Life Insurance Policy Provisions, Options, & Riders

What is the waiting period on a waiver of premium rider in life insurance policies?

6 months. (Most insurers impose a six month waiting period from the time of disability until the first premium is waived.)

What is a true statement regarding the accumulation at interest option?

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

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called...

Cost of Living Rider.

The provision which states that both the policy and a copy of the application form the contract between the policy owner and the insurer is called the...

Entire Contract. (The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contracts validity. This is a mandatory provision in life insurance.

What required provision protects against unintentional lapse of the policy?

Grace period. (The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.)

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

$200,000. (The beneficiary would most likely receive twice the face value of the policy since his fatal injuries were caused by an accident and he died within the 90 day benefit limits stipulated in most policies.)

Which nonforfeiture option has the highest amount of insurance protection?

Extended term.

Which of the following is true about warranties?

*a. They are guaranteed to be true. b. if they aren't true, the insurer must file with court to void the policy. c. They are true to the best of the agents knowledge. d. They are true to the best of the applicants knowledge.

The interest earned on policy dividends is...

Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

Which of the following protects the insured from an unintentional policy lapse due to non payments of premium?

*a. Automatic premium loan. b. Extended term. c. Reinstatement. d. Reduced paid-up option. (automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.)

An insured has had a life insurance policy that he purchased three years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he's actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced death benefit. (The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for two years. However, it does not apply to statements relating to age, sex and identity.)

Which of the following statements is true concerning irrevocable beneficiaries?

a. They may be changed at any time. b. They can never be changed. c. They may be changed only on the anniversary date of the policy. *d. They can be changed only with the written consent of that beneficiary.

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

$50,000. (The face of the term policy would be the same as the face amount provided under the whole life policy.)

Which of the following best describes fixed period settlement option?

Both the principal and interest will be liquidated over a selected period of time. (under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest. (During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.)

if an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?

The death benefit will be smaller. (if an insured withdraws a portion of the death benefit by the use of this writer, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.)

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policies cash value. There is a limit for withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

Universal Life. (Universal life policies allow for policyholders to withdraw a limited portion of the policies cash value. Each withdrawal, however, is usually charge, and the amount and frequency of withdrawals are usually limited.)

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

The original age is used for premium determination. (The reinstatement provision allows the policy owner an opportunity to put a lapse policy back in force, subject approving continued insurability. If the policy owner alex to reinstate the policy as opposed to purchasing a new policy, the reinstated policy is restored to its original status.)

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

The policy will terminate when the loan amount with interest equals or exceeds the cash value. (In most policies, failure to pay back a loan will result in termination of the policy if the total amount of the loan and accrued interest equals the cash value.)

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

Adjustment in the death benefit. (in the event of the insured's death, the policy death benefit would be adjusted to equal the amount the premium paid would have purchased at the correct age, as long as the insureds correct age did not exceed the policies maximum age.)

What is a true statement concerning the accidental death rider?

It will pay double or triple the face amount. (The accidental death rider pays two or three times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.)

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

Paid up option. (with the paid up option, the insured can accumulate dividends at interest and then use them, in addition to interest in the policies cash value, to pay the policy earlier than planned. This is different from paid up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.)

Which riders would NOT cause the death benefit to increase?

Payor Benefit Rider (Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.)

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

a. The insurance company. b. The insureds estate. c. The primary beneficiary's estate. *d. the insureds contingent beneficiary. (under the uniform simultaneous death law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.)

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

$100,000 (The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of the accident. The death must be accidental and not contributed to buy any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policies death benefit.)

A couple owns a life insurance policy what they children's term writer. Their daughter is reaching the maximum age of dependent coverage, so she have to convert to permanent insurance in the near future. which of the following will she need to provide for proof of insurability?

a. Medical exam and parents medical history. *b. Proof of insurability is not required. c. Medical exam. d. her parents federal income tax receipts. (if a children's term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.)

The waiver of cost of insurance rider is found in what type of insurance?

Universal Life: if the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

Common disaster clause. (The common disaster clause provision states that when the insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.)

Which of the following is TRUE about a class designation?

*a. Beneficiaries are not identified by name. b. Beneficiaries must be part of the insured's immediate family. c. It is not allowed. d. It determines the succession of beneficiaries. (A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.)

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

a. It decreases when an adopted child is added to the policy. *b. It remains the same no matter how many children are added to the policy. c. It decreases when the oldest child reaches the age of 21. d. it increases with a newborn baby is added to the policy.

Regarding the free-look provision, the insurance company...

Must allow the policyowner to return the policy for a full refund.

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

it allows the insured to reject the policy with a full refund.

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

a. Each child covered must show evidence of insurability. *b. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. c. It is permanent insurance. d. The policy covers only the natural children of the insured. (Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.)