Life Insurance Policy Provisions, Options, and Riders
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
Absolute Assignment
Under which of the following circumstances would an insurer pay accelerated benefits?
An insured is diagnosed with cancer and needs help paying for her medical treatment
The accelerated benefits provision will provide for an early payment of the death benefit when the insured
Becomes terminally ill
Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?
Cash surrender
What are the three nonforfeiture options in life insurance policies?
Cash surrender, reduced paid-up, and extended term
What are the dividend options in life insurance policies?
Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowmet
What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
Collateral Assignment
What type of beneficiary is next in line after the primary beneficiary?
Contingent Beneficiary
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
Copy of the original insurance application
A long stretch of national economic hardship causes a 7% rate of inflation. Devonne notices that the face value of her life insurance policy has been raised 7% as a result. What is the name of the provision that caused this change?
Cost of Living Rider
What happens when a policy is surrendered for its cash value?
Coverage ends and the policy cannot be reinstated
What life policy provision states that both the policy and a copy of the application form the contract between the policyowner and the isnurer?
Entire contract
What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
Extended term
j applied for a life insurance policy on January 10. the policy was issued January 31. j's agent was vacationing at the time the policy was issued, so j did not receive the policy until February 18. j decides that he does not want the policy. when would j need to return to the insurer in order to receive a full refund of premium paid?
February 28th, or 10 days after the time the policy is delivered
What provision in a life insurance policy extends coverage beyond the premium due date?
Grace Period
What provision in an insurance policy extends coverage beyond the premium due date?
Grace Period
What required provision protects against unintentional policy lapse?
Grace period
Which rider allows an insured to purchase additional coverage without evidence of insurability?
Guaranteed Insurability Rider
What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
Incontestability
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?
It will be paid to the insured's estate
If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?
Lump-sum payment
What settlement options are available in life insurance policies?
Lump-sum/cash, fixed period, fixed amount, life income, interest only
After a back injury, and insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive?
Monthly premium waiver and monthly income
Is the beneficiary required to have insurable interest in the insured?
No. Beneficiaries do not have insurable interest in the insured
What is the name for a life insurance policy rider that provides coverage on the insured's family members?
Other-insured rider
What dividend option can increase the death benefit of the existing life policy?
Paid-up additions
What dividend option is automatically selected by the company if not chosen by the policyowner?
Paid-up additions
An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?
Pay a reduced death benefit
An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at the time that the insured had misstated information during the application process. What can they do?
Pay the death benefit
What is the advantage of reinstating a life insurance policy opposed to applying for a new one?
Policy premium in a reinstated policy will be set according to the insured's original age
With the interest only settlement option, what happens to the policy's death benefit?
Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary
Who controls changes in premium payments, face values, and loans in a life insurance policy?
Policyowner
Who has the right to the cash value of a life insurance policy?
Policyowner
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
Primary beneficiary
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?
Proof of insurability is not required
What nonforfeiture option provides coverage for the longest period of time?
Reduced paid-up
What provision allows the Policyowner to reactive a lapsed life insurance policy within a specified period of time with proof of insurability?
Reinstatement
What are policy dividends?
Return of unused premiums
What type of beneficiary can be changed at any point by the policyowner?
Revocable
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?
Settlement options
What settlement option provides a single beneficiary with income for the rest of his/her life?
Single Life
A Policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?
The amount of the loan will be subtracted from the death benefit
What happens to a police's cash value under an extended term nonforfeiture option?
The cash value is converted to the same face amount as in the whole life policy
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
The death benefit will be adjusted to the amount that the insured could obtain for her correct age
With the reduction of premium dividend option, how is the dividend used?
The dividend is applied to the next year's premium (it reduces the next year's premium)
What does the term double indemnity mean?
The insurer will pay a benefit of twice the face amount
In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?
The longer the period selected, the smaller each installment will be
What constitutes the entire contract?
The policy and a copy of the application, along with any riders or amendments, form the entire contract.
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
The proceeds are paid to the insured's estate
Under an extended term nonforfeiture option, the policy cash value is converted to
The same face amount as in the whole life policy
What is the purpose of a free-look period?
To allow the insured to return the policy with a full refund
What is the purpose of settlement options in life insurance policies?
To determine how the death benefit will be paid to the beneficiary
What is the purpose of the Automatic Premium Loan provision?
To prevent the unintentional lapse of a policy because of nonpayment of the premium
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called
Waiver of premium
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
Waiver of premium
What are the most common exclusions in life insurance policies?
War and military service, hazardous occupation, and aviation
When can an insurance company use suicide as a defense against paying a death claim?
When a suicide is committed within a specific period of time after the policy is purchased (usually 2 years)
When will a contingent beneficiary receive death benefit from a life insurance policy?
When the primary beneficiary dies before the indured
What are the 3 nonforfeiture options?
cash surrender, reduced paid-up insurance, extended term insurance
Who does the common disaster clause protect?
contingent beneficiary