4 Fixed period
2
If an insured continually uses the automatic premium loan option to pay the policy premium, 1 The face amount of the policy will be reduced by the automatic premium loan amount. 2 The policy will terminate when the cash value is reduced to nothing. 3 The cash value will continue to increase. 4 The insurer will increase the premium amount.
2
If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights? 1 Beneficiary 2 Policyowner 3 Insured 4 The insured and the policyowner
2
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? 1 The time varies from one policy to another. 2 February 28th, or 10 days after the time the policy is delivered. 3 Anytime, because the agent did not deliver the policy promptly. 4 It was already too late when J received the policy because the 10-day free-look period had expired.
2
Methods used to pay the death benefits to a beneficiary upon the insured's death are called 1 Death benefit options. 2 Settlement options. 3 Designation options. 4 Beneficiary provisions.
2
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? 1 The Court 2 The beneficiary 3 The benefit must be paid in a lump sum 4 The insurance company
2
When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value? 1 The cash surrender amount 2 Outstanding loans and interest 3 The face amount 4 Mortality costs
2
Which is NOT true about beneficiary designations? 1 Trusts can be valid beneficiaries. 2 The beneficiary must have insurable interest in the insured. 3 The beneficiary may be a natural person. 4 The policy does not have to have a beneficiary named in order to be valid.
2
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? 1 Fixed-amount 2 Life income with period certain 3 Joint and survivor 4 Single life
2
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option? 1 Length of income period 2 Size of each installment 3 Amount of interest 4 Predetermined length of time stated in the contract
2
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? 1 The Consideration Clause 2 Owner's Rights 3 The Entire Contract Provision 4 Assignment Rights
2
Which of the following is TRUE about nonforfeiture values? 1 They are optional provisions. 2 They are required by state law to be included in the policy. 3 A table showing nonforfeiture values for the next 10 years must be included in the policy. 4 Policyowners do not have the authority to decide how to exercise nonforfeiture values.
2
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT 1 The annual dividend is retained by the company. 2 The interest is credited at a rate specified by the policy. 3 The interest is not taxable since it remains inside the insurance policy. 4 The policyholder has the right to withdraw the accumulations at any time.
3
All of the following are beneficiary designations EXCEPT 1 Contingent. 2 Primary. 3 Specified. 4 Tertiary.
3
An insured committed suicide one year after his life insurance policy was issued. The insurer will 1 Pay the full death benefit to the beneficiary. 2 Pay nothing. 3 Refund the premiums paid. 4 Pay the policy's cash value.
3
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? 1 $20,000 2 The face amount will be determined by the insurer. 3 $50,000 4 $25,000
3
An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do? 1 Sue for the right to not pay the death benefit 2 Refuse to pay the death benefit because of the misstatement on the application 3 Pay the death benefit 4 Pay a decreased death benefit
3
If an insured continually uses the automatic premium loan option to pay the policy premium, 1 The face amount of the policy will be reduced by the automatic premium loan amount. 2 The cash value will continue to increase. 3 The policy will terminate when the cash value is reduced to nothing. 4 The insurer will increase the premium amount.
3
Items stipulated in the contract that the insurer will not provide coverage for are found in the 1 Benefit Payment clause. 2 Consideration clause. 3 Exclusions clause. 4 Insuring clause.
3
Life income joint and survivor settlement option guarantees 1 Equal payments to all recipients. 2 Payment of interest on death proceeds. 3 Income for 2 or more recipients until they die. 4 Payout of the entire death benefit.
3
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 1 Projected interest rates. 2 Face amount of the policy. 3 The insured's age at death. 4 The beneficiary's life expectancy.
3
The interest earned on policy dividends is 1 Nontaxable. 2 Tax deductible. 3 Taxable. 4 40% taxable, similar to a capital gain.
3
The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say? 1 Life insurance policies may have only one beneficiary. 2 The proceeds will be split evenly between the two beneficiaries. 3 The policyowner can specify the way proceeds are split in the policy. 4 The way proceeds are split between beneficiaries is decided by which type of policy is chosen.
3
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? 1 The beneficiary must pay interest to the insurer. 2 The beneficiary will receive the lump sum, plus interest. 3 The beneficiary will only receive payments of the interest earned on the death benefit. 4 The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments.
3
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? 1 The same as the original policy minus the cash value 2 In lesser amounts for the remaining policy term of age 100. 3 Equal to the original policy for as long as the cash values will purchase. 4 Equal to the cash value surrendered from the policy
3
Which nonforfeiture option has the highest amount of insurance protection? 1 Reduced Paid-up 2 Conversion 3 Extended Term 4 Decreasing Term
3
Which nonforfeiture option provides coverage for the longest period of time? 1 Paid-up option 2 Accumulated at interest 3 Reduced paid-up 4 Extended term
3
Which of the following is TRUE about a class designation? 1 Beneficiaries must be part of the insured's immediate family. 2 It is not allowed. 3 Beneficiaries are not identified by name. 4 It determines the succession of beneficiaries.
3
Which of the following is TRUE about nonforfeiture values? 1 Policyowners do not have the authority to decide how to exercise nonforfeiture values. 2 They are optional provisions. 3 They are required by state law to be included in the policy. 4 A table showing nonforfeiture values for the next 10 years must be included in the policy.
3
Which of the following settlement options in life insurance is known as straight life? 1 Single life 2 Life with period certain 3 Life income 4 Fixed amount
3
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? 1 Consideration clause 2 Entire contract clause 3 Insuring clause 4 Beneficiary clause
3
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 1 Both children who share equally on a per-capita basis. 2 The insurance company. 3 The insured's firstborn child. 4 The insured's estate.
4
According to the entire contract provision, what document must be made part of the insurance policy? 1 Buyer's Guide 2 Outline of coverage 3 Agent's report 4 Copy of the original application
4
All of the following are dividend options EXCEPT 1 Paid-up additions. 2 Reduction of premium. 3 Accumulated at interest 4 Fixed-period installments.
4
All of the following statements concerning dividends are true EXCEPT 1 Favorable investment results generate higher dividends. 2 Lower insurance company costs generate higher dividends. 3 They stem from favorable underwriting experience. 4 Dividend amounts are guaranteed in the policy.
4
All of the following statements concerning dividends are true EXCEPT 1 Lower insurance company costs generate higher dividends. 2 Favorable investment results generate higher dividends. 3 They stem from favorable underwriting experience. 4 Dividend amounts are guaranteed in the policy.
4
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? 1 One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. 2 The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. 3 The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. 4 The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
4
An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? 1 The insurer will increase the interest rate on the loan and charge a penalty. 2 The insurer will not permit the policyowner to take out any more loans. 3 The policy will be reduced to an extended term option. 4 The policy will terminate when the loan amount with interest equals or exceeds the cash value.
4
An insured wants to change from an annual premium mode to a monthly premium mode. Which of the following is true? 1 The insurer will need to terminate the current policy and issue a new one. 2 It is only possible to change from a monthly premium mode to an annual premium mode. 3 The insured can make this change at any time, without any penalty. 4 This change can only be made on the policy's anniversary.
4
How does an insured typically decide which settlement option to choose for his/her beneficiary? 1 He/she usually decides based on how many beneficiaries he/she has chosen to receive benefits. 2 He/she typically decides based on the advice of the insurer. 3 He/she decides based on the amount of the death benefit. 4 He/she typically decides by determining if the beneficiary will need one payment or a "steady stream" of income.
4
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? 1 Life with period certain 2 Interest only 3 Fixed amount 4 Fixed period
4
Items stipulated in the contract that the insurer will not provide coverage for are found in the 1 Insuring clause. 2 Benefit Payment clause. 3 Consideration clause. 4 Exclusions clause.
4
The Ownership provision entitles the policyowner to do all of the following EXCEPT 1 Receive a policy loan. 2 Assign the policy. 3 Designate a beneficiary. 4 Set premium rates.
4
The automatic premium loan provision is activated at the end of the 1 Free-look period 2 Policy period. 3 Elimination period. 4 Grace period.
4
The paid-up addition option uses the dividend 1 To purchase a one-year term insurance in the amount of the cash value. 2 To reduce the next year's premium. 3 To accumulate additional savings for retirement. 4 To purchase a smaller amount of the same type of insurance as the original policy.
4
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? 1 Paid-up addition 2 Cash option 3 Accumulation at interest 4 Reduction of premium
4
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? 1 Joint and survivor 2 Fixed amount option 3 Life income with period certain 4 Interest only option
4
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 1 Probate. 2 The state. 3 The beneficiary's estate. 4 The insured's estate.
4
Using a class designation for beneficiaries means 1 Naming each beneficiary by his or her name. 2 Naming an estate as the beneficiary. 3 Not naming beneficiaries. 4 Naming beneficiaries as a group
4
What is the advantage of reinstating a policy instead of applying for a new one? 1 Proof of insurability is not required. 2 The face amount can be increased. 3 The cash values have gained interest while the policy was lapsed. 4 The original age is used for premium determination.
4
When a reduced paid-up nonforfeiture option is chosen, what happens to the face amount of the policy? 1 It decreases over the term of the policy. 2 It remains the same as the original policy, regardless of any differences in value. 3 It is increased when extra premiums are paid. 4 It is reduced to the amount of what the cash value would buy as a single premium.
4
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to 1 Receive payments for a fixed amount. 2 Purchase a term rider to attach to the policy. 3 Pay back all premiums owed plus interest. 4 Purchase a single premium policy for a reduced face amount.
4
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? 1 Extended term 2 Life income period certain 3 Fixed period 4 Fixed amount
4
Which of the following applies to the 10-day free-look privilege? 1 It allows the insured 10 days to pay the initial premium. 2 It is granted only at the option of the agent. 3 It can be waived only by the insurance company. 4 It permits the insured to return the policy for a full refund of premiums paid.
4
Which of the following components must a life insurance policy have to allow policy loans? 1 Dividends 2 Flexible premiums 3 Face amount 4 Cash value
4
Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy? 1 It applies only to term life insurance policies. 2 It is optional on all life insurance policies. 3 It begins when the application is signed. 4 It begins when the policy is delivered.
4
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? 1 Reduced paid-up option 2 Extended term 3 Reinstatement 4 Automatic premium loan
4
Which of the following statements about the reinstatement provision is true? 1 It guarantees the reinstatement of a policy that has been surrendered for cash. 2 It permits reinstatement within 10 years after a policy has lapsed. 3 It provides for reinstatement of a policy regardless of the insured's health. 4 It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.
4
Which of the following statements about the reinstatement provision is true? 1 It provides for reinstatement of a policy regardless of the insured's health. 2 It permits reinstatement within 10 years after a policy has lapsed. 3 It guarantees the reinstatement of a policy that has been surrendered for cash. 4 It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.
4
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 1 Insuring clause. 2 Reinstatement clause. 3 Misstatement of Age clause. 4 Incontestability clause.
5
What is the paid up dividend option?
The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy. No new separate policies are issued; however, each of these small single premium payments will increase the death benefit of the original policy by whatever amount the dividend will buy.
What is the interest only option?
The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
What is the reduced paid up nonforfeiture option? Under this option, the policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy.
The policys cash value is used as a single premium to purchase a completely paid up permanent policy that has a reduced face amount than the former policy.
Common disaster clause protects the __________
contingent beneficiary
The ___________ option guarantees an income for two or more recipients for as long as they live. Most contracts provide that the surviving recipient will receive a reduced payment after the first recipient dies.
life income joint and survivor
Entire contract =
policy + copy of application + any riders or amendments
The life-income option, also known as straight life.......
provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death.
Extended term is the automatic nonforfeiture option: __________
same face amount, shorter term of coverage.
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? 1 Automatic premium loan 2 Waiver of premium 3 Assignment 4 Incontestability period
1
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? 1 Common Disaster 2 Accidental Death 3 Second-to-Die 4 Survivor Life
1
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? 1 Common Disaster 2 Second-to-Die 3 Accidental Death 4 Survivor Life
1
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 1 Paid-up additions. 2 Accumulation at interest. 3 Reduction of premiums. 4 One-year term purchase.
1
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? 1 Reduction of Premium 2 Flexible Premium 3 Cash option 4 Accumulation at Interest
1
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? 1 The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. 2 One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. 3 The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. 4 The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time.
1
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? 1 Pay a reduced death benefit 2 Pay the full death benefit and refund excess premium 3 Pay the full death benefit 4 Pay nothing; there was a misrepresentation on the application
1
Explain the example of a life income with 10 years certain option.
It would provide the recipient with an income for as long as he or she lives. If the recipient dies shortly after starting to receive payments, the payments will be continued to a beneficiary for the remainder of the 10 year period
What is life income with period certain option?
Not only are the payments guaranteed for the lifetime of the recipient, but there is also a specified period that is guaranteed.
Dividends are a return of excess premiums; therefore, _________ when paid to the policyowner.
Not taxable
The _________ can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop
Single life option