Life Insurance Course 2

The Entire Contract Clause provides the best line of defense for an

insurance company should an agent make an unauthorized change to an insurance policy.

With the Interest Settlement Option the insurance company

invests the policy proceeds and earns interest, which accumu- lates over time. When selecting this settlement option, the policy owner can dictate when the beneficiary will gain access to the funds. Depending on the policy owner's wishes, this option can take many forms.

The Aviation Exclusion Rider

is a rider that is added to a standard policy and specifically excludes coverage for a death that occurs while the Insured is a stunt, student, or military pilot. This rider does not cost extra, but allows a pilot to purchase Life Insurance at standard rates. **Does not cover airplane student accidents, etc**

A rider (also called an endorsement) is an

is an attachment to a policy that cannot stand alone. When included in a policy, a rider is part of the policy. The difference between a provision anda rider is that a provision is included in the basic policy while a rider is an add-on feature. Don't be confused if some provisions and riders seem similar. They are just two different ways of add- ing something to a policy.

Term Life's death benefit is usually

level, although an increasing or decreasing death benefit may be an option

Optional provisions attempt to protect the insurance company by

limiting coverage, typically by inserting exclusions in the policy.

It is the policy owner that

names the beneficiary, chooses how dividends and nonforfeiture proceeds will be handled, and dictates how death benefit proceeds will be distributed to the beneficiary.

If the disabled Insured regains the ability to work, premium payments will become the Insured's responsibility again; but the premiums waived by the company during the disability period will

never need to be repaid by the Insured.

The question of whether a surrendered or lapsed policy may be reinstated depends entirely on the

nonforfeiture option selected and the length of time since the policy lapsed or was surrendered. Lapsed or surrendered policies cannot be reinstated if the Cash Nonforfeiture Option was used. If a policy owner intends to reinstate the policy later, the policy owner must use either the Reduced Paid-Up Insurance Nonforfeiture Option or the Extended 16 Term Insurance Nonforfeiture Option.

A Family Policy provides some coverage for each member of the family in

one big package. The breadwinner is typically covered by Whole Life while the spouse and children have Convertible Level Term coverage.

It's important to note that the death benefit and cash value represents a

one-or-the-other proposition; the policy doesn't pay both. If the Insured dies and the beneficiary receives the death benefit, the accumulated cash value goes away. If the insurance company pays the cash value to the policy owner, the policy ceases to exist and the death benefit disappears. All Life Insurance policies provide death protection for if the Insured dies. What draws many customers to Whole Life is the cash value that accumulates within a Whole Life policy. Some people look at this feature as a kind of forced savings plan because the cash value is accessible if needed.

The dividends represent

overcharge in premiums assessed for that policy period. The company charged more than it needed to, so the dividend simply returns that surplus to policyholders. These dividends are never guaranteed, automatic, or necessarily even the same from year to year. Law prohibits any guarantee of policy dividends. They ebb and flow depending on the company's income and expenses.

The Grace Period Clause is designed to

prevent Life Insurance coverage from lapsing just because of a late premium payment. This clause says that if a premium is received within 31 days of when it was actually due, the policy will remain in effect continuously. The company may charge interest on the late payment. If the premium still hasn't arrived when the grace period ends, the policy lapses. If the Insured dies during the grace period, the company must pay the death benefit even if no premium was sent, but it may deduct the amount of the missing premium plus interest.

The goal of the Automatic Premium Loan Rider is to

prevent lapsation

Each state has its version of the Uniform Policy Provisions Law that requires certain provisions to be included in Life Insurance policies. These required provisions serve to

protect the consumer, or at the very least, inform the consumer.

Optional provisions are designed to

protect the insurance company and provide exclusions

If the Cash Settlement Option is selected, the beneficiary

receives a lump sum check. This method is the automatic default option if no other is selected. Of course, the insurance company would much rather continue a relationship with the beneficiary and hold onto the money for a little while longer, so the beneficiary has the option of selecting either of the following Settlement Options.

The Entire Contract Clause prohibits the policy from

referencing any information not contained in the policy.

Dividends are not taxed because they are simply a

refund of premium

With the Waiver of Premium Rider, the policy

remains in effect after the waiting period despite the fact that the disabled Insured is no longer required to pay the premium. Death benefits stay the same, cash value continues to grow, loan potential remains intact, and dividends continue to be paid as before.

Term Life Insurance

remains in effect for a specific period of time, which explains why it is also called Temporary Life Insurance. Most other common insurance policies, such as your car insurance, Health Insurance, and Homeowner's Insurance, have a period of protection with a beginning date and an ending date. Term Life Insurance works the same way.

Policy reinstatement

restores a policy as if it had never lapsed or been surrendered.

Renewable Term guarantees the Insured's

right to renew the policy without proof of insurability

Convertible Term guarantees the Insured's

right to switch to a Permanent Policy without proof of insurability

Nonforfeiture Option

specifies how the cash value is paid if the policy lapses

These required provisions are mandated by

state law to protect consumers

Term Life is

temporary and provides pure death protection only

What if there is no increase in the cost of living but the Insured has twins plus deteriorating health? The Cost of Living Rider won't help at all. That's why the insurance industry created the Guaranteed Insurability Rider. The Guaranteed Insurability Rider offers the Insured

the Insured specified increases in the policy's death benefit at very specific intervals or events such as certain birthdays or when the Insured gets married or has a child. These increases are guaranteed and can be exercised regardless of the Insured's health. The rider may limit the number of times this option can be exercised and the amount of additional insurance that may be purchased. The premium charged for the additional insurance will be based on the Insured's attained age.

The Waiver of Premium Rider requires

the Insured to first be disabled for 6 months

Key Employee (or Person) Life Insurance is purchased by a business for

the benefit of the business to provide financial protection in case a key employee dies.

Cash Dividend Option

the company simply sends the policy owner a check when the policy dividend is issued, normally at the policy's anniversary date.

Reduced Premium Dividend Option

the dividend is applied toward the next year's premium. So, if the annual premium is $500, and the dividend for the previous year is $100, the policy owner pays only $400 for the next year

The cash value tables for Whole Life policies are structured so that at age 100 the amount of cash accumulated equals

the face value of the policy. At this point the policy endows by paying out the face value. This type of maturity is known as Endowment at Age 100.

Suicide is commonly excluded from coverage for

the first 2 years of the policy, but covered fully after that.

Cross Purchase Plans differs from Entity Purchase Plan in one crucial factor

the partners themselves own the Life Insurance policies on each other. With this arrangement each partner is the owner, payor, and beneficiary of the policy on the other's life. The business itself plays no direct role.

Split Dollar Plans and Deferred Compensation Plans are

two ways businesses can use Life Insur- ance to provide extra compensation to favored employees.

The Incontestable Clause states that the Insurer has

two years to discover false statements in the application or the policy becomes incontestable. Age and Gender misstatements result in a benefit adjustment as stated in the Misstatement of Age or Gender Clause

The Waiver of Premium with Disability Income Rider

waives the premium just like the Waiver of Premium Rider, plus it provides a stated amount of income replacement benefit for the duration of the disability.

under permanent insurance the most common type of policy is

whole life whole life has a cash value account and it endows at age 100

Here are the Settlement Options for both Term and Whole Life policies:

• Cash Settlement Option • Interest Settlement Option • Annuity Settlement Options

Most Business Continuation Plans are funded by purchasing Life Insurance on the lives of each of the owners. There are two common ways to fund a Business Continuation Plan by using Life Insurance:

• Entity Purchase Plans; or • Cross Purchase Plans.

The Nonforfeiture Options are:

• Extended Term Insurance Nonforfeiture Option; or • Reduced Paid-Up Insurance Nonforfeiture Option; or • Cash Nonforfeiture Option

Incontestable Period Provision

After a 2-year contestable period, the group policy becomes incontestable. Prior to the end of this period, written statements by the applicant may be used by the Insurer to contest the group member's policy.

Virtually all Group Life Insurance coverage is provided via

Annually Renewable Term Insurance

Immediately, the question arises: Why buy Term instead of more Whole Life?

Because, you can get more death benefit coverage for the same dollars with Term. But Term is Temporary and doesn't have a cash value. So, why buy Whole Life instead of more Term? Because, you can get a Permanent policy that has a cash value. Your choice, policy owner.

The death of one owner may make it difficult for the remaining owners to continue the business. Imagine the problems if the deceased partner's share in the business is transferred to heirs that do not have the skills needed to continue the business. Another issue is that the business may need to hire someone to fulfill the deceased owner's work responsibilities. A common solution to this problem is to establish a

Business Continuation Plan, that is, a Buy-Sell Agreement, which is a contract the stating that the business (or the surviving owner) has the right to buy the share of the company from the deceased owner's estate at an agreed upon price.

These provisions that are commonly required in

Individual Life policies by the Uniform Policy Provisions Law:

If the organizing entity fails to notify the

Insured of the conversion privilege, the time limit to convert the policy is 60 days.

Rather than having hubby and wife each buy a separate policy covering the other, let's save them some money. The couple could buy just one of these Whole Life policies, either a:

Joint Life Policy (First to Die); or Survivorship Life Policy (Last to Die).

Although premiums for Life Insurance will remain level and fixed throughout the policy period, with certain types of Term Life, the death benefit does not remain level. There are three death benefit options and each is used in a different way:

Level Term Increasing Term Decreasing Term

A Buy-Sell Agreement is often used in conjunction with

Life Insurance to ensure the continuation of a business if a partner or owner dies.

Insurance companies are largely free to do as they please regarding military service exclusions - covering all military service deaths, excluding all military service deaths, or covering some types of military deaths and excluding others. These exclusions would be found in the optional

Military Service Clause (also called a War Clause).

Decreasing Term is also called

Mortgage Protection Insurance

Most Group Life policies allow conversion to

Permanent Life only

Level and Fixed Premiums

Premi-ums for a Whole Life policy are set in stonewhen the policy is purchased and will neverchange. If you buy a Whole Life policytoday that requires an annual premium of$300, you will still be paying $300 per yearwhen you're 99. If a person wants to haveLife Insurance inforce at death, a Whole Life policy is a great way to do this. The premium remains the same for life and is set up front.

Some folks want to receive the death benefit when the Insured dies plus have all the previously paid premiums refunded. And insurance companies are happy to accommodate these people with the

Return of Premium Rider. This rider is just an Increasing Term Rider attached to the primary policy. The pri-mary policy provides the main death benefit and the Term Rider increases each year to cover the rising accumulation of premiums paid.

Whole Life Insurance that is funded with one lump sum payment is called

Single Premium Whole Life

Virtually all Group Life Insurance consists of

Term coverage, specifically An- nually Renewable Term.

The Entire Contract Clause also declares

The Entire Contract Clause also declares that any information provided to the Insurer on the contract application is considered a representation, not a warranty. It used to be that a customer warranted that ALL the application infor- mation was totally correct. If a company wanted to get out of providing coverage after a policy was issued, all it had to do was poke through the application until it found a mistake (like a misstated birth date or wrong phone number) and the policy could be voided. Not anymore. Today, the applicant represents the application information as being true to the best of the applicant's knowledge and belief, but does not guarantee that it is absolutely correct.

4. Graded Premium Whole Life:

The Graded Premium Whole Life policy makes Permanent Insurance more affordable in the policy's early years. The company charges a lower premium in the early years and a higher premium in the later years. The insurance company simply skews its premium structure to make up for the early shortfall by collecting higher premiums later. This is also known as a Graduated Premium Whole Life policy. A Graded Premium Whole Life policy may have premiums increase from a relatively modest amount in the beginning to an eventually higher than normal payment. Warning! The Graded Premium Whole Life payment plan violates the rule that Life Insurance premiums are always level and fixed. As you've probably already learned, there is an exception to almost every rule, and this is one of very few exceptions to our "level and fixed" rule. However, it is still safe to assume that premiums are level and fixed in almost every other situation.

You might ask, "What's so great about that? Why not just start all over with a fresh policy?" (Reinstated policies)

The answer is that reinstatement may be better than starting over because the policy is reinstated at the original premium level.

Misstatement of Age Provision

The group policy must include a reasonable explanation of how benefits or premiums will be adjusted if the Insurer later finds that a group member misstated his or her age. The policy can be adjusted for a misstatement of age, but cannot be cancelled.

Designation of Beneficiary Provision

The member Insured, not the organizing entity (which is the policy owner), names and changes the beneficiary.

Riders make Life Insurance policies more flexible and therefore easier to sell. Don't like something in the policy? We can

We can add a rider to correct the situation - though most insurance riders cost extra. Let's take a look at some of the most common available riders.

Each of the following is a dividend option EXCEPT? Select one: a. Annuity b. Paid-Up Additions c. Cash d. Accumulate at Interest

a. Annuity An annuity is a settlement option upon death. It is not a dividend option.

When does a Whole Life policy mature? Select one: a. Upon the Insured's death or when the Insured reaches age 100. b. When the Insured surrenders the policy and takes the cash value. c. When the Insured misses a payment. d. A Whole Life policy does not mature.

a. Upon the Insured's death or when the Insured reaches age 100. The word "mature" means that the policy pays the face value. It will do that whenever the Insured dies. It will also do that when the Insured reaches age 100 and the face value is paid to the owner.

Sandra and Charles want to purchase a policy that will automatically cover newborns at no extra cost. Which policy should they choose? Select one: a. A Family Maintenance Policy b. A Family Policy c. A Joint Life Policy d. A Family Income Policy

b. A Family Policy New Point: The only policy in the list which provides any coverage for family members is the Family Policy. It covers the main breadwinner with a whole life policy but offers smaller convertible term policies for the spouse and children. There is no extra cost for policies if newborns come along. The underwriters already have that possibility factored into the premium.

What is the name of the policy that is designed to protect a company if a key person dies? Select one: a. Split Dollar Plan b. Key Person Life Insurance c. Business Continuation Plan d. Business Overhead Expense policy

b. Key Person Life Insurance

Who has the right to change a beneficiary designation? Select one: a. Agent b. Policy Owner c. Insured d. Beneficiary

b. Policy Owner

An insured may borrow which of the following under a Whole Life policy? Select one: a. The annual premium amount only b. The amount of the cash value less the interest to be charged for the year c. The death benefit d. The amount of the cash value

b. The amount of the cash value less the interest to be charged for the year

A Life policy will NOT be reinstated if it was terminated due to: Select one: a. nonpayment of premium. b. fraud. c. lapsation. d. expiration of the grace period.

b. fraud.

Typically, a grace period expires after: Select one: a. 10 days b. 20 days c. 30 days d. 45 days

c. 30 days

Jill failed to pay her premium by the normal due date because she was on vacation. Which policy provision will prevent her policy from lapsing? Select one: a. Guaranteed Insurability Rider b. Waiver of Premium Provision c. Grace Period Provision d. Nonforfeiture Provision

c. Grace Period Provision

Which of the following statements is true regarding the Settlement Option selection? Select one: a. The Beneficiary is always permitted to chose the Settlement Option. b. If the policy Owner selected the Interest Only Settlement Option, the Beneficiary can change this to the Cash Option. c. If the policy Owner did not select a Settlement Option prior to policy maturity, the Beneficiary will receive cash under the Automatic Selection. d. If the policy Owner selected the Annuity Settlement Option, the Beneficiary may change this to the Cash Option.

c. If the policy Owner did not select a Settlement Option prior to policy maturity, the Beneficiary will receive cash under the Automatic Selection. There are only 3 settlement options: cash, interest, and annuity. If the Insured did not make a selection, the beneficiary will receive cash which is the automatic settlement option. The Insured may then ask the Insurer to convert the cash option to either the interest option or the annuity option (which the Insurer will cheerfully do to earn more income).

Which provision requires the policy to only refer to itself? Select one: a. The Insuring Clause b. The Ownership Clause c. The Entire Contract Clause d. The Free Look Clause

c. The Entire Contract Clause

Permanent insurance means it has a

cash value account

There are two kinds of assignment

collateral assignment and absolute assignment

Which of the following would permit an Insured's wife to purchase life insurance? Select one: a. Guaranteed Insurability Rider b. Payor Benefit Rider c. Other Insured's Rider d. Spouse's Rider

d. Spouse's Rider

Which provision prevents an agent from making changes to a policy? Select one: a. The Agency Relationship Clause b. The Agent Change Provision c. The Ownership Clause d. The Entire Contract Clause

d. The Entire Contract Clause

The Insuring Clause includes all of the following EXCEPT: Select one: a. The parties to the contract. b. When benefits will be paid. c. The Insurer's basic promise to pay. d. The Entire Contract clause.

d. The Entire Contract clause.

The Family Maintenance Policy uses Level Term Insurance to provide

extra coverage on the breadwinner.

When a Term policy is renewed or converted, the premium will

increase based on the Insured's new attained age

Insuring Clause

"We, the company, promise to pay, subject to the limits and conditions contained in this policy, the sum insured to the beneficiary immediately upon receipt of due proof of the Insured's death."

Yet another way of getting at the cash value of a Whole Life policy is to

"borrow against it." You don't actually borrow the accumulated cash itself, but rather you use the cash value fund as collateral to secure a loan from the insurance company. If the Insured dies before repaying the loan, the loan plus interest will be deducted from the death benefit.

Other than dying or reaching age 100, there are three ways to access cash from a Whole Life Insurance policy:

(1) Borrow against the cash value (last chapter); (2) Use the Living Benefit option (last chapter); or (3) Surrender (terminate) the policy, which leads to the Nonforfeiture Options (this chapter).

The following provisions must be included in all Group life insurance policies

(1) Copy of the Application Provision (2) Misstatement of Age Provision (3) Evidence of Insurability Provision (4) Incontestable Period Provision (5) Grace Period Provision (6) Designation of Beneficiary Provision (7) Individual Certificate Provision (8) Conversion Privilege For Group Life Insurance

Here are the key points that you must know about the Insuring Clause:

(1) It contains the company's basic promise to pay a specified amount - the death benefit. (2) It refers to the exclusions and limitations of coverage in a general way. (3) It specifies the amount of death benefit. (4) It states when benefits will be paid. (5) It identifies the parties to the contract. (6) It does NOT specify all of the policy terms.

Copy of the Application Provision

Information provided by the Insured on the application is considered to be a rep- resentation, not a warranty. The Insurer must attach a copy of the application to the group policy if it is to be part of the contract.

Whole Life Insurance that is funded over a set number of years is called

Limited Pay Whole Life. Remember that a 20-Pay Whole Life policy (for example) will provide coverage until the Insured dies or reaches age 100 just like any other Whole Life policy.

It is the policy owner who sits in the driver's seat when it comes to controlling the policy. The

Ownership Clause (sometimes called the Owner's Rights Clause) states that it is the policy owner who has all the rights granted by the policy including the right to change the beneficiary, transfer ownership, borrow against the cash value, and select from various payment and settlement options. The owner also has the right to receive the financial benefits of the policy.

Which rider waives the premiums on a child's policy if the responsible adult is dead or disabled? Select one: a. Waiver of Premium rider b. Payor Benefit Rider

Payor Benefit Rider

For test purposes, assume that a Term Policy does not include either provision unless so stated in our question. These policy features are technically considered riders and may slightly increase the premium:

Renewability (Annually Renewable Term); and Convertibility (Convertible Term).

A Whole Life policy may be paid for with a

Single Premium, Continuous Premiums, or Limited Premiums. A fourth option, which violates our rule that premiums are always level and fixed, is Graded Premium Whole Life.

Which payment mode is best?

This depends on a host of factors and varies greatly from one situation to the next. Be aware, however, that the total cash outlay is greatest with Straight Life and least with Single Premium Whole Life (assuming the Insured lives to a ripe old age). Limited Pay Whole Life falls in between. Like almost anything else purchased on an installment basis, the longer you take to pay off the bill, the greater the aggregate payments or total premium outlay will be.

1. Continuous Premium Whole Life:

This is Whole Life Insurance on the lifelong installment plan with monthly or annual premium payments that continue until the policy matures or endows at age 100. This is called a Continuous Premium Whole Life and is the most common payment option. A Whole Life policy arranged using this premium mode is also called Straight Life or Ordinary Life. This arrangement is so common that unless some other payment scheme is mentioned, assume a Whole Life policy is Continuous Premium Whole Life.

A Family Maintenance Policy consists of

Whole Life Insurance combined with Level Term, not Decreasing Term.

Cash Value:

Whole Life Insurance has two components. There is a death benefit to be paid when the Insured dies. But, a Whole Life policy also builds a cash value savings account. The premium for a Whole Life policy will fund both components. One portion funds the death benefit and buys financial protection for the beneficiary, while the other portion creates a cash value fund that can be tapped while the Insured is still alive. The Whole Life policy's cash value generally begins to accumulate during its second year, and it grows continually after that. Cash value is not related to dividends paid by a mutual company, which may or may not be paid depending on the mutual company's investment success. The cash value amount is guaranteed by the policy's cash value table the moment the policy is issued. Based on the cash value table, the Insured knows exactly how much cash value the policy will have at any time.

A Family Income Policy consists of a

Whole Life policy coupled with a Decreasing Term Rider - all on the family bread-winner. The Term Insurance provides a gradually decreasing amount of family income in case the breadwinner dies during the period income is needed most, usually the child rearing years.

Ways to Pay for Whole Life Insurance

Whole Life premiums are not always paid in lifelong installments. There are four payment plans from which to choose: 1. Continuous Premium Whole Life 2. Limited Pay Premium Whole Life 3. Single Premium Whole Life 4. Graded Premium Whole Life

a Convertible Term policy will remain convertible regardless of the Insured's health. Some people buy Convertible Term primarily because it preserves the option of someday acquiring

a Whole Life policy without proof of insurability. Insurance needs often change, and owning a Convertible Term policy is one way to keep open the possibility of owning a Whole Life policy.

An Insured accidentally over-stated his age on a Life Insurance application and died six weeks later of a rare disease. How will the claim be handled? Select one: a. The claim will be denied. b. The face value will not be affected and the claim will be paid. c. The death benefit will be increased to reflect the Insured's true age. d. The death benefit will be increased to reflect the error.

c. The death benefit will be increased to reflect the Insured's true age.

Over the course of a Graded (Modified) Premium Whole Life policy: Select one: a. The premium decreases. b. The premium remains level and fixed. c. The premium increases. d. The death benefit decreases.

c. The premium increases.

What is the impact on the Insured under the Payor Benefit Rider? Select one: a. The premiums are permanently waived if the payor has died. b. The premiums are reduced by 50% during the period of disability. c. The premiums are waived until the Insured reaches the age specified in the policy. d. The premiums are permanently waived as long as the payor is disabled.

c. The premiums are waived until the Insured reaches the age specified in the policy.

The Incontestable Clause limits the time that an insurance company can deny a Life Insurance claim on the basis of statements made in the application to: Select one: a. Six Months b. One Year c. Two Years d. Three Years

c. Two Years

What is the Waiver of Premium Rider designed to do? Select one: a. Waive Life Insurance premiums for the length of the policy if the owner is totally disabled. b. Waive Life Insurance premiums for the length of the policy if the owner is totally or partially disabled. c. Waive Life Insurance premiums for the length of the disability when the owner is totally disabled. d. Waive Life Insurance premiums for the length of the disability if the owner is totally or partially disabled.

c. Waive Life Insurance premiums for the length of the disability when the owner is totally disabled. The "owner" is always responsible for the premium. In this question you are only given possible answers regarding the "owner" so we must assume the owner and Insured are the same people.

What does the Payor Benefit Rider do? Select one: a. Waives premiums if the payor becomes unemployed. b. Specify the designated payor for an insurance policy. c. Waives premiums if the payor dies or becomes disabled before the Insured reaches adulthood. d. Designates the person who will pay the premium if the policy owner dies.

c. Waives premiums if the payor dies or becomes disabled before the Insured reaches adulthood.

On a Life policy application, the Contestable Clause (also known as the Incontestable Clause) would apply to situations involving: Select one: a. nonpayment of premium. b. omissions on an incomplete application. c. an honest mistake on an application. d. misstatement of gender on an application.

c. an honest mistake on an application. If a policy is delivered following an incomplete application, the Insurer is bounded under the concept of waiver or estoppel.

The Waiver of Premium rider waives the premium upon total disability of the: Select one: a. beneficiary b. owner c. insured d. producer

c. insured

Required provisions protect the

consumer, not the insurance company. Required provisions must be included in a policy and cannot be waived under any circum- stance, even by the consumer.

Dividend Option

controls how policy dividends are paid;

Under which of the following circumstances would the premiums be waived under the Payor Benefit Rider? Select one: a. The parent responsible for the child's policy premium becomes disabled or dies. b. The parent responsible for the policy premium loses his or her job. c. The agent that sold the policy becomes disabled. d. The insured child becomes disabled.

a. The parent responsible for the child's policy premium becomes disabled or dies.

Riders cannot stand alone, but are

attachments to insurance policies. They usually benefit the Insured by adding coverage and usually result in an additional premium.

Which of the following would a stunt pilot add to a policy in order to be covered when flying as a stunt pilot? Select one: a. An Entire Contract Provision b. An Aviation Rider c. An Aviation Exclusion Rider d. A Multiple Indemnity Rider

b. An Aviation Rider

Who can make changes to an insurance policy? Select one: a. The regional manager. b. An executive officer of the insurance company. c. The agent that sells the policy. d. The underwriter.

b. An executive officer of the insurance company.

Which will have a premium that increases each year? Select one: a. 15-Pay Whole Life b. Annually Renewable Term Life c. 20-Pay Whole Life d. Straight Life

b. Annually Renewable Term Life

Renewable Term usually provides for renewal at which of the following times? Select one: a. Within two months of policy lapse. b. At policy expiration. c. During the month of the Insured's last birthday prior to policy expiration. d. When the Insured needs to increase the death benefit.

b. At policy expiration.

Which rider protects the life insurance policy's coverage if the Grace Period expires? Select one: a. Cost of Living Rider b. Automatic Premium Loan Rider c. Waiver of Premium Rider d. Return of Premium Rider

b. Automatic Premium Loan Rider This is a key exam point and a review of an earlier chapter. The Automatic Premium Loan Rider will automatically make a loan from the cash value account to keep the premium up to date. The other riders listed do other things but don't keep the policy coverage in effect.

A STOLI (IOLI) is used to: Select one: a. Reinstate a Whole Life policy. b. Avoid the insurable interest requirement. c. Provide health insurance for employees. d. Provide coverage for the poor.

b. Avoid the insurable interest requirement. Just a little reminder from earlier material - this is so easy to forget! This is a way for an investor to buy insurance for someone who gets "free insurance" for 2 years before selling the life insurance policy to the investor. Some states are prohibiting the use of a STOLI / IOLI (ref. page 3-9).

Why is the premium higher when an Insured converts from Convertible Term to Whole Life? Select one: a. Because of the Insurer's expenses involved in the conversion. b. Because Whole Life costs more than Term Life and the new premium is based on the Insured's age at the time of conversion. c. Because the policy has to rapidly build cash value. d. Because the new premium is based on the Insured's health at the time of conversion.

b. Because Whole Life costs more than Term Life and the new premium is based on the Insured's age at the time of conversion.

An Insured used her life insurance policy as security for a bank loan. She was required to sign ownership of the policy temporarily to the Creditor. This is known as a: Select one: a. Loan Values Clause b. Collateral Assignment

b. Collateral Assignment Always be flexible, go with the "best" answer. Also, some exams are beginning to refer to the Temporary (Collateral) Assignment as a Collateral Transfer or a Collateral Exchange. You know it isn't a Loan Values Clause because that specifies the amount the Insured can borrow from the Insurer as a policy loan.

Which provides a death benefit that may be changed to Whole Life without proof of insurability? Select one: a. Renewable Term b. Convertible Term

b. Convertible Term

Which Term policy will be the most expensive? Select one: a. Noncovertible and Nonrenewable b. Convertible and Renewable

b. Convertible and Renewable

A "Family Policy" provides: Select one: a. Equal coverage for all family members. b. Different coverages on different family members.

b. Different coverages on different family members.

What is decreasing with a Decreasing Term Life policy? Select one: a. Cash value b. Face value c. Term d. Premium

b. Face value

Phil purchased a Whole Life policy. The first year he paid $400 in premium, the second year he paid $320 in premium, the third year he paid $338 in premium. What is the most likely explanation for his fluctuating payments? Select one: a. He reduced the face value. b. He selected the Reduced Premium Dividend Option. c. His health has improved. d. He received a discount for referring a friend.

b. He selected the Reduced Premium Dividend Option.

Which of the following actions would be permitted by the policy owner without the consent of the irrevocable beneficiary? Select one: a. Assign the policy. b. Increase the death benefit. c. Surrender the policy. d. Take out a loan against the policy.

b. Increase the death benefit. Without the consent of an irrevocable beneficiary, the owner can't in any way harm the beneficiary's position. However, the owner can improve the irrevocable beneficiary's position by increasing the death benefit. That doesn't require consent of the irrevocable beneficiary.

Which of the following is not within the policy owner's rights? Select one: a. Assign the Policy b. Increase the face value of a Life Insurance policy c. Surrender the Policy d. Change the Beneficiary

b. Increase the face value of a Life Insurance policy

Which section of the life policy may provide that the policy will not pay claims due to military action, foreign travel, or suicide? Select one: a. Contestability Provision b. Insuring Agreement

b. Insuring Agreement

An Insured wants monthly earning from the death benefit to be paid to a charity for 10 years and then the balance equally divided among his surviving family members. The appropriate settlement option is: Select one: a. Lump Sum Cash b. Interest Only

b. Interest Only Any weird settlement option (such as the one described) is referred to as an Interest Only settlement option. Another one of those memorization points

Which form of Term insurance requires the Insured to pass a medical exam in order to have a lower cost of renewal? Select one: a. Renewability Clause b. Reentry

b. Reentry

Steve buys a $500,000 Life policy and commits suicide one month later. Assuming the policy includes a Suicide Clause, the company will: Select one: a. Deny the claim. b. Refund the premiums paid without interest. c. Pay the death benefit to Steve's beneficiary. d. Refund the premiums paid plus interest.

b. Refund the premiums paid without interest.

Which policy provision deals with activating a policy which has terminated due to nonpayment of premium? Select one: a. Grace Period b. Reinstatement

b. Reinstatement

The purpose of the Grace Period Clause is: Select one: a. To allow a beneficiary to take some time to file a claim. b. To prevent unintentional lapse of the policy. c. To provide the first month of insurance free as a bonus. d. To give the Insurer time to review the proof of loss form before responding.

b. To prevent unintentional lapse of the policy.

Under Increasing Term Life Insurance, what increases over time? Select one: a. The premium b. The cash value c. The death benefit d. The length of the term

c. The death benefit

An Insured accidentally over-stated his age on a Life Insurance application and died 20 years later. How will the claim be handled? Select one: a. The face value will not be affected and the claim will be paid. b. The death benefit will be decreased to reflect the error. c. The death benefit will be increased to reflect the Insured's true age. d. The claim will be denied.

c. The death benefit will be increased to reflect the Insured's true age.

The Aviation Exclusion Rider charges a standard premium but doesn't

cover student, stunt, or military pilots

If a 30-year old will live to age 99, which of the following policies will pay a death benefit and will have cost the lowest total premium outlay?

d. 15-Pay Whole Life If an Insured wants the lowest total premium outlay, the solution is to prepay the premiums as early as possible. The 15-Pay Whole Life policy (that is same as a Paid Up at 45 Whole Life policy) will do this for a 30-year old.

Which choice may provide coverage for all the family members in a single policy? Select one: a. A Family Maintenance Policy b. A Family Income Policy c. A Joint Life Policy d. A Family Policy

d. A Family Policy The Family Policy provides a whole life policy on the breadwinner and smaller convertible term policies on the spouse and children - everyone is covered in "one" policy. New Point: And any newborns are covered without any additional premium charge.

Mandy (age 25) is interested in having Life Insurance in force when she dies, but she doesn't want to have to pay premiums when she's retired. What would you recommend? Select one: a. A Term policy b. A Straight Life Policy c. A Convertible Term policy d. A Limited Pay Whole Life policy

d. A Limited Pay Whole Life policy

For which of the following clients would Single Premium Whole Life be most appropriate? Select one: a. The breadwinner in a young, growing family. b. A young person just graduating from school. c. An elderly poor person. d. A wealth older widower with a large estate to protect.

d. A wealth older widower with a large estate to protect.

Which portion of the Accumulate at Interest dividend payments would be subject to taxation? Select one: a. Neither the dividend payment nor the interest is taxable as income. b. The dividend is taxed when paid and the interest is tax deferred. c. The dividend in the year it was paid, plus interest accumulated that year. d. The interest in the year it was earned.

d. The interest in the year it was earned.

Which is correct regarding a Family Policy? Select one: a. The death benefits are provided using Term policies for all family members. b. Each family member receives a Whole Life policy. c. The death benefit is the same for each family member. d. The policy consists of a Permanent policy on the breadwinner and Term policies for the other family members.

d. The policy consists of a Permanent policy on the breadwinner and Term policies for the other family members. The policy consists of a Permanent policy on the breadwinner and Term policies for the other family members is correct. If new kiddies come along, they are covered at no extra premium.

Who selects the settlement option? Select one: a. The beneficiary. b. The agent. c. The Insured. d. The policy owner.

d. The policy owner.

Which statement regarding childrens' policies under a Family Policy is true? Select one: a. They are Increasing Term policies. b. They are Decreasing Term policies. c. They are convertible Whole Life policies. d. They are convertible Term policies.

d. They are convertible Term policies.

Assuming a policy meets all other eligibility requirements, how long does a policy owner have to exercise the reinstatement option for a Life policy? Select one: a. One Year b. 10 Years c. Six Months d. Three Years

d. Three Years

Under which of the following situations would Annie NOT need to prove insurability? Select one: a. When asking the Insurer to increase the death benefit. b. When applying for Whole Life. c. When applying for Term Life. d. When converting from Convertible Term to Whole Life

d. When converting from Convertible Term to Whole Life

An Insured stated on the application that her age was 25. She was actually 35. When the life Insurer discovers the discrepancy, it will: Select one: a. void the policy b. increase the premium c. decrease the premium d. adjust the death benefit

d. adjust the death benefit We can't adjust the premiums on a life policy because the premiums are "level and fixed" for the life of the policy. However, we can adjust the death benefit.

Generally speaking, required items protect the customer; Optional Provisions in the last chapter protected the company by taking away coverage. A rider can be used to

either add or remove coverage. However, most riders provide added coverage for an added fee

The group member only has to pay income tax on the amount of

employer-paid premiums for any death benefit amount in excess of $50,000.

The Time Limit on Lawsuits Clause

encourages the prompt settling of any outstanding claims by a policy owner against an insurance company by requiring that all lawsuits be filed within 3 years. To discourage premature litigation, it also requires that the policy owner give the company 60 days to investigate a claim prior to filing a lawsuit to obtain policy benefits.

The Assignment Clause

establishes the procedure by which the transfer is accomplished. Although the Insurer must be notified in writing of the assignment, the company has no voice in the matter as long as the transfer complies with the Assignment Clause.

All things being equal, Term Life provides

more insurance coverage per dollar of premium than any other kind of Life Insurance. That is because Term Life provides only pure death protection - there are no other benefits.

If the former Insured dies during the conversion period, the Insurer must

pay the death benefit just as though the group coverage was still in place - even if the Insured had not yet applied for conversion to individual coverage.

Another business use of Life Insurance is something called a Deferred Compensation Plan. This arrangement involves an employee

paying an employee in the future, often during retirement, for work done today. A highly paid baseball player may not need more money now and might prefer to receive increased compensation during retirement when the ball player should be in a lower tax bracket. If the employee dies prior to retirement age, the employee's beneficiary will receive the death benefit. In retirement, the employee may surrender the policy and take the cash value, thereby finally receiving payment for work done long ago. At that time, taxes will be paid, but the employee should be in a lower tax bracket and the income has grown tax deferred in the cash value account.

Reinstatement protects a

policy owner whose policy lapses but the owner wants to continue coverage rather than buying a new policy at a higher attained age. To reinstate, the owner MUST provide proof of insurability.

Only mutual insurance companies pay dividends to

policy owners

Life Insurance premiums always remain level and fixed during the

policy period

Joint Life (First to Die) is used to

protect the remaining spouse when the first spouse dies

The Aviation Rider

provides coverage for these pilots (stunt, student, military) by charging an **additional premium** for the increased risk.

The Insuring Clause

spells out the nature of the relationship between the company and the Insured. Namely, the Insuring Clause states that in exchange for premiums paid, the Insurer promises to pay a specified amount of money to the beneficiary if the Insured dies. This provision is so important that it goes on the policy face (first page)

The 10-Day Free Look Clause states

states that a customer has 10 days after the policy has been delivered to decide whether to keep the policy or to call the whole thing off (for any reason). The Free Look Clause is also known as the Return/Exchange Pro-vision. If the customer chooses to return the policy, the company must refund 100 percent of any premium that has been paid, no questions asked. The Free Look period begins from policy receipt, not policy issue. That means the policy owner has the right to cancel the policy any time prior to receipt of the policy or within the 10 days after receipt of the policy. The period of time provided by the Free Look Clause can vary, but usually it is 10 days. The Free Look Clause does not entitle the Insured to free insurance. If the Insured files a claim and returns the policy using the Free Look Clause, the company will not pay the claim. The 10-Day Free Look Clause is found on the policy face.

Please note that while the death benefit is always paid income tax free, any interest earned after the Insured's death will be

subject to income taxation

With Group Life Insurance, the organizing entity receives a

tax deduction for the premiums paid on behalf of group members.

The Payor Benefit Rider is used to

to pay premiums if the payor becomes disabled or dies

Before we move on, let's reflect for a moment on the 6 dividend options. Be sure that you are comfortable with these before looking at the next topic.

• Additional Paid-up Insurance • Term Insurance • Accumulate at Interest; • Cash; • Reduced Premium; and • Paid-up Life.

The owner of a participating policy can choose how dividends are received. Although any good insurance agent will call these "dividend opportunities," we will stick to the traditional name, So, the dividend options include:

• Additional Paid-up Insurance; • One Year Term Insurance; • Accumulate at Interest; • Cash; • Reduced Premium; and • Paid-up Life.

Whole Life Insurance provides:

• Protection for an Insured's entire life (or to age 100); • A cash value that accumulates over time; and • Level and fixed premiums.

As a general rule, Term Insurance does not

pay a dividend

Survivorship Life (Last to Die) is used to

pay estate taxes

Permanent Protection:

**Only until age 100** A Whole Life policy is designed to provide protection for the Insured's entire life to age 100. The policy never needs to be renewed and the Insured will not need to prove insurability again. The insurance company cannot cancel the policy, even if the Insured develops a terminal illness. Only two sets of circumstances can interrupt a Whole Life policy. First, the policy may be surrendered (which automatically happens upon lapse due to failure to pay the premium). If the policy is surrendered, the policy owner will receive the cash value. Second, the policy can mature, either when the Insured dies or when the Insured reaches age 100. In either case, someone will receive something - either the death benefit (if the Insured dies) or the accumulated cash value (if the Insured reaches age 100).

When converting from Group Life to individual Life, the application for the new policy and pay- ment of the first premium must occur within

31 days of the time group coverage ended, assuming the Insured was notified properly.

The Free Look Clause allows the policy owner

10 days to return the policy for a full refund with no questions asked.

As with all Life Insurance policies, premiums remain level and fixed during the policy period. Examples of Term Life policy periods are

5-Year Term, 10-Year Term, "Term to Age 65," or any other period of time. These are referred to as "Level Premium Term Policies" because the premium is level and fixed for that period.

To be eligible for tax advantages, a Group Life plan must benefit at least

70 percent of all employees - or, at least 85 percent of those participating must not be key employees.

Another way a policy owner can have proceeds of a Life Insurance policy distributed is to use the death benefit to fund an

Annuity. Annuities are a completely separate topic and we don't want to get sidetracked on a new topic right now. After all, you're just starting to feel comfortable with Life Insurance and Annuities are not Life Insurance. We will save the details of Annuities for Chapter 21. One important point is that if the policy owner selects an Annuity Settlement Option, the beneficiary does not have the flexibility to change it.

If a Permanent policy is surrendered, the insurance company will simply write a check to the policy owner for the total accumulated cash value minus any outstanding loans if the Insured has selected the

Cash Nonforfeiture Option Warning: If the Insured chooses to take the cash and run, this will permanently sever the relationship with the Insurer! Any Insured who chooses this "split the sheets" option will lose the 3-year right of reinstatement privilege.

To reinstate the lapsed policy, the Insured must:

Complete a reinstatement application within 3 years of lapsation; (there is no reinstatement fee) Pay the back premiums with interest; Repay loans with interest; and Provide proof of insurability.

Whole Life Insurance that is paid for with the continuous premium payment plan may be called

Continuous Premium Whole Life, Straight Life, or Ordinary Life. Unless otherwise stated, assume a Whole Life policy is Continuous Premium Whole Life.

Let's say Nancy and Jack, a married couple, want Life Insurance coverage on themselves and their children Cassie, Neil, and Ryan. They want different death benefit amounts for each family member. One way to do this is to buy a

Family Policy, which is really a collection of individual policies grouped together under one roof. Typically, the policy on the family breadwinner will be a Permanent policy with a relatively large death benefit, while the policies on the children and non-working spouse will be Convertible Level Term Insurance with smaller death benefits. Any newborns are covered without any additional premium charge.

One provision that is not in Group LifeInsurance policies is the

Free Look Provision. The 10-day Free Look Provision is required only for individual policies

Every policy is required to have a

Free look clause. From the time the policy is delivered to the insured, the insured has 10 days to return the policy for a full refund of the premium.

The Free Look Provision is not a required provision for

Group Insurance and is commonly left out of group policies.

required provisions for Individual Life Insurance will not always apply to

Group Life Insurance or Annuities. And the required provisions for Group Life Insurance may not be the same for Group Health Insurance.

What Is Whole Life Insurance?

In addition to providing a death benefit, a Whole Life policy builds cash value that can be accessed by the policy owner during the Insured's life. Following is a list of the characteristics of Whole Life Insurance.

Grace Period Provision

In the event the premium is not paid on time, the Insureds will remain covered for the 31-day grace period.

Let's say you tell a big fat lie on your LifeInsurance application, like saying you'rea librarian when you're actually a profes-sional skydiver. Or you claim to be anon-smoker when in reality you smokethree packs a day. Or maybe you did notunderstand a question and answered it in-correctly. And let's say the policy is issued based, at least in part, on the incorrect information. If the company discovers the mistake, can it cancel the policy? According to the

Incontestable Clause, the Insurer may contest the validity of the contract, only IF it discovers the error within the two year contestable period. Therefore, with Life Insurance, mistakes, concealments, and misrepresentations are not grounds to void a policy after the two year contestable period has passed.

The vehicle for implementing a Cost of Living Rider is an

Increasing Term policy. Interestingly, the face value and premium do not go down if consumer prices fall, they only ratchet upward. The Cost of Living Rider provides for the purchase of a Term policy with a death benefit equal to the accumulated increase in the cost of living since the issue of the underlying policy.

Many companies offer a new type of Renewable Term policy called

Reentry Term. This Renewable Term policy offers two premium levels for renewal; a less expensive premium for clients who can prove insurability at renewal time by passing the medical exam, and a standard premium for folks who cannot.

Reinstatement:

Requires that a reinstatement application be submitted within 3 years of lapsation - which triggers a new 2-year contestable period for statements made in the reinstatement application; Requires payment of back premiums, loans, and interest; Requires proof of insurability; but Does not require a reinstatement fee.

A Survivorship Life Policy also insures two (or more) people with one policy. And it provides the same advantages - simplicity and a somewhat lower premium than two or more separate policies. It differs from a Joint Life (First to Die) policy in that with

Survivorship Life, the death benefit is paid only when the last of the Insureds dies. Most often with Survivorship Life, the beneficiary is the estate of the last to die and the death benefit is used to pay estate taxes. To understand the need for Survivorship Life, we need to understand the basics of estate planning. When a married person dies, the assets transfer to the surviving spouse without tax consequences. But when the second spouse dies, the federal government may assess estate taxes. A large estate will need a large sum of money to pay the estate taxes. Survivorship Life is commonly used to pay the taxes, leaving the hefty inheritance intact.

Life Insurance companies cover regularly scheduled airlines but usually refuse to insure stunt pilots, student pilots, or military pilots. There are two ways to deal with this problem:

The Aviation Exclusion Rider & The Aviation Rider

Conversion Privilege For Group Life Insurance - What happens if the Insured worker quits, gets fired, is laid off, is disabled, retires, or in some other way becomes estranged from the employer? Or what if the employer simply quits providing the Group Life Insurance fringe benefit? And how about the worker's family, who also relies on this job-related coverage?

The Conversion Privilege, required in Group Life policies, deals squarely with these issues. At the heart of the clause lies a guarantee that an Insured (or family member) who loses Group Life Insurance may convert to an individual Life Insurance policy without evidence of insurability.

Individual Certificate Provision

The Insurer must provide each insured group member with an individual Certificate of Insurance stating the coverage provided by the policy. Remember, the organizing entity retains the master contract, so the certificate of insurance may be the only thing provided to the Insured.

Permanent Life policies build cash value, and one way to get at the cash is to borrow against it. Often you will hear people talk about borrowing "from" a policy, but this is incorrect. The loan comes "from" the insurance company which uses the cash value in the policy as collateral to secure the loan. Therefore, the loan is "against" the cash value, not "from" it. The _______________________ defines the rules surrounding policy loans.

The Loan Values Clause defines the rules surrounding policy loans. In short, the Loan Values Clause: Only applies to Permanent policies because Term policies have no cash value account; Grants the Insured the right to borrow against the accumulated cash value; States the interest rate (usually 8 percent); and Requires that enough collateral be in the cash value account to pay both the loan and the interest. So, the full cash value can never be borrowed!.

What is decreasing with decreasing term? The death benefit, or the premium?

The death benefit

the details of the Conversion Privilege Provision (PART 1):

The face value of the new policy may not be more than the face value of the group policy. If the Insured takes a new job that provides a smaller amount of Group Life Insurance than the previous job, the Insured may choose to convert only the difference in coverage to an individual policy. Once Group Life coverage ends, the application for the new policy and payment of the first premium usually must occur within 31 days of Group Policy termination. If the organizing entity fails to notify the Insured of the right to convert, the conversion time is 60 days. If the Insured dies during the conversion period, the Insurer must pay the death benefit just as though the group coverage was still in place - even if the Insured had not applied for conversion to individual coverage.

Evidence of Insurability Provision

The group policy must notify the Insured that evidence of insurability will be required if the Insured first declines coverage but later wants to join.

the details of the Conversion Privilege Provision (PART 2):

The premium for the new policy will be based on the standard individual rate for the Insured's attained age at the time of the conversion. The Insurer usually will require the Insured to convert the Term policy to a Whole Life policy. A conversion right does not exist where the employer simply switches one insurance carrier for another insurance carrier with no other changes. Because there is no loss of coverage, there is no conversion privilege. The converted policy is an individual policy, not a continuation of group coverage, and the premium for the new policy is paid by the individual to the insurance company.

3. Single Premium Whole Life:

This is the least common method and is used by folks who either have lots of cash lying around or don't want much insurance. Single Premium Whole Life is funded with cash up front. A single lump sum payment funds the entire policy. For most people, financial practicalities eliminate the likelihood of plunking down many thousands of dollars for a Single Premium Whole Life policy. Single Premium Whole Life is most often purchased by older individuals for estate protection to take care of estate taxes. So, Whole Life doesn't mean you pay for your whole life. It does mean that you are insured for your whole life (or to age 100).

While proof of insurability is not a requirement when converting from Convertible Term to Whole Life, proof of insurability will be required to convert from

Whole Life to Term Life. This makes sense when you consider that the insurance company can charge a higher premium for Whole Life and is assured a longer relationship with the Insured. Insurance companies want to make it fairly easy to convert to Whole Life, which is considered a "higher policy form" and they want to make it somewhat difficult to convert from Whole Life to Term, which is considered a "lower policy form."

Decreasing Term

With Decreasing Term, the policy's face value decreases with each passing year (or month). For example, a policy may have a face value of $100,000 in the first year, $95,000 the second year, $89,000 the third year, and so on until the coverage disappears. Decreasing Term is used almost exclusively to pay off a mort- gage debt in the event the Insured dies. Mortgages and most other debts diminish as time passes and payments are made, and Decreasing Term coverage is designed to keep pace with that fall- ing balance. Hence, Decreasing Term is often called Mortgage Protection Insurance

Increasing Term

With Increasing Term, the death benefit keeps pace with rising insurance needs as new children are born, expenses grow, or inflation increases a family's cost of living. The key point to remember about Increasing Term is that the death benefit increases over time but the premium remains level and fixed. It is most frequently attached to a Whole Life policy as an Increasing Term Rider, a provision that will almost always cost more

Level Term

With Level Term, the most common type of Term Life, the face value remains constant throughout the life of the policy. If the face value of a Level Term policy is $100,000, the policy will pay that amount if the Insured dies on the first day of the policy or the last day. For pure death protection, Level Term is the most popular choice and unless otherwise specified, it is safe to assume a Term policy has a level death benefit

2. Limited Pay Whole Life:

With Limited Pay Whole Life, the owner pays a premium for a predetermined number of years and then has a paid up policy for life. Payment begins at the inception of the policy and continues at regular intervals (usually monthly or annually) over a defined period, such as 2021 years. Even after payments have stopped, the policy still provides coverage for the Insured and the cash value table is designed to equal the face value when the Insured reaches age 100 - it's still Whole Life coverage! Two examples of Limited Pay Whole Life policies include a 20-Year Limited Pay Whole Life policy or a Paid Up at 65 Limited Pay Whole Life policy (the payments end at age 65). Limited Pay Whole Life is also called Installment Life.

Leann's $100,000 Whole Life policy had an accumulated cash value of $30,000. Leann requested a maximum loan and received $27,900. Leann died precisely one year later without repaying any of the loan. How much did Leann's beneficiary receive? Select one: a. $70,000 b. $72,100 c. $73,100 d. $100,000

a. $70,000 This is an example of a routine test question. At the end of the year, exactly $30,000 (principal plus interest) would be deducted from the amount paid to the beneficiary!

Which policy will provide a 30-year-old with protection to age 100 and develop cash value quickest? Select one: a. 15-Pay Whole Life b. Paid Up at 65 Whole Life c. Term Life d. Straight Life

a. 15-Pay Whole Life For a 30 year old, the 15 Pay Whole Life policy will build cash value much quicker than the Paid Up at 65 policy because it requires more money to be paid into the cash value account earlier.

The owner of a whole life policy can

access the policy's cash value portion by letting the policy lapse, by surrendering the policy, by borowing against the cash value, or by reaching endowment at age 100

Joyce and Scott are a married couple and have three children, ages 5, 7, and 9. Scott wants a whole life policy on himself, no insurance on Joyce, and extra coverage to pay the money needed for Joyce to finish raising the children to age 23 if Scott dies young. Joyce wants to be able to count on having the same amount of money no matter how many of the children are still living at home if Scott dies young. What do you recommend? Select one: a. A Family Maintenance Policy. b. A Survivorship Life Policy. c. A Family Income Policy. d. A 10 year term Policy.

a. A Family Maintenance Policy. A Family Maintenance Policy will pay the same level death benefit on Scott and provide extra money for Joyce to "maintain" a level lifestyle no matter how many children are still in the nest when Scott dies. Nice choice! However, with a Family Income Policy, the amount Joyce will receive will be reduced each year.

Paula and Sam are an older married couple. If either dies, the other spouse will inherit the other's substantial assets without any death tax. However, when the second spouse dies, the estate may face a huge death tax. What type of insurance should Paula and Sam purchase to pay the death tax due when the second spouse dies? Select one: a. A Survivorship Life policy. b. A Term Life policy on Sam with a Spouse's Term Rider on Paula. c. A Joint Life policy. d. A Whole Life policy on Sam with a Spouse's Term Rider on Paula.

a. A Survivorship Life policy. A Survivorship Life policy pays only when the second spouse dies. (Remember, Survivorship and Second both begin with the letter "s") Survivorship Life is used to pay the estate tax which only is applied upon the death of the second spouse.

Which of the following statements best describes the Free Look Provision? Select one: a. A policy owner can return a policy within a specified number of days after delivery and get a full refund without providing a reason. b. A policy owner can return a policy within a specified number of days after submitting the application and get a full refund without providing a reason. c. A policy owner can return a policy within a specified number of days after delivery and get a pro-rated refund without providing a reason. d. A policy owner can return a policy within a specified number of days after delivery and get a full refund by providing a valid reason.

a. A policy owner can return a policy within a specified number of days after delivery and get a full refund without providing a reason.

Which of the following is the automatic dividend option? Select one: a. Additional Paid-Up Insurance b. Cash c. Paid Up Life d. Reduced Premium

a. Additional Paid-Up Insurance

Josh applied for a Life policy and intentionally misstated his age to save money. When Josh died five years later, the company discovers the lie. What will the insurance company do? Select one: a. Adjust the death benefit to reflect what the premium actually would have purchased given Josh's true age. b. Return all premiums paid plus interest to the beneficiary. c. Pay the claim because the contestable period has passed. d. Deny the claim on the basis of fraud.

a. Adjust the death benefit to reflect what the premium actually would have purchased given Josh's true age.

A Limited-Pay Whole Life policy provides coverage until: Select one: a. Age 100. b. The last premium is paid.

a. Age 100.

Which of the following would a stunt pilot add in order to pay standard rates? Select one: a. An Aviation Exclusion Rider b. An AD&D Rider c. A Rated Policy d. An Aviation Rider

a. An Aviation Exclusion Rider The Aviation Exclusion Rider won't cover a stunt pilot accident but will permit the Insured to purchase insurance at the standard rate - adding an Aviation Rider would cover the stunt pilot accident but at a higher than standard rate.

Which of the following provides the beneficiary with periodic income payments for the life of the beneficiary? Select one: a. Annuity Settlement Option b. Cash Settlement Option c. Grace Period d. Interest Settlement Option

a. Annuity Settlement Option

Which of the following is NOT a nonforfeiture option? Select one: a. Automatic Premium Loan b. Cash c. Reduced Paid-Up Insurance d. Extended Term Insurance

a. Automatic Premium Loan

Which of the following does not involve the systematic liquidation of death benefit proceeds? Select one: a. Cash Settlement Option b. Straight Life Annuity Settlement Option c. Fixed Period Annuity Certain Settlement Option d. Fixed Amount Annuity Certain Settlement Option

a. Cash Settlement Option

Which of the following permits a Term Policy to be changed to a permanent policy without proof of insurability? Select one: a. Conversion Provision b. Renewability Provision

a. Conversion Provision

Which permits me to buy Whole Life? Select one: a. Convertible Term b. Annually Renewable Term

a. Convertible Term

Why is age 100 significant in a Whole Life policy? Select one: a. Coverage ceases at age 100. b. That is the year the premiums increase significantly. c. It is illegal to insure persons beyond age 100. d. The total premiums paid are refunded at age 100.

a. Coverage ceases at age 100.

You want to use your policy as collateral on a bank loan. What will the bank want you to do? Select one: a. Do a collateral assignment with the bank as the assignee. b. Designate the bank as beneficiary.

a. Do a collateral assignment with the bank as the assignee. The banker appreciates your offer but knows that you can simply change the beneficiary at any time. This doesn't please the banker.

Kent selects the Paid-Up Additions Dividend Option for his participating Whole Life policy. Which of the following is true? Select one: a. Each dividend purchases more Whole Life Insurance on a single net premium basis. b. Each dividend purchases a little extra Term Insurance on a single net premium basis. c. Each dividend purchases a little extra Term Insurance on a gross premium basis. d. Each dividend paid goes toward reducing the amount of time the Insured will need to continue paying premiums.

a. Each dividend purchases more Whole Life Insurance on a single net premium basis. The Paid-Up Additions Dividend Option is used to purchase more small whole life policies on a single net premium basis. The divided is not used to purchase term insurance unless the Term Insurance Dividend Option is selected.

Kobi purchased a Whole Life policy at age 23. At age 45, she is tired of paying the premium each month. If she discontinues the payments, which nonforfeiture option will automatically be used? Select one: a. Extended Term Insurance b. Cash c. Reduced Paid-Up Insurance d. Reinstatement

a. Extended Term Insurance

Which nonforfeiture option provides the greatest level of death benefit if exercised? Select one: a. Extended Term Insurance b. Reduced Paid-Up Insurance c. Cash d. Paid-Up Additions

a. Extended Term Insurance

Most modern day Life Insurance policies cover which of the following? Select one: a. Fare paying passengers on regularly scheduled flights. b. Military pilots. c. Student pilots. d. No airplane accidents.

a. Fare paying passengers on regularly scheduled flights.

Four years ago, Eva purchased a Whole Life policy when she was a librarian. She has recently changed careers and is now a professional wrestler. Does that change her existing coverage? Select one: a. Her life policy will not be affected. b. A hazardous occupation exclusion rider will need to be added. c. Her premium will increase. d. Her policy will be cancelled.

a. Her life policy will not be affected.

Each of the following statements regarding the Accumulate at Interest Dividend Option is true EXCEPT? Select one: a. The dividends and any interest earned will not be taxed. b. The option will increase the amount paid when the policy matures. c. The option will increase the amount paid if the policy is surrendered for cash. d. The option is basically the same as putting the dividends in a savings account with the insurance company.

a. The dividends and any interest earned will not be taxed.

Which of the following is true about a company that uses Key Person Life Insurance? Select one: a. It may reassure business creditors that the business is well-run and thus a better credit risk. b. It protects the business against the death of a key customer or supplier. c. It is following the requirements of Workers Compensation laws. d. It provides a way for the key employee to become an owner of the business.

a. It may reassure business creditors that the business is well-run and thus a better credit risk. Key Person Life Insurance is designed to protect the business if one of the key employees dies. For example, a rock band could buy this insurance covering the lead singer. One result of this is that creditors of the business, such as banks, are more willing to loan money to such a well-run business. Thus, a business with a Key Person life insurance policy becomes a better credit risk.

Does the Incontestable Clause apply to statements on the application regarding age and gender? Select one: a. No. b. Age Only. c. Gender Only. d. Yes.

a. No.

A company provides a noncontributory Group Term Life Insurance plan for its employees. Each eligible employee has $35,000 in coverage. What portion of the premium payment is taxable as income to the employee? Select one: a. None b. 50 percent c. 75 percent d. 100 percent

a. None As long as the employer is not buying more than $50,000 coverage per employee, there is no tax upon the employee. However, that portion of the premium used to purchase over $50,000 coverage would be taxable to the employee.

Which increases the policy's flexibility in the event the Insured is no longer able to pay the premiums? Select one: a. Nonforfeiture Option b. Guaranteed Insurability Rider

a. Nonforfeiture Option

Which policy provision is designed to shield a policyowner from the irrevocable loss of cash value due to nonpayment of premium? Select one: a. Nonforfeiture Provision b. Insurable interest

a. Nonforfeiture Provision The Nonforeiture Provision says that once the Grace Period Expires, the policyowner will receive either the cash value account, an Extended Term policy, or a Reduced Paid-up Whole Life policy. Watch out, another possible answer to this question could be Grace Period (although that wasn't a listed choice).

If, after the contestable period has passed, an insurance company discovers that a Life Insurance policy owner committed fraud at the time of application, what will happen? Select one: a. Nothing. Once the contestable period has passed, the policy is incontestable, even for fraud. b. The policy will be voided and the premiums refunded plus interest. c. The insurance company will sue the policy owner. d. The policy will be voided and the premiums refunded without interest.

a. Nothing. Once the contestable period has passed, the policy is incontestable, even for fraud.

The Conversion Provision in a Term policy allows the Insured to: Select one: a. Obtain Whole Life insurance b. Increase the death benefit c. Change the beneficiary d. Decrease the death benefit

a. Obtain Whole Life insurance

Which of the following dividend options purchases fully paid whole life insurance on a net single premium basis? Select one: a. Paid Up Additions Option b. Accumulate at Interest Option c. Term Insurance Option d. Reduction of Premium Option

a. Paid Up Additions Option With the Paid Up Additions Dividend Option, each year the Insured will receive a smaller paid-up Whole Life policy with a single premium. It is called a single "net" premium because the producer gets no commission on the policy.

Jay has a Limited Pay Whole Life policy. An advantage of this policy is that it permits Jay to: Select one: a. Pay premiums only for a predetermined time b. Pay a lower premium than with a Straight Life policy

a. Pay premiums only for a predetermined time

The owner of a Term policy neglected to pay the annual premium due on March 1. On March 5th, the Insured died. How will the Insurer handle the claim? Select one: a. Pay the claim less the premium plus interest b. Deny the claim

a. Pay the claim less the premium plus interest The death occurred within the 31-day Grace Period, so the Insurer has to pay the claim but may deduct the premium payment and interest.

Which rider waives the premiums on a child's policy if the child's parent or guardian becomes disabled and can't make the payments? Select one: a. Payor Benefit Rider b. Waiver of Premium rider

a. Payor Benefit Rider

What happens when the grace period expires with a Whole Life Policy? Select one: a. The insurance policy lapses. b. The insurance policy expires. c. The insurance company will send a past due notice. d. The insurance policy matures.

a. The insurance policy lapses.

Which of the following statements regarding conversion of a Term Life policy from a Group plan to an individual policy is correct? Select one: a. The new converted policy will likely be Whole Life. b. The new converted policy is required to be Term Life, the same as the Group policy.

a. The new converted policy will likely be Whole Life.

A Guaranteed Insurability Rider will allow an Insured to purchase additional insurance upon each of these events EXCEPT: Select one: a. Marriage b. Reaching age 75 c. Birth of a child d. Adoption of a child

b. Reaching age 75

The Entire Contract Provision: Select one: a. States that both the policy and the application are part of the contract. b. Entitles the applicant to review the entire contract prior to paying the first premium.

a. States that both the policy and the application are part of the contract.

A "Last to Die" policy is known as a: Select one: a. Survivorship Life Policy b. Term Life Policy c. Long Term Care Policy d. Joint Life Policy

a. Survivorship Life Policy

ABC Corp. purchases a Key Person Life policy on Suzanne. Each of the following is true EXCEPT? Select one: a. Suzanne determines who will be the beneficiary. b. ABC Corp. is the beneficiary. c. ABC Corp. is the owner of the policy and the payor. d. Suzanne is the Insured and must give consent by signing the application.

a. Suzanne determines who will be the beneficiary.

Which type of insurance is used to pay a mortgage debt if the owner dies? Select one: a. Term b. Whole Life

a. Term

Which policy provides a death benefit but no living benefit? Select one: a. Term Life b. Whole Life

a. Term Life

What document becomes part of the contract and includes information about the Insured? Select one: a. The Application b. The Insuring Clause c. The Policy d. The Riders

a. The Application Although the rider and the application both become part of the contract, only the application contains information about the Insured. Remember, it is the Entire Contract Clause that says that the application is part of the policy.

Which provision states that documents kept at the Insurer's home office may not be referenced as part of the policy? Select one: a. The Entire Contract Clause b. The Consideration Clause c. The Free Look Clause d. The Incontestable Clause

a. The Entire Contract Clause

Which provision states that the application, if attached, is part of the contract? Select one: a. The Entire Contract Clause b. The Free Look Clause c. The Ownership Clause d. The Insuring Clause

a. The Entire Contract Clause

With a Convertible Term policy, what is required to convert to Whole Life? Select one: a. The Insured must pay a higher premium. b. A conversion fee. c. Proof of insurability. d. Permission from the beneficiary.

a. The Insured must pay a higher premium.

With Renewable Term Life, the annual premium increases with each renewal for which of the following reasons? Select one: a. The Insured's attained age has increased. b. A change to the Insured's occupation. c. Changes in the Insured's health. d. Changes to the Insured's credit.

a. The Insured's attained age has increased.

Which provision identifies the parties and defines the scope and limits of coverage? Select one: a. The Insuring Clause b. The Incontestable Clause c. The Entire Contract Clause d. The Ownership Clause

a. The Insuring Clause

Which is true regarding taxation of group life insurance in an employment setting? Select one: a. The beneficiary is not taxed on the death benefits. b. The employer is taxed on the death benefit. c. The employee is allowed to deduct the cost of the premiums. d. The employer is not allowed to deduct the cost of the premiums.

a. The beneficiary is not taxed on the death benefits. With Group Life Insurance policies, the employer usually pays the premiums and gets a business tax deduction for the cost of the premiums. The employees do not get a tax deduction even if they pay all or part of the premiums. The death benefit passes to the beneficiary tax-free. So, the correct answer is "The beneficiary is not taxed on the death benefits."

Who is the payor under a Key Employee Life policy? Select one: a. The business b. The key employee's spouse c. The Insurer d. The key employee

a. The business The business is the applicant, the payor, and the beneficiary in a Key Employee polic

A Whole Life policy's cash value is determined by: Select one: a. The cash value table contained within the policy. b. The Insured's health. c. The premiums paid in. d. The company's investment returns (interest) and expenses.

a. The cash value table contained within the policy.

Which of the following is true of a 15-Pay Whole Life policy? Select one: a. The coverage lasts until the Insured dies or reaches age 100. b. The cash value will equal the face value at the end of 15 years. c. The policy owner will receive the face value at the end of the 15 years. d. The coverage lasts for only 15 years.

a. The coverage lasts until the Insured dies or reaches age 100. 15-Pay Whole Life is simply a whole life policy where the premiums are paid up in 15 years. This increases the amount of the each annual premium, but the cash value still won't equal the face value until age 100. Of course, the Insured is covered to age 100 even though the policy premiums are fully paid in 15 years.

Under an Increasing Term Life Insurance, what will increase over time? Select one: a. The death benefit b. The cash value c. The premium d. The length of the term

a. The death benefit

Which provision in a term policy provides for continued term insurance coverage? Select one: a. renewability provision b. conversion provision

a. renewability provision

The Entire Contract Clause says: Select one: a. The policy plus the application, if attached, constitute the entire agreement. b. The customer has the right to review the entire policy and return it for any reason within 10 days. c. The company does not have to pay a claim unless the customer can present the policy at the time of loss. d. The policy plus the application and any further correspondence received from the agent constitute the entire agreement.

a. The policy plus the application, if attached, constitute the entire agreement.

Under which of the following circumstances may a policy be reinstated? Select one: a. The policy was a Whole Life policy and the Extended Term Insurance Nonforfeiture Option was used. b. The policy was a Whole Life policy and was surrendered for its cash value. c. The policy was a Term policy and was cancelled only one month ago. The Insured has no health issues. d. The policy was a Whole Life policy and an automatic premium loan was issued to prevent lapsation.

a. The policy was a Whole Life policy and the Extended Term Insurance Nonforfeiture Option was used.... Term policies often lack a reinstatement provision. With a whole life policy, if the Insured has "severed the sheets" by taking the cash and running, the Insurer will not permit reinstatement. If there was an Automatic Premium Loan provision, there probably wasn't a lapse and thus there would be no need for reinstatement.

Which statement best describes the settlement options feature in a policy? Select one: a. The various choices the policy owner has in deciding how the death benefit will be distributed to the beneficiary. b. The various choices the policy owner has in deciding how the cash value will be handled if the policy is surrendered or lapses. c. The method by which a policy owner may convert a Term policy to a Permanent policy and the restrictions. d. The agreed method by which the insurance company and the client will settle disputes.

a. The various choices the policy owner has in deciding how the death benefit will be distributed to the beneficiary.

A Payor Benefit Rider specifies which of the following? Select one: a. When the Insurer will pay the premiums b. When the Insurer can increase the amount of the premiums c. When the premiums will be tax deductible d. When the death benefit will be paid

a. When the Insurer will pay the premiums The Payor Benefit Rider requires the Insurer to pay the premiums if the Insured dies or becomes disabled. So, surprisingly, this is the answer.

The Free Look period begins at what time? Select one: a. When the policy is delivered. b. When the policy is issued.

a. When the policy is delivered.

Which type of insurance is most likely used for either a Joint Life policy or a Survivorship Life policy? Select one: a. Whole Life b. Decreasing Term c. Term d. Increasing Term

a. Whole Life Both the Joint Life and the Survivorship Life policies are always Whole Life. There is no way Nancy would let me buy a Joint Life policy as term insurance because I could die AFTER the term policy expires. This is one situation where Term Insurance would not be appropriate.

The Insurer discovers that an Insured had misstated age or gender on the application. If the policy has already been delivered, the Insurer may: Select one: a. adjust the benefits regardless of when the misstatement is discovered. b. adjust the benefits only if the misstatement is discovered within the 2-year time limit. c. contest the policy if the misstatement is discovered within the 2-year time limit. d. contest the policy.

a. adjust the benefits regardless of when the misstatement is discovered.

A policy loan is actually made: Select one: a. by the Insurance Company itself. b. from the policy's cash value.

a. by the Insurance Company itself. The Insurance Company doesn't take the money out of the cash value account. Instead, the Insurance Company loans the Insured other company funds. If the loan was actually taken out of the cash value account, the account wouldn't grow that year and the cash value table would have to be changed. This is a key exam point.

When comparing Ordinary Life with Limited Pay Life, the Limited Pay Life Policy: Select one: a. has a shorter premium payment schedule b. has a unique death benefit

a. has a shorter premium payment schedule

**Interest Settlement Option** For example, a policy owner could state that only the

accumulated interest be available for withdrawal until the beneficiary reaches age 25 and then the actual death benefit becomes avail- able for withdrawal. Or the policy owner might state that $2,500 will be available for withdrawal each month until the death ben- efit and interest have all been withdrawn. The Interest Settlement Option provides the most flexibility for the owner.

The Accelerated Death Benefit Rider also called the Living Benefit Rider grants the Insured access to part of the policy's death benefit while still alive if the Insured:

acquires a terminal illness: contracts any of several specified diseases: or requires nursing home care. This benefit is usually expressed as a percentage of the face value (often 50 percent), and any payments made while the Insured is alive will be deducted from the death benefit that is eventually paid.

Misstatement of Age or Gender Clause is grounds for

adjusting the face value of a policy, even if the contestable period has passed. As with most things, the Incontestable Clause has some exceptions. Age and gender are two pieces of information that are not covered by the Incontestable Clause. Age and gender remain forever contestable because errors in these areas are common and because these two factors can be crucial in computing the proper premium. Regardless of when the mistake is discovered, the company will adjust the death benefit accordingly to the amount the premium would have purchased at the correct age or gender.

The insurance company will likely cover all

all aviation deaths except those 31 involving student pilots, stunt pilots, and military pilots

New point not in the text: Most states now limit Group Life dependent coverage to 50% of the coverage purchased by the employee. Question: An employee has a $10,000 group life policy. The employee's dependent spouse may purchase a group life policy with a maximum death benefit of: Select one: a. $0 b. $5,000 c. $10,000 d. $20,000

b. $5,000 New Point: NAIC recommended legislation proposes that each state limit the amount of Employee Group Life that dependents may purchase to 50% of the amount purchased by the employee.

Under federal tax laws, employers may deduct the cost of employee life insurance. However, employees must declare the cost of employee life insurance as taxable income if the amount of the group policy exceeds: Select one: a. $25,000 b. $50,000 c. $75,000 d. $100,000

b. $50,000 Congress requires the employee to pay taxes on the portion of the life insurance premium used to purchase more than a $50,000 death benefit.

Under the Waiver of Premium Rider, how many months must a policy owner be totally disabled before the insurance company will waive the premiums? Select one: a. 3 Months b. 6 Months c. 9 Months d. 12 Months

b. 6 Months Memorization time again. The Waiver of Premium Rider waives the premium if the Owner becomes totally disabled and the 6-month Waiting Period has expired. The Insurer will then refund the premiums paid during the 6-month waiting period and waive future premiums as long as the total disability continues.

A grandparent purchases a $1,000 Whole Life insurance policy for a two-year-old grandchild. The producer should suggest including in the policy: Select one: a. An Aviation Rider b. A Guaranteed Insurability Rider c. A Cost of Living Rider d. A Return of Premium Rider

b. A Guaranteed Insurability Rider A review from an earlier chapter: A $1,000 Whole Life Policy provides inadequate coverage. The Guaranteed Insurability Rider will permit the child to purchase additional insurance at future set times. The problem with the Cost of Living Rider is that it will only maintain the buying power of the $1,000 policy - a policy that is simply too low to begin with.

Which policy will require the highest premium check? Select one: a. A 30-Pay Life Policy b. A Single-Pay Whole Life Policy c. A Straight Life policy d. A 15-Pay Policy

b. A Single-Pay Whole Life Policy

Which of the following does NOT constitute third party ownership? Select one: a. An employer purchases a group Life Insurance policy to cover the employees. b. A business owner purchases a Life policy to protect her family in case she dies. c. A parent purchases a policy on his child. d. A Key Employee Life Insurance policy.

b. A business owner purchases a Life policy to protect her family in case she dies. Third Party Ownership simply means that the policy is owned by someone other than the Insured. In all of the situations listed, someone other than the Insured owns the policy EXCEPT where the business owner purchases life insurance on herself. In that case, we have First Party Ownership because the owner and the Insured are the same person

ABC Corp. purchases a Key Person Life policy on John. John leaves ABC Corp. to work for XYZ Corp. and dies 10 years later and the policy is still in force. Who is entitled to the death benefit proceeds? Select one: a. XYZ Corp. b. ABC Corp. c. John's estate. d. John's wife.

b. ABC Corp. A Key Person Life Insurance policy protects the business in the event that a Key Person (usually employee) should die. The company/owner must have an insurable interest in the Key Person only when the policy is delivered, not at the time of death. So, the company/owner collects the death benefit even if the Key Person is no longer employed by the company.

Which of the following dividend options would result in an increase in taxable income for the policy owner? Select one: a. Paid Up Additions b. Accumulate at Interest c. Reduction of Premium d. Cash

b. Accumulate at Interest The IRS taxes you on money you have earned. The only choice where the Insured "earned" money is the "Accumulate at Interest" option. Only the interest is taxed because the dividend itself is considered to be a return of excess premium.

If the policy owner misstates his or her age on the application, the company will: Select one: a. Pay the claim. b. Adjust the claim. c. Deny the claim. d. Avoid paying the claim unless the beneficiary sues.

b. Adjust the claim.

To borrow against a Permanent Life policy's cash value, the policy owner must: Select one: a. Agree to a repayment schedule. b. Agree to be charged interest on the loan balance. c. Provide collateral. d. Disclose the reason for taking the loan.

b. Agree to be charged interest on the loan balance.

The Free Look clause: Select one: a. Allows the Applicant to review the policy terms prior to the effective date of coverage. b. Allows the Insured to get a full refund by returning the policy. c. Requires the Insured to provide a written explanation for cancelling the policy. d. Requires the Insurer to provide coverage prior to the time the applicant pays a premium.

b. Allows the Insured to get a full refund by returning the policy.

Which of the following statements regarding the Automatic Premium Loan Provision is true? Select one: a. Any loan must be repaid within 90 days. b. It is designed to prevent the policy from lapsing by using the cash value as collateral for a premium loan. c. No interest may be charged under this provision. d. The provision is allowed only found in Term Life policies.

b. It is designed to prevent the policy from lapsing by using the cash value as collateral for a premium loan.

What happens to the premium over the course of a Decreasing Term policy? Select one: a. It increases. b. It remains level and fixed. c. It decreases. d. None of the above.

b. It remains level and fixed.

Which policy would you recommend to a husband and wife who want to buy just one Life Insurance covering both, and want the policy to pay when the first spouse dies?

b. Joint Life If we want only one policy, the only choice in the list is the Joint Life policy. It covers both spouses with only one policy. It pays when the first spouse dies (unlike a Survivorship Life policy which pays only upon the death of the second spouse).

A "First to Die" policy is known as a: Select one: a. Long Term Care Policy b. Joint Life Policy c. Survivorship Life Policy d. Term Life Policy

b. Joint Life Policy A "First to Die" policy is used to cover both spouses with one policy. It will pay when the first spouse dies. This is to be contrasted with the Survivorship Life policy which also covers both spouses but only pays when the second spouse dies (primary use to pay estate taxes that only apply when the second spouse dies). And, new points: The surviving spouse (Nancy) no longer has to continue paying the premiums after Jack dies. Also, Nancy will want this to be a whole life policy, rather than a term policy that could expire before Jack's death.And, another new point, an Insurer will charge more for a Joint Life policy than a Survivorship Life policy because (all things being equal), the couple will make more payments with a Survivorship Life policy. The surviving spouse will continue to make payments under a Survivorship Life policy.

Molly quit her job at the factory. The factory had provided a Group Life policy covering Molly, husband Hank, and their daughter Emily. Which is true regarding the issue of conversion to an individual policy? Select one: a. Only the employee (Molly) has the right to convert to an individual Term policy. b. Molly, Hank, and Emily may, within a set time, request to convert to individual Whole Life Policies. c. Conversion is not permitted with group life policies; however, each family member may continue to be a member of the group. d. Each family member has a set time to convert to an individual Term policy.

b. Molly, Hank, and Emily may, within a set time, request to convert to individual Whole Life Policies. Upon termination of Group Life coverage, each covered family member may convert to an individual whole life policy within a set time. The time is 31 days if they were notified promptly of the conversion right; 60 days if they were not promptly notified. The Insurer will require that the converted policies be whole life rather than term.

Which of the following statements IS true? Select one: a. Stock companies are known as participating companies. b. Mutual companies are known as participating companies. c. Dividends paid by stock companies represent a refund of overcharged premiums. d. Mutual companies always pay dividends.

b. Mutual companies are known as participating companies.

A policy owner who has a Convertible Term policy wishes to convert to Whole Life. Will proof of insurability be required? Select one: a. Yes. b. No.

b. No. We want to encourage clients to switch from Term Insurance to the better Whole Life policy. The Insurer knows that clients who are in such poor health that they are likely to die soon won't bother to buy the more expensive Whole Life policy. Thus, no evidence of insurability will be required to convert from Term to Whole Life. However, the Insurer will usually require this decision to be made in the first few years rather than when the Term policy is nearing expiration.

Which of the following Term policies would cost the least? Select one: a. Non-renewable and convertible. b. Non-renewable and non-convertible. c. Renewable and non-convertible. d. Renewable and convertible.

b. Non-renewable and non-convertible.

Which of the following deals with the policy owner's equity in a policy? Select one: a. Beneficiary Designation b. Nonforfeiture Options c. Dividend Options d. Settlement Options

b. Nonforfeiture Options Equity refers to the owner's value of ownership - that is, the cash value account.

What happens during the grace period? Select one: a. The Automatic Premium Loan Provision will cover the premium. b. Nothing changes. c. The policy remains in effect, but the policy owner cannot make any changes until the premium is paid. d. The policy becomes inactive so no death benefit will be paid, but it does not lapse.

b. Nothing changes.

Which of the following riders would waive premiums on a minor's policy if the parent or grandparent who pays the premium dies or becomes disabled? Select one: a. Cost of Living Rider b. Payor Benefit Rider c. AD&D Rider d. Waiver of Premium Rider

b. Payor Benefit Rider

Reinstatement of a lapsed whole life policy requires each of the following EXCEPT: Select one: a. Application for reinstatement within 3 years b. Prepayment of the next year"s premium c. Payment of past premiums, loans, and interest d. Proof of insurability

b. Prepayment of the next year"s premium

Key Person Life Insurance is designed to do which of the following? Select one: a. Provide extra compensation to an employee who dies unexpectedly. b. Protect the company in case an insured employee dies prematurely. c. Protect the surviving spouse in case the Insured dies. d. Protect a creditor in case the Insured dies.

b. Protect the company in case an insured employee dies prematurely. Key Person Life Insurance protects the business when one of its key employees dies. The premium is paid for by the company and the company is the beneficiary. The key employee's family gets nothing. New Point: Key Person life insurance generally indicates that the company is well run, resulting in a better credit rating as well as a higher stock price (in theory).

Bill and his wife June are very successful doctors. They are worried about estate taxes. They should:

b. Purchase a Survivorship Life policy for the amount of estate taxes they expect will be due when they die. Purchase a Survivorship Life policy for the amount of estate taxes they expect will be due when they die. They want a whole life policy that will pay when the second dies. That is when the death tax will kick in. New Point: Because the surviving spouse continues to pay the premium after death of the first spouse, these policies are cheaper (all things considered) than a Joint Life Policy.

Agnes quit her job on March 3rd and her group life coverage terminated on that date. Her company does not inform her of her right to convert her Group Life policy. On April 10th Agnes applies for conversion. What will happen? Select one: a. The conversion privilege is no longer available because she waited too long. No policy will be issued. b. She will be issued a standard Whole Life policy for the original face amount because she made the request within the 60 day limit. c. Agnes has the right to convert to an individual Term policy. d. Agnes may continue to be a member of the group but she will have the pay 100% of the premium for the Group Term policy.

b. She will be issued a standard Whole Life policy for the original face amount because she made the request within the 60 day limit. If her employer failed to notify her of her conversion right, she has 60 days from termination to choose to convert the policy to an individual policy. The Insurer will require Agnes to purchase a whole life rather than a term policy, however. If Agnes had been promptly notified of her right to convert, she would have had only a 31-day conversion privilege. Even if she converts, Agnes is no longer considered to be a member of the group.

Which involves a life policy used to provide funds to purchase the stock of a deceased shareholder? Select one: a. Deferred Compensation Plan b. Stock Redemption Plan c. Split Dollar Plan d. Key Person Life Insurance

b. Stock Redemption Plan The Stock Redemption Plan allows the business to "redeem" the stock from the estate of the deceased shareholder. This is an example of the use of a Buy-Sell Agreement in a Business Continuation Plan.

Which policy will have the lowest annual premium for a 40-year old applicant? Select one: a. Life Paid at 65 b. Straight Whole Life c. 10-Pay Life d. 20-Pay Life

b. Straight Whole Life The policy that requires payments over the longest period of time would have the lowest annual premium. The Insured must either pay a little bit each year to age 100 or pay more each year but make payments for fewer years. On the other hand, if it is paid up early, the annual payments will be higher. The Straight Whole Life policy requires the Insured to potentially pay to age 100 - thus it will have the lowest annual premium but will require the greatest total payment over the life of the policy.

T purchased a life insurance policy covering him and he named his new bride as the beneficiary. Twenty years later, T obtained a divorce. He then transferred ownership of the policy to his daughter. Soon thereafter, T mysteriously died. Who will receive the policy proceeds? Select one: a. T's Estate b. T's ex-wife c. T d. T's daughter

b. T's ex-wife Although the ownership of the policy was transferred to the daughter, there is no evidence that the daughter ever changed the beneficiary. Thus, the proceeds will be paid to the ex-spouse.

An agent misrepresents the benefit levels under a policy. Which provision provides the insurance company the most protection? Select one: a. The Ownership Clause b. The Entire Contract Clause c. The Free Look Clause d. The Insuring Clause

b. The Entire Contract Clause One of the things specified in the Entire Contract Clause is that the Insurer isn't bound by statements made by the producer. The Insured can rely only on what is in the "Entire Contract." If it weren't for the Entire Contract Clause, I could claim that the producer promised me a free dinner in Hawaii on each of my birthdays. Sorry, no free dinners and no free trip to Hawaii.

The Accelerated Death Benefit will pay up to 50% of the face value in which situation? Select one: a. The Insured dies within 2 years after the policy is issued. b. The Insured becomes totally disabled and is confined to a nursing home.

b. The Insured becomes totally disabled and is confined to a nursing home.

After the contestable period has passed, a Life policy is contestable under which of the following circumstances? Select one: a. Misrepresentation. b. The Insured fails to pay the premium. c. Concealment. d. Fraud.

b. The Insured fails to pay the premium.

All of the following must sign an application for Key Employee Life Insurance EXCEPT: Select one: a. The Key Employee b. The Insurer c. The applicant d. The Agent

b. The Insurer The agent/producer always signs the agent's statement portion of the application. The applicant also signs the application. Because Key Employee Life Insurance is an example of Third Party Ownership, the key employee is also required to give written consent to being insured by signing the application. So, the Insurer doesn't sign the application but would sign the policy.

What are the tax consequences of dividends paid by mutual companies? Select one: a. The dividend is only taxable if taken as cash. b. The dividends are not taxable. c. The dividends are taxable in the year they are paid. d. The dividend is not taxable until the policy matures.

b. The dividends are not taxable. Policy dividends paid by a mutual insurance company are considered to be merely a return of excess premium paid to the Insurer. Thus, this is not income and is not taxed unless the Insurer pays interest on the dividend.

If Jenny lies about her age on her Life Insurance application and dies one month later, what will happen? Select one: a. The insurance company will deny the claim and refund the premiums paid without interest. b. The insurance company will adjust the death benefit to reflect the amount of insurance that the premium actually would have purchased. c. The policy will be voided for fraud. d. The insurance company will deny the claim and refund the premiums paid plus interest.

b. The insurance company will adjust the death benefit to reflect the amount of insurance that the premium actually would have purchased.

What happens when a policy is continued under the Automatic Premium Loan Rider? Select one: a. The grace period is extended. b. The policy remains in force, however the death benefit will be reduced by the loan debt. c. The policy will not be eligible for dividends. d. The policy is converted to an AD&D policy.

b. The policy remains in force, however the death benefit will be reduced by the loan debt.

What changes over the course of a Modified (Graded) Premium Whole Life policy? Select one: a. The premium decreases. b. The premium increases. c. The death benefit increases. d. The cash value decreases.

b. The premium increases. Ah, yes, an exception to every rule. I have repeatedly said that the premium is level and fixed. The Graded Premium (Modified) Whole Life Policy is the first exception - here we have low premiums in the early years and higher premiums at a later set time.

Each is true about paid up additions EXCEPT? Select one: a. They are Whole Life policies. b. They are not the automatic (default) dividend option selection. c. They may generate dividends. d. They are purchased on a net single premium basis.

b. They are not the automatic (default) dividend option selection.

What is the contestable period for Group Life? Select one: a. Sixty days b. Two years c. Four years d. Three years

b. Two years Group life policies have a 2-year contestable period. If fraud or misrepresentation is discovered after that date, the "statute of limitations" has passed and the Insurer has no right to contest the policy. Note: Looking ahead to Health Insurance, the only time the contestable period will get weird will be with Individual Health policies. So, Individual Life, Group Life, and Group Health will all have the same 2 year contestable period.

Alexa buys a 10-Pay Whole Life policy. Assuming she pays all her premiums, how long will she be covered? Select one: a. Until the end of the 10 year term. b. Until death or age 100.

b. Until death or age 100.

Which of the following riders would result in the premiums being waived if a policy owner becomes disabled? Select one: a. AD&D Rider b. Waiver of Premium Rider c. Guaranteed Insurability Rider d. Disability Rider

b. Waiver of Premium Rider There is no such thing as a "Disability Rider." The Waiver of Premium Rider waives the premiums after 6 months if the Insured becomes totally disabled.

Annie will be required to provide proof of insurability in each situation EXCEPT? Select one: a. When applying for Convertible Term Life. b. When applying for a Group Life plan. c. When applying for Whole Life. d. When applying for Renewable Term Life.

b. When applying for a Group Life plan. Group Life policies almost never require a physical (proof of insurability). The presumption is that if Annie is able to work, she is reasonably healthy and it probably isn't worth the money to require a physical. It also helps that Group Life policies are usually sold for face amounts of $50,000 or less - so the Insurer isn't taking a great risk anyway.

Which policy provides both insurance coverage and a savings benefit? Select one: a. Term Life b. Whole Life

b. Whole Life

A Family Maintenance Policy is a combination of which of the following? Select one: a. Life Insurance and an Annuity b. Whole Life and Level Term c. Whole Life and Adjustable Life d. Whole Life and Decreasing Term

b. Whole Life and Level Term Maintenance keeps us "level," thus level term.

Which of the following dividend options would be of importance to an Insured's tax accountant? Select one: a. paid-up life b. accumulate at interest c. reduced premium d. cash

b. accumulate at interest The "accumulate at interest" dividend option results in an increase in income for the Insured - that would be reportable on the Insured's tax return and would increase the Insured's taxable income.

The purpose of the Suicide Clause is to: Select one: a. cover suicide in all situations. b. eliminate payment of a death benefit in some suicide situations. c. pay a higher death benefit if the Insured commits suicide. d. eliminate payment of a death benefit in all suicide situations.

b. eliminate payment of a death benefit in some suicide situations.

A Survivor policy is most often used: Select one: a. to provide for a surviving spouse. b. for estate planning purposes.

b. for estate planning purposes. "for estate planning purposes" is the correct answer - this is used to pay estate taxes. And, I didn't mention in the video that this will be a whole life policy (not term) and the surviving spouse (Nancy) continues to pay the premium until her death. With a Joint Life policy, there are no other premiums to be paid when Jack dies. Both Survivorship Life and Joint Life will use whole life policies, not Term policies.

Patty works in a job that is very dangerous. Her Life Insurance policy will likely: Select one: a. increase the premium. b. not change her premium if she changes to a less hazardous occupation. c. require new proof of insurability. d. decrease the premium.

b. not change her premium if she changes to a less hazardous occupation. Life Insurance premiums are level and fixed. When we get to Health Insurance, we will see that the Health Insurer can change premiums if the Insured's occupation changes. However, Life Insurance companies don't change the premium with the application because, once the policy is issued, the premium is "level and fixed." The Life Insurer is interested in the hazardous occupation or hobby at the time of application, but not thereafter.

The Insuring Clause spells out the

basic agreement between the Insurer and Insured

The Insuring Clause contains the company's

basic promise to pay, but does not contain the details of the policy (such as specific terms and conditions).

With Key Employee coverage, the business owns the policy. The business is also the

beneficiary. This is another example of third party ownership. The business pays all the premiums and receives the entire death benefit if the Insured dies. In fact, the Insured plays no role whatsoever, except to sign the application to give the business permission to purchase the policy.

Businesses use Split Dollar Plans to

buy Life Insurance on employees as part of an overall compensation package. A Split Dollar Plan represents a way to buy the coverage, rather than a reason for buying it. In this case, the employee and the company join forces to buy insurance on the employee. They share in paying the premiums, and when the Insured dies, the company will share the death benefit with the deceased's beneficiary. A Split Dollar Plan is usually reserved for highly favored executives or movie stars or professional athletes.

With the Additional Paid-Up Insurance Dividend Option, also called the Paid-Up Additions Dividend Option, the owner elects to

buy a miniature paid up Whole Life policy. The dividend is used as a single net premium payment to purchase as much Additional Paid-Up Insurance as the money will buy, given the Insured's attained age. The additional whole life insurance purchased on a single net premium basis is free of sales commissions and administrative expenses. This is the automatic dividend option when no other option is selected.

Under Entity Purchase Plans, the company

buys a Life Insurance policy on each partner (owner). The company pays the premiums, owns the policy, and is the beneficiary. If one of the partners dies, the company uses the death benefit to purchase that share of the business from the estate as agreed in the Buy-Sell Agreement. When the business is a corporation, the Entity Purchase Plan is called a Stock Redemption Plan.

Jenna has a Life Insurance policy with a death benefit of $200,000 and a cash value of $50,000. She takes a maximum policy loan and dies EXACTLY one year later. How much will be paid to her beneficiary? Select one: a. $144,800 b. $147,500 c. $150,000 d. $200,000

c. $150,000 Jenna will be able to borrow only about $48,500 because the Insurer will want to have enough cash in the cash value account to pay back the loan plus the approximately $1,500 interest. Thus, at the end of EXACTLY one year, Jenna will owe the $48,500 plus interest - a total of $50,000.

A Whole Life Policy with an Accidental Death Benefit (ADB) Rider (which is also known as a Double Indemnity Rider) provides $250,000 coverage. The insured died of an accidental drug overdose. The policy will pay: Select one: a. $0 b. $250,000 c. $500,000 d. $1,000,000

c. $500,000

A Whole Life policy provides life insurance only to age: Select one: a. 65 b. 75 c. 100 d. 110

c. 100 It is commonly stated that Whole Life covers the Insured for her or his whole life - however, really the policy only provides coverage to age 100.

What is the standard grace period for Life Insurance policies? Select one: a. 15 days b. 20 days c. 31 days d. 45 days

c. 31 days

Jeremy is interested in purchasing a policy that will pay a lump sum upon his death and provide a stable monthly income for ten years. What should Jeremy purchase? Select one: a. A 10-Year Family Income Policy. b. A Family Policy. c. A 10-Year Family Maintenance Policy. d. A Whole Life policy.

c. A 10-Year Family Maintenance Policy. A 10-Year Family Maintenance Policy will "maintain" the family's standard of living by paying a level amount until the last of kids is out of the nest. Thus, it uses a Level Term rider.

Which of the following would be most appropriate for Mortgage Protection Insurance? Select one: a. A Whole Life policy. b. A 30-year level Term policy. c. A 30-year Decreasing Term policy. d. A 30-year Increasing Term policy.

c. A 30-year Decreasing Term policy.

A stunt pilot is given two options when shopping for Life Insurance. One option is to buy a rated policy, which would cover the aviation risk at a higher premium. The second choice would be to: Select one: a. Delete the Insuring Clause. b. Add an AD&D Rider. c. Add an exclusion rider. d. Add a Multiple Indemnity Rider.

c. Add an exclusion rider.

Sharon has a Life policy and has selected a settlement option that will pay an income to her husband for his life. Which settlement option did she choose? Select one: a. Interest Settlement Option b. Paid up additions c. Annuity Settlement Option d. Cash Settlement Option

c. Annuity Settlement Option

Cora wants to transfer ownership rights in her Whole Life policy to her brother, Mark. What would allow such a transfer? Select one: a. Buy Sell Agreement b. Entire Contract Clause c. Assignment Provision d. Business Continuation Plan

c. Assignment Provision

Each of the following is a dividend option EXCEPT? Select one: a. Reduced Premium b. Additional Paid-Up Insurance c. Automatic Policy Loan d. Accumulate at Interest

c. Automatic Policy Loan The Automatic Policy Loan is a rider that loans the money to pay the premium if the Insured defaults after the 31-day Grace Period. This has nothing to do with the Dividend Options.

Which of the following provisions is optional and cannot be included without the policy owner's consent? Select one: a. Free Look Clause b. Incontestable Clause c. Automatic Premium Loan Provision d. Grace Period Clause

c. Automatic Premium Loan Provision This is a tough question. All of the listed provisions are required by state law except for the Automatic Premium Loan Rider. State law doesn't require this, so it would likely only be included with the policy owner's consent.

Which of the following refers to a "Continuation Agreement" by which business owners agree to purchase the ownership interest of a deceased owner? Select one: a. Coordination of Benefits Agreement b. Split Dollar Plan c. Buy-Sell Agreement d. Termination Agreement

c. Buy-Sell Agreement

The Free Look clause: Select one: a. May be waived by the Insurer. b. May be waived by the Insured. c. Cannot be waived. d. May be waived only if both the Insurer and Insured agree in writing.

c. Cannot be waived.

If an Insured temporarily conveys some of the rights of policy ownership to a lender to help secure a loan, what is this called? Select one: a. Absolute Assignment b. Irrevocable Bequest c. Collateral Assignment d. Revocable Transfer

c. Collateral Assignment This is a temporary collateral assignment. When the debt is paid to the creditor, the creditor will "reassign" the policy's ownership back. Therefore, this is a "temporary" collateral assignment, not a permanent assignment.

What happens to a Whole Life policy when the Insured reaches age 100? Select one: a. All premiums paid are refunded. b. The policy is automatically converted to a Term policy. c. Coverage terminates. d. The policy is automatically renewed for 5 year periods without the need for additional premium payments.

c. Coverage terminates. Coverage terminates, the policy "matures" because the cash value is equal to the death benefit, and the cash value is given to the owner.

If there is an outstanding policy loan at the time of the Insured's death, the Insurer will: Select one: a. Increase the death benefit payment. b. Pay the death benefit. c. Decrease the death benefit payment. d. Cancel the death benefit payment.

c. Decrease the death benefit payment.

Jared forgot to pay his March 1st Life Insurance premium and then died on March 18th. What will the insurance company do? Select one: a. Refund the premiums paid in to Jared's estate. b. Pay the full death benefit to the beneficiary. c. Deduct the past due premium and interest from the death benefit and pay the remainder to the beneficiary. d. Deny the claim because the policy has lapsed.

c. Deduct the past due premium and interest from the death benefit and pay the remainder to the beneficiary.

Which of the following would you recommend to a young professional who currently has a limited income and wants life-long coverage? Select one: a. Renewable Term b. 30-Year Term Life c. Graduated Life d. 15-Pay Whole Life

c. Graduated Life

Which of the following policies may have a level premium for 3-5 years followed by an increase? Select one: a. Straight Life, also known as Ordinary Life b. 5-Pay Life c. Graduated Life, also known as Modified Life d. Term

c. Graduated Life, also known as Modified Life

What is the purpose of the Automatic Policy Loan Provision? Select one: a. Provides an automatic policy loan if the owner enters the hospital. b. Makes loans available to the policy owner for home improvements. c. Helps prevent policy lapsation if the policy owner fails to pay the premium. d. Makes a loan available to the policy owner to pay for a home purchase or a child's education.

c. Helps prevent policy lapsation if the policy owner fails to pay the premium.

Janet was issued a Life Insurance policy six years ago. Under which of the following situations is Janet's policy "contestable?" Select one: a. The insurance company uncovers a misrepresentation on the original application b. Janet moves to a different state than the state where the policy was issued c. Janet ceases to pay premiums d. Janet is diagnosed with a terminal illness

c. Janet ceases to pay premiums

A Family Maintenance policy combines a Whole Life policy with: Select one: a. Decreasing Term b. Increasing Term c. Level Term d. Variable Life

c. Level Term My memory "device" is that maintenance keeps us even, that is, level.

A policy owner who has taken a loan must pay back what portion of the loan prior to death? Select one: a. At least 50 percent. b. The entire balance including principal and interest. c. None. d. At least 80 percent.

c. None. None is the best answer because the balance plus interest will simply be deducted from the death benefit. It does not have to be repaid prior to death.

Karen owns a Life Insurance policy with a Waiver of Premium Rider with a six month waiting period. Karen has been partially disabled for six months. What will the company do? Select one: a. Begin sending a monthly income benefit to the Insured. b. Refund the last six month's premiums, waive future premiums, and discontinue coverage. c. Nothing. d. Refund the last six month's premiums, waive future premiums, and continue coverage.

c. Nothing.

With regard to taxation and policy dividends, which of the following statements is true? Select one: a. Because dividends are guaranteed in the policy, the taxes are typically paid in advance. b. Dividends represent income and are therefore taxed. c. Only the accumulated interest portion of the dividends will be taxed. d. Dividends represent a distribution of profit and are taxed as capital gains.

c. Only the accumulated interest portion of the dividends will be taxed.

To reinstate a policy, the policy owner must do each of the following EXCEPT: Select one: a. Prove insurability. b. Pay the overdue premiums plus interest. c. Pay a reinstatement fee. d. Submit a reinstatement application.

c. Pay a reinstatement fee.

Who has the right to assign a policy? Select one: a. Insurance Company b. Insured c. Policy Owner d. Agent

c. Policy Owner

Each of the following is true of policy dividends EXCEPT? Select one: a. Policy dividends are not taxable income. b. Policy dividends can never be promised. c. Policy dividends are a distribution of profits. d. Policy dividends represent a refund of premium.

c. Policy dividends are a distribution of profits.

What type of rider would you purchase if you wanted the cash value to be returned to your beneficiary along with the death benefit upon your death? Select one: a. Increasing Term Rider b. Level Term Rider c. Return of Cash Value Rider d. Return of Premium Rider

c. Return of Cash Value Rider An Insured who wants to have the beneficiary receive the cash value would request a Return of Cash Value Rider. Because the cash value increases each year, the Insured would be an Increasing Term Rider to cover the increasing cash value.

Under which of the following circumstances is a person most likely to be eligible for reinstatement? Select one: a. Howie surrendered his policy six years ago and is still covered under his Extended Term Insurance Nonforfeiture Option. b. Leslie cancelled her Term policy six months ago. c. Stan surrendered his Whole Life policy one year ago and opted for the Reduced Paid-Up Insurance Nonforfeiture Option. d. Jan surrendered her policy two months ago and took the Cash Nonforfeiture Option.

c. Stan surrendered his Whole Life policy one year ago and opted for the Reduced Paid-Up Insurance Nonforfeiture Option.

Which will protect a 30-year old to age 100 with the lowest annual premium? Select one: a. 10-Pay Whole Life b. 15-Pay Whole Life c. Straight Life d. 20-Pay Whole Life

c. Straight Life

Adam purchases a life policy at age 50 and lives to be 100. Which policy type will require the highest total premium outlay? Select one: a. Paid Up at 65 b. 20-Pay Life c. Straight Life d. 10-Pay Life

c. Straight Life Adam will pay the highest total premium outlay with a Straight Life policy because he will pay to age 100. The other policies will all be paid up at an earlier date and have more premium in the cash value account to grow to achieve the face value by age 100.

Which is the only one of the three Nonforfeiture Options that will result in a cash value account that will continue to grow? Select one: a. cash b. extended term c. reduced paid-up

c. reduced paid-up With the "reduced paid-up insurance" Nonforfeiture Option, we convert the lapsed whole life policy to the smaller paid-up whole life policy. The new reduced paid-up policy is a whole life policy that will have its own cash value account that will grow each year at its guaranteed rate. If we choose to take the cash and run or choose extended term as the Nonforfeiture Option, there is no cash value account at all. Thus, there can only be continued cash value account growth if we select "reduced paid-up" as our Nonforfeiture Option.

What automatically happens if an Insured fails to pay the interest on a whole life policy's loan when due? Select one: a. the policy lapses. b. the policy is converted to a term policy. c. the interest due is added to the loan amount. d. death coverage is suspended until the interest is paid.

c. the interest due is added to the loan amount.

Nonforfeiture Options dictate what will happen to the

cash value of a Permanent policy if the policy is surrendered or lapses. Extended Term Insurance is the automatic choice.

The Aviation Rider covers stunt, student, and military pilots by

charging a higher premium (a rated policy)

Optional provisions may be included at the

company's choice

ABC Corp. purchases a Key Person Life policy on Suzanne. Each of the following is correct EXCEPT? Select one: a. ABC Corp. is the beneficiary. b. ABC Corp. is the owner of the policy and the payor. c. Suzanne is the Insured and must give consent by signing the application. d. ABC Corp. is the assignee of the policy.

d. ABC Corp. is the assignee of the policy. With Key Person Life Insurance, the key person gets nothing. This is an example of third party ownership. The business owns the policy, pays the premium, names itself as the beneficiary, and receives the death benefit. There is no assignee because the policy hasn't been transferred.

A Guaranteed Insurability Rider: Select one: a. Allows the policy owner to increase the face value at a reduced premium rate with proof of insurability. b. Allows the policy owner to increase the face value at any time without proof of insurability. c. Allows the policy owner to cover additional family members under the same policy. d. Allows the policy owner to increase the face value at set intervals without proof of insurability.

d. Allows the policy owner to increase the face value at set intervals without proof of insurability. A Guaranteed Insurability Rider is a key exam concept. Under this rider, the Insured can purchase more insurance at set future times. The key point is that the purchases may be made without proof of insurability. This is a great rider to have if the Insured wants more insurance at the time of marriage, or when children are born, or at set ages, etc. The Guaranteed Insurability Rider is very commonly included in the policy parents or grandparents purchase for the newborns.

Which of the following statements about an exclusion rider is true? Select one: a. An exclusion rider adds to a policy's coverage. b. Exclusion riders allow an applicant to promise never to do certain activities in exchange for a lower rate. c. Exclusion riders make a policy less affordable for people with certain risk factors. d. An exclusion rider eliminates some coverage and reduces the cost of the policy.

d. An exclusion rider eliminates some coverage and reduces the cost of the policy.

A Payor Benefit Rider will pay the policy's premiums: Select one: a. As long as the Producer is disabled. b. For the life of the Insured, regardless of whether the payor dies or becomes disabled. c. As long as the Insured is disabled. d. As long as the payor is disabled but only until the Insured reaches the specified age.

d. As long as the payor is disabled but only until the Insured reaches the specified age.

Which of the following would help a small hardware store continue its business after the death of one of three owners? Select one: a. Split Dollar Plan b. Deferred Compensation Plan c. Subrogation d. Buy-Sell Agreement

d. Buy-Sell Agreement The Buy-Sell agreement is simply one provision in the larger Business Continuation Plan. So, either "Buy-Sell" or "Business Continuation Plan" could be an answer to this question. One of the problems with the exam is that often there can be half a dozen possible answers - hopefully the test writers will only have one of these in the answer list. If they have more than one correct answer, go with the answer that is the most specific response to the question.

A life policy pays the face amount when the policy: Select one: a. Ends b. Is surrendered c. Lapses d. Endows

d. Endows When the whole life policy endows, the cash value account has grown to the point that it equals the death benefit. This is designed to happen at age 100. At that time, the Insurer pays the face value to the Insured. The 100 year old Insured is taxed on the difference between the face value and the amount of premiums paid. Remember that if the policy endows prior to age 100, the policy is known as an Endowment Policy.

At the end of the policy term, a Term Life policy will: Select one: a. Mature. b. Lapse. c. Convert. d. Expire.

d. Expire.

Under what circumstances can a policy owner exercise the Free Look Provision? Select one: a. Only if the agent misrepresented the policy terms. b. Only if the underwriting process takes more than four weeks and the Insured's mind has changed. c. Only if the Insurer misrepresented the policy terms. d. For any reason as long as it is within the specified time period.

d. For any reason as long as it is within the specified time period.

To reinstate a policy, the policy owner must do each of the following EXCEPT: Select one: a. Pay the overdue premiums plus interest. b. Prove insurability. c. Submit a reinstatement application. d. Go through another contestable period on the original application.

d. Go through another contestable period on the original application.

Which of the following would be a good policy for a new college graduate who expects her income to increase significantly over the next few years and will have student loans paid off soon? Select one: a. Increasing Term b. Straight Life c. Decreasing Term d. Graduated (Modified) Premium Life

d. Graduated (Modified) Premium Life The struggling recent college graduate would opt for the lowest premium in the early years and then have the payments increase as the graduate's earning increase. That is exactly what a Graded Premium life policy does. Watch out! A Graded Premium life policy is sometimes called a Modified Life policy.

Which provision allows a policy owner to increase the face value at specified intervals without proof of insurability? Select one: a. Renewal Provision. b. Conversion Provision. c. Payor Benefit Rider. d. Guaranteed Insurability Provision.

d. Guaranteed Insurability Provision. Discussion: The perfect place to include a "Guaranteed Insurability Rider" is in a policy parents might buy for a newborn. The parents often want a low-cost policy (which means there will only be a modest face value) but the parents want the newborn to be able to increase the amount of insurance at a particular age (without having to pass a physical), or at other key times, such as when getting married or having a child. The Guaranteed Insurability Rider permits the Insured (the newborn) to buy more life insurance at a later time - even if the child is later "uninsurable" due to an illness. Absolutely for sure you will have a Guaranteed Insurability Rider question on your exam. Remember that the policy purchased for the newborn will also likely include a Payor Benefit Rider to pay the premiums to a set age if the parents die or become disabled. Our test writers know that a weak student won't know what either of these provisions are and they can't be understood without some memorization. Go get 'em!

What is used to create a Return of Cash Value Rider? Select one: a. Double Indemnity Rider b. Decreasing Term Insurance c. Straight Life d. Increasing Term Insurance

d. Increasing Term Insurance

What is used to create a Return of Premium Rider? Select one: a. Decreasing Term Insurance b. Universal Life c. Ordinary Life d. Increasing Term Insurance

d. Increasing Term Insurance

A Family Maintenance Policy: Select one: a. Combines Increasing Term and Whole Life. b. Requires a securities license to sell. c. Involves Decreasing Term. d. Is a combination of Whole Life and Term.

d. Is a combination of Whole Life and Term. "Is a combination of Whole Life and Term" is the "best" answer. Although we know that the Term Policy is really a Level Term Policy, it is perfectly correct to say that a Family Maintenance Policy is a combination of Whole Life and Term. This typical of what test writers love to do. They know that you are inclined not to mark this answer because it isn't perfect, even though it is "best" among the four choices. I remember that the Family Maintenance Policy "maintains" the family's lifestyle. So, it provides Whole Life for its primary coverage but uses Level Term to "maintain" the family's income level regardless of how many kids are still living at home when the breadwinner dies. Remember that it is the Family Income Policy that includes Whole Life and Decreasing Term - it will pay a smaller amount each year if the main breadwinner dies while kids are still living at home.

If an applicant for Life Insurance wishes to waive the Free Look Clause, what should be done? Select one: a. The waiver must be approved by the state Insurance Commissioner. b. The applicant must be give a discount. c. The applicant will need to sign a waiver. d. It is not possible to waive a required provision.'k

d. It is not possible to waive a required provision. State law requires that every life policy have a Free Look provision. Because it is required by state law, it can't be waived.

What happens to the premium over the life of an Increasing Term policy? Select one: a. It decreases. b. It increases by a set amount each year. c. It increases with inflation. d. It remains level and fixed.

d. It remains level and fixed.

Another name used for Decreasing Term Insurance is: Select one: a. Straight Life b. Universal Life c. Ordinary Life d. Mortgage Protection Insurance

d. Mortgage Protection Insurance

Policy loans can only be made for policies that have which of the following options? Select one: a. Beneficiary Designation b. Death Benefits c. Settlement Options d. Nonforfeiture Options

d. Nonforfeiture Options

Which of the following dividend options increases the death benefit at the lowest cost? Select one: a. Cash b. Accumulate at Interest This dividend option doesn't buy any more death benefit coverage. c. Reduced Premium Option d. Paid Up Additions Option

d. Paid Up Additions Option

Which of the following is NOT a nonforfeiture option? Select one: a. Reduced Paid-Up Insurance b. Cash c. Extended Term Insurance d. Paid-Up Additions

d. Paid-Up Additions

A policy owner who wants to borrow against a Whole Life policy's cash value is required to: Select one: a. Name the Insurer as the irrevocable beneficiary b. Name the Insurer as the revocable beneficiary c. Assign ownership of the policy to the lender d. Pay interest on the loan

d. Pay interest on the loan

A grandmother purchases policies for her grandchildren. She should consider purchasing which of the following? Select one: a. Aviation Exclusion Rider b. AD&D Rider c. Aviation Rider d. Payor Benefit Rider

d. Payor Benefit Rider "Payor Benefit Rider" is a memorization term. The Payor Benefit Rider will continue to pay the premiums (usually until age 21) if the "payor" dies or is disabled. Although it wasn't mentioned in the answer list, she may also want to purchase a "Guaranteed Insurability Rider" so that each grandchild will be able to increase the face value of the policy at specified future times.

An Insured wishing to reinstate a policy may be required to furnish all of the following EXCEPT: Select one: a. All missed premiums with interest. b. A reinstatement application. c. Proof of insurability. d. Prepayment of the next premium.

d. Prepayment of the next premium.

A wealthy elderly woman wants to purchase a Life Insurance policy to protect her estate from the government's death tax. She will most likely purchase: Select one: a. Straight Life b. Term Life c. 40-Pay Life d. Single Premium Whole Life

d. Single Premium Whole Life The people who are worried about the death tax are invariable the elderly rich. They can usually afford a single premium policy.

Which of the following policies would have the lowest premium in the first year for a 40 year old? Select one: a. 15-Pay Whole Life b. Paid Up at 55 Whole Life c. 20-Pay Whole Life d. Straight Life

d. Straight Life

Al the agent tells a customer that the insurance company will cover items that are actually excluded in the policy. Which provision makes Al's promise unenforceable? Select one: a. The Incontestable Clause b. The Free Look Clause c. The Insuring Clause d. The Entire Contract Clause

d. The Entire Contract Clause With the Entire Contract Clause, the Insurer is warning the Insured not to believe what the Producer is saying if it conflicts with the policy. The Insured can only rely on the policy terms.

Justin was fired from his job on August 8th and his company promptly informed him on that date that he had the right to convert his Group Term Life policy. On September 24th, Justin decided he would like to convert. What will happen? Select one: a. Justin has made a valid conversion request within the 60-day time constraint and he may select either a Term or a Whole Life policy. b. He will be issued a standard Term Life policy for the original face amount. c. He will be issued a standard Whole Life policy for the original face amount. d. The conversion privilege is no longer available because he waited beyond 31 days. No policy will be issued.

d. The conversion privilege is no longer available because he waited beyond 31 days. No policy will be issued. If a former group member is promptly notified of their conversion right, the individual has only 31 days to request conversion. The Insurer will only issue a Whole Life policy, not a Term policy. In this case, Justin has not made the request within the 31-day time limit so he has lost his right to convert to an individual policy.

How is the settlement handled for a 20-Year Renewable Term policy if the Insured dies in year 15? Select one: a. The policy pays a monthly benefit to the beneficiary for 20 years. b. The policy is automatically converted to a Whole Life policy. c. The death benefit is paid out over the remaining five years. d. The death benefit is paid to the beneficiary upon the Insured's death.

d. The death benefit is paid to the beneficiary upon the Insured's death.

Under a Guaranteed Insurability Rider, the fee paid for the extra insurance is: Select one: a. flexible because the Insured may purchase additional insurance at any time. b. based on the Insured's health at the time the additional coverage is sold. c. based on the Insured's age at the time the original policy was sold. d. based on the Insured's attained age at the time the additional coverage is sold.

d. based on the Insured's attained age at the time the additional coverage is sold. New Point: When the Insured decides to purchase coverage, the premium is based on the Insured's attained age at that time.

Term Life provides nothing but

death benefit coverage for a specified period of time. We call this "pure death protection." EX. Cannot borrow against this policy. Does not have a loan value. Cannot cash it in to get money.

If the Life application contains a Hazardous Occupation or Hobby Clause, the Life Insurer will either:

deny coverage; orexclude coverage for specified occupations or hobbies; or cover the hazardous occupation or hobby, but issue a rated policy (charge more) But, what if an existing Insured decides to take up a hazardous 1 occupation or hobby after being issued a policy? The Hazardous Occupation or Hobby Clause no longer applies - this clause only deals with the original application, not to later occupations or new hobbies. This is not a "Change of Occupation" clause, the Life Insurer doesn't care and doesn't even want to be informed.

Settlement Options

determine how the death benefit is paid to the beneficiary

Dividend Options dictate how a participating Permanent policy's

dividends will be handled. Paid- Up Additions is the automatic choice.

The purpose of the Waiver of Premium Rider is to ensure that a policy

does not lapse if the Insured suffers a disability and cannot work. For a 6 month waiting period after a disability occurs, the Insured is expected to continue paying premiums as usual. When this waiting period ends, the company evaluates the disability and if it is deemed to be total and permanent, the Insured is excused from paying any future premiums, as long as the Insured continues to meet the definition of total disability and remains under the care of a physician. The premiums that were paid during the 6 month waiting period will be refunded.

The Automatic Premium Loan Rider (sometimes called the Automatic Policy Loan Rider) says that if the policy owner

does not pay the premium and the grace period expires, the company will automatically make a loan against the cash value to pay the premium. The premium loan (plus accrued interest) is treated exactly as if the owner borrowed the money. If not re- paid, the balance will be deducted from the policy's cash value or death benefit. If a policy has sufficient cash value, the company may continue to borrow against it to pay premiums. Eventually, the cash value may not be sufficient collateral to support continued premium loans. In this case, the policy will lapse.

Under the Reduced Paid-Up Insurance Nonforfeiture Option, the Insured

exchanges the cash value for a miniature-to-midsized "Reduced Paid-up Whole Life Policy" of the same type as the one that lapsed. The new policy will feature a smaller death benefit than the original policy, but there will be no more premiums to pay. The company simply uses the cash value account to fund a net single premium to purchase a policy with as large a death benefit as the cash will buy, given the Insured's attained 30age.

An Aviation Clause will almost always

exclude aviation loss coverage for student, stunt, and military pilots

Hazardous jobs and hobbies may be

excluded under the Hazardous Occupation (or Hobby) Clause.

The Family Income Policy uses Decreasing Term Insurance to provide

extra coverage on the breadwinner during the years when the breadwinner's income is most crucial (the child rearing years).

With the Additional Insured Term Rider, a Whole Life policy is issued to one

family member, usually the main breadwinner, and Term Riders are attached to that policy to cover the lives of the spouse and children. Convertible Term is used so that the spouse and children may in the future switch their coverage to Whole Life. A Term Rider covering a spouse is called a Spouse's Rider and a Term Rider covering a child is called a Childrens' Rider. It is also possible to use a Term Rider to cover another relative or business partner. This may be called an Other Insured's Rider. Keep in mind that because these are Term Riders, the coverage is temporary, but the additional Insured may choose to convert the Term coverage to a Permanent policy if they so choose.

For Term Life, this might be

five years, 10 years, 20 years, or any other period of time

This clause (Entire Contract Clause) also prohibits the company from

from making any changes to the policy that would be harmful to the Insured unless the Insured agrees to the alterations. In addition, it says that only the executive officers of the company listed in the contract are authorized to make changes to the policy. This is to warn the consumer that the insurance agent has no authority to alter the policy. Therefore, the Entire Contract Clause provides the best line of defense for an insurance company should an agent make an unauthorized change to an insurance policy.

The policy owner can also choose the One Year Term Insurance Dividend Option. The dividend will be used to

fund a miniature Term policy - with a term of one year. The dividend buys as much Term coverage as possible given the Insured's attained age.

Settlement Options dictate how a death benefit will be

handled and distributed. The policy owner can establish and change the Settlement Option any time before maturity. If the cash option is used, then the beneficiary may also choose any of the other Settlement Options after maturity.

The Accumulate at Interest Dividend Option allows the company to

hold the dividends in a separate savings account for the Insured. The money will earn interest at a rate specified in the policy, and the owner may withdraw the funds at any time. If the dividends and accumulated interest are left with the insurance company until the Insured dies, the death benefit plus the dividends and accumulated interest will be paid to the named beneficiary. Because dividends are considered to be a refund of premium, they are not taxable income when paid out by the insurance company. However, the interest earnings generated with the Accumulate at Interest Dividend Option are taxable in the year that the interest is earned.

The Premium Payment Clause outlines

how, when, and where premium payments should be made. Premiums are generally paid in advance by mail. In many cases, a customer may opt to deliver premium payments directly to the company's home office or the agent's office. The first premium, however, is typically collected by the agent, either at the time of application or when the policy is delivered to the Insured. The details regarding payment of pre- mium will be contained in the Premium Payment Clause.

Optional provisions are

included at the insurance company's choice to protect the insurance company by limiting or completely excluding coverage. Optional provisions are clauses that the insurance company may include in the policy atits discretion and are designed to protect the company. To be more succinct, optional provisions usually are exclusions that help the company avoid paying claims. These optional provisions are a double-edged sword for the Insured - they make the policy cheaper but they result in the policy providing less coverage.

The Guaranteed Insurability Rider EXAMPLE: Rex buys a $100,000 Life Insurance policy at age 27 when he gets married. He includes the Guaranteed Insurability Rider, which allows him the option of

increasing his policy's face value by $10,000 at the ages of 30, 35, and 40. He may also increase the face value by $10,000 each time he and his wife have (or adopt) a child. This rider allows Rex the flexibility he needs to provide for life's uncertainties

The Cost of Living Rider is

is linked to some index of the cost of items today compared with yesterday. The best known of these is the Consumer Price Index (CPI). When the index indicates that prices have increased, more insurance will be available for purchase. This additional insurance triggers an additional pre- mium, based on the attained age of the Insured at the time of the purchase, but proof of insurability is not required.

The Payor Benefit Rider also called the Applicant Waiver Pro- vision is attached to almost every policy for which it is applicable - namely, policies on juveniles. Similar to the Waiver of Premium Rider, the goal is to

keep coverage intact on the Insured (the child, in this case) in the event that the designated premium payor cannot pay. If the adult (usually a parent or grandparent) who normally pays the premium on a child's policy dies or becomes totally and permanently disabled, this rider declares that no further premiums need to be paid until the child reaches a specified age (18, 21, and 25 are the most common). It is worth mentioning that many policies purchased for juveniles are Limited Pay Whole Life policies that will be paid-up by the time the child reaches adulthood. In that case, the policy may be paid-up before the child Insured ever pays any premiums.

Convertible Term policies give the Insured the option of

later converting the Term policy to a Whole Life policy without proving insurability.

Life Insurance premiums remain

level and fixed during the policy period. For Whole Life, the policy period is the Insured's lifespan

Annually Renewable Term

means an Insured can, after the Level Term Policy's initial time period expires, extend coverage, usually on a year-to-year basis, without again proving insurability. What a deal, right? Well, there is a catch - the premium will go up with each renewal year. The standard rate for renewal is often shockingly higher, both because of the higher attained age and because the Insured hasn't shown proof of insurability for the renewal. Annually Renewable Term will usually only be renewable to age 20 65.

Insurers can elect to exclude

military and war losses, cover military and war losses, or exclude some circumstances and not others.

A collateral assignment (also called a temporary assignment)

occurs when the owner uses the policy's cash value to secure a debt. Typically, the policy owner temporarily transfers ownership of the policy to the creditor. Then, the creditor names itself as beneficiary. When the loan is repaid, the creditor releases ownership back to the original policy owner who then changes the beneficiary. Wouldn't it be easier to just name the creditor as the beneficiary without the temporary transfer of ownership? No. Because the policy owner has the right to change the beneficiary at anytime, this arrangement requires a temporary transfer of ownership to properly protect the creditor's interest in the collateral.

The Ownership Clause establishes the

owner's rights under the policy

Once upon a time, a Foreign Travel or Residence Clause might have

pulled the plug on Life Insurance coverage for Americans living in or traveling to another country. "There's no place like home" seemed to be the Insurers' motto. This attitude has softened considerably. Today, most policies will cover Insureds no matter where in the world they go. Still, it is possible for Insurers to exclude foreign travel or residency and some do exclude travel or residency in certain areas of the world.

The Extended Term Insurance Nonforfeiture Option uses the cash value to

purchase a Term Life policy. The Term Life policy will: Have the same face value as the canceled Whole Life policy; and Extend coverage for as long as the money will take it. Extended Term is the automatic default nonforfeiture option. That protects the insurance company from being sued by an Insured who dies on vacation with a big cash value refund check in the mail and no more insurance coverage.

Typically, with Whole Life policies, when the Insured dies the beneficiary receives the death benefit and the accumulated cash value goes away. It is a one or the other proposition. With the Return of Cash Value Rider, the beneficiary will

receive, upon the Insured's demise, the death benefit and the accumulated cash value of the policy. This is accomplished using an Increasing Term Rider. Again, what is really happening here is that the additional premium is funding an Increasing Term Rider to pay a second death benefit equal to the accumulated cash value. This kind of rider usually cannot be extended beyond age 65, which makes sense because Term coverage becomes very unaffordable as we age.

Like many other kinds of insurance, Group Insurance may have

tax implications - for the organizing entity, the member Insureds, or both. With Group Life Insurance, the employer (organizing entity) may deduct the cost of the premiums as a business expense, and as long as the face value of the policy is $50,000 or less, the employee need not report the employer-paid premiums as income. However, if the death benefit exceeds $50,000, the employee must report as employee income that portion of the premium paid for the excess coverage. Just like individual Life, if the Insured dies, the death benefit is paid to the beneficiary income tax free.

The Entire Contract Clause states

that the insurance policy and the application (if attached) constitute the entire agreement between Insured and Insurer. It ensures that all pertinent information is contained within the policy and the application. This clause prevents an insurance company from referring to documents, riders, or oral statements that are not contained within the policy.

Suicide Clause

that voids coverage if the Insured commits suicide within 2 years from the policy's delivery date. Assume that all Life policies will contain a Suicide Clause. If the Insured commits suicide during this two year period, the company will refund the total of all premiums paid without interest but will not pay the death benefit. If the suicide occurs after the 2-year period ends, payment will be the same as with any other cause of death. It is up to the company to prove the death was a suicide. In the absence of such proof, it is assumed the death was not a suicide, and death benefits are paid as usual.

You don't have to hit the century mark to receive your accumulated cash value. You can also receive the cash if the policy lapses or is surrendered. That is why the cash value may also be called

the cash surrender value. Please note that cash value is known by other names: equity, proceeds, surrender value, and nonforfeiture value.

if a Permanent policy lapses

the cash value is not forfeited Nonforfeiture Options specify what happens to the cash value account if the policy is allowed to lapse. We think the Nonforfeiture Options should simply be called "Refund of Cash Value Account" options, but we have no say in this.

One choice is to purchase a Joint Life Policy (First to Die) which covers

the lives of two (or more) people with one death benefit that is paid upon the death of the first Insured. The advantages of this kind of policy are simplicity (only one policy to mess with) and a premium that is lower than what two separate policies would cost. In terms of rate calculation, the premium is computed by factoring the age, gender, and other risks of both Insureds into the equation. This really isn't a radically new type of policy. We are simply covering two Insureds.

With a Convertible Term, the policy owner is

the option of some day exchanging Term coverage for a Whole Life policy without proving insurability. Convertibility is a feature included with most Term Life policies. If the conversion privilege is exercised, the premium for the new policy will be higher for any given age and death benefit than the original Term Life premium. The new premium will be higher because it is based on the Insured's attained age at the time of conversion - and the Whole Life policy will include a cash value account - more on that in the next chapter.

An absolute assignment occurs when

the owner transfers the owner's entire interest in the policy to the assignee, a fancy word for the person receiving ownership through assignment. An absolute assignment is permanent, and the assignee possesses every right under the policy that the original owner did. Why would an owner permanently give up all interest in a Life Insurance policy? Perhaps the assignment was a gift, an estate planning tax technique, or part of a divorce settlement.

Test Tip... Survivorship Life is commonly used to pay estate taxes after

the second Insured dies. And the word "EState," when you say it out loud, starts with saying the letter "S." That is an easy way to remember that Survivorship Life is used to pay estate taxes.

With the Paid-Up Life Dividend Option (sometimes called an Accelerated Endowment Dividend Option), the dividend

used to reduce the total length of time the owner has to pay on the Whole Life policy. A Straight Life policy normally requires premiums to be paid until the Insured reaches the age of 100. With this option, however, the policy may be fully paid-up while the Insured is still in his 90s. Or, with a Limited Pay Whole Life policy, the payment period may be reduced from, say, 20 years to 18 years. What's happened, of course, is that the premiums covering the later years are being pre-paid with the dividends from the policy's early years.

The Waiver of Premium Rider is

very common and waives the premiums for a Life Insurance policyif the Insured becomes unable to work due to a disability.

Graded Premium Whole Life is a payment option that actually

violates the rule stating that premiums will remain level and fixed. This arrangement allows the policy owner to pay lower premiums in the policy's early years with the understanding that premiums will climb over time to make up for the shortfall.

Term Life is commonly used in situa- tions where the Insured

wants to protecta beneficiary, but the Insured has a limited budget. Term Life works well for this situation and is quite popular because depend- ing on the Insured's age and health, Term Life can be relatively inexpensive. A young family that is strapped for cash might use Term Life to prevent the financial disaster that would result if either parent died. Also, many people who are actively saving a nest egg for their retirement years consider their need for Life Insurance to be temporary and intend to drop the coverage once their children are grown or they have accumulated a sizeable savings.

If an Insured commits suicide during the first 2 years, the Insurer will

will refund premiums but will not pay the death benefit. Any suicide after 2 years will result in a full payment of the death benefit.