Life Insurance - Chapter 3: Life Insurance Policies

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?

Exclusion

The purpose of the ____ Period clause is to avoid an unintentional lapse of insurance policy.

Grace

Which nonforfeiture option continues to build up cash value?

Reduced Paid-Up

A true statement made by the producer of a potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy.

20-Pay Life accumulate cash value faster than straight life

What does the insuring agreement in a life insurance contract establish?

An insurers basic promise

What provision in a life insurance policy states that the application is considered part of the contract?

Entire Contract provision

This life insurance rider allows the applicant to have excess coverage.

Term Rider

A Term Life rider offers the insured

additional life coverage

Absolute Assignment

all ownership rights in the policy are transferred to a new owner - transfer is complete and irrevocable

Policy Dividends

are a return of the premiums paid, not taxable income

The _____ is authorized to assign a Life insurance policy as collateral for a loan.

Policyowner

An insurer may normally delay the payment of a cash value loan or surrender value for up to

6 months

True statements regarding policy loans

Past due interest payments not paid after 3 months will void the policy --- insurance companies can send delinquent interest accounts to a collection agency -- insurance companies can charge an interest rate based on the policy owners credit report

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?

Accidental Death and Dismemberment Clause

Guaranteed Insurability Option Rider

Allows a policyowner to purchase additional life insurance coverage at specified dates without providing evidence of insurability.

In a Life Insurance contract, an insurance company's promise to pay stated benefits is called the

Insuring Clause

A Life insurance policyowner would like to take out a policy loan against the cash value in his Whole Life policy. The interest rate applied to this loan may vary over time. This is referred to as a ______ rate loan.

Variable -- vary over time

What does the ownership clause in a life insurance policy state?

Who the policy owner is and what rights the policyowner is entitled to.

Policy Loan Provision

allows the policyholder to borrow the cash value of their policies

When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?

at future dates specified in the contract with no evidence of insurability required

True statements about a Guaranteed Insurability Option rider

coverage can be added at specific events such as marriage or having a child --- evidence of insurability is not required when the option is exercised -- coverage can be added at specific ages

Dividends paid from a life insurance policy are

issues by the insurer -- are not guaranteed -- are taxable

Consideration Clause

A part of the insurance contract that states that the policyowners consideration consists of completing the application and paying the initial premium

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n)

Accidental Death and Dismemberment rider

Free Look Provision

A policy provision required by state law that establishes a set number of days (usually 10) for the policyowner to review a newly issued policy. The policyowner may return the policy to the insurer during this time for any reason and receive a 100% refund.

Which rider provides coverage for a child under a parent's life insurance policy?

Child term rider

A nonforfeiture option that offers the highest death benefit

Extended term

Collateral Assignment

The policyowner temporarily assigns a life insurance policy to a creditor as security for a loan/debt

The advantage of reinstating an original life policy is?

The premiums are based on a younger age

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will

adjust the death benefit to a reduced amount

Variable Whole Life Insurance can be described as

both an insurance and securities product

A whole life insurance policyowner has the right to..

designate a beneficiary -- take out a policy loan -- assign the policy

Incontestable Clause

the insurer cannot contest the policy after it has been in force two years during the insured's lifetime

S would like to use dividends from her life insurance policy to purchase paid-up additions: what would be factors that determine how much coverage can be purchased?

type of life insurance -- insureds attained age, dividend amount used towards purchase

K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?

$20,000 death benefit -- if insured dies before the endowment maturity, the policy's face value -- also know as death benefit is paid in a lump sum

Whose life is covered on a life insurance policy that contains a payor benefit clause?

Child -- life policy that insures the life of a juvenile

K owns a Whole Life policy. If K wants an increasing death benefit to protect against inflation, which dividend option should she choose?

Paid up additional insurance

Which provision guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?

Payor clause

S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 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

An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?

Long term care

What benefit does the Payor clause on a juvenile life policy provide?

Premiums are waved if a payor becomes disabled

Which provision requires proof of insurability after a policy has lapsed?

Reinstatement

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?

$50,000

D owns a While Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with?

Extended term -- most often the default option in this case -- allows the policyowner to use the cash value to purchase a term policy with a death benefit equal to that of the original whole life policy

Owner's rights provisions

- can change the beneficiary - can borrow cash value - can receive dividends - select premium mode - assignment rights - The beneficiary has no rights in the contract