Individual Life Insurance Contract - Provision and Options

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

Cash option

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

Fixed amount

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 stops making payments on a loan taken from his cash value policy. What will most likely happen

The policy will terminate when the loan amount with interest equals or exceeds the cash value

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die

All of the following are dividend options EXCEPT

Fixed-period installments

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

Adjustment in the amount of death benefit

What is the purpose of a fixed-period settlement option

To provide a guaranteed income for a certain amount of time

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

Cash surrender

What limits the amount that a policyowner may borrow from a whole life insurance policy

Cash value

The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the

Spendthrift clause

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments

Spendthrift provision

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

How long will the beneficiary receive payments under the single life settlement option

Until the beneficiary's death

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

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

According to the entire contract provision, what document must be made part of the insurance policy

Copy of the original application

Which of the following policy components contains the company's promise to pay

Insuring clause

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

Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy

It begins when the policy is delivered

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

Reinstatement provision

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

Set premium rates

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

The amount of premium payment

If a life insurance policy has an irrevocable beneficiary designation,

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

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

The same face amount as in the whole life policy

What is the other term for the cash payment settlement option

Lump sum

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

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

Paid-up additions

Which is NOT true about beneficiary designations

The beneficiary must have insurable interest in the insured

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

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

Incontestability clause

If an insured continually uses the automatic premium loan option to pay the policy premium,

The policy will terminate when the cash value is reduced to nothing

Which of the following is TRUE about nonforfeiture values

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

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

A fee charged to the insured when a policy or annuity is exchanged for its cash value is

1Surrender charge

Which is TRUE about the cash surrender nonforfeiture option

Funds exceeding the premium paid are taxable as ordinary income

Which of the following is true regarding the spendthrift clause in life insurance policies

It can protect the policy proceeds from creditors of the beneficiary

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

Which of the following is true regarding a single life settlement option

It provides income the beneficiary cannot outlive

Which of the following statements about the reinstatement provision is true

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated

Which nonforfeiture option provides coverage for the longest period of time

Reduced paid-up

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

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

The contingent beneficiary

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

The insured's estate

The paid-up addition option uses the dividend

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

Which of the following statements is TRUE about a policy assignment

It transfers rights of ownership from the owner to another person

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries

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

What is the advantage of reinstating a policy instead of applying for a new one

The original age is used for premium determination

What type of account will most likely be established for a minor

Trust

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

If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used

Lump sum

Which of the following components must a life insurance policy have to allow policy loans

Cash value

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called

Class designation