Life Insurance Policy - Provisions, Options, and Riders
An insured owns a $50,000 whole life policy. At age 47, the insured devices to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. what would the face amount of the new policy term be?
$50,000 **face amount of the term policy would be the same as the face amount provided under the whole life policy.
The Accidental Death Rider pays ____________if death is the result of an accident as defined in the policy and occurs within _____ of such accident.
- 2 or 3 times the face amount , - 90 days
The waiver of cost of insurance is found in which type of life policy? In the event of disability of the insured, this rider waives the cost of insurance and other expenses, but doesn't wave the cost of ___________.
-Universal life. -premiums necessary to accumulate cash values
Cash surrender nonforfeiture option - The insurers surrender the policy ___________. Which part of this is taxable is income? Once the policyholder opts for cash surrender, the policy is ___________.
-at its current cash value. - only any excess of value (funds exceeding the premium paid). - immediately inactive.
What are the dividend options in life insurance policies?
-cash, -reduced premium, -accumulation at interest, -paid-up additions, -paid-up option, -one-year term, -acceleration of endowment
Nonforfeiture options are required by state law to be ______________, and ____ be altered by the policyowner. A table showing the nonforfeiture options for the next ____must be included in the policy.
-included in the policy. -cannot. -20 years
The _______rider allows a spouse to be added for coverage. It's available for a limited amount of time, typically expiring at age ___. This ride (just like any other rider is usually) ____________ insurance.
-spouse term rider , -65 , -level term
The rider in a whole life policy that allows the company to forgo collecting of the premium if the insured is disabled is called _______.
-waiver of premium.
If a policy contains a free-look of at least 10 days, the Buyer's Guide may be delivered to the applicant no later than ______________. If it doesn't, prior to ___________.
-with the policy. -accepting the initial premium
What are the 2 types of assignments?
Absolute and Collateral
What settlement options are available in life insurance policies?
Cash/lump-sum Life income Interest only Fixed period Fixed amount
Period certain settlement option AKA _________
Fixed-period
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest earned
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use?
Paid-up option
What allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
Payor Benefit
what are policy dividends?
Return of unused premiums
Which settlement option provides a single beneficiary with income for the rest of his/her life?
Single life
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
what does the term double indemnity mean?
The insurer will pay a benefit of twice the face amount
what is the purpose of a free-look period?
To allow the insured to return the policy with a full refund
The Waiver of Cost of Insurance rider is found in what type of insurance?
Universal Life
What kind of policy allows withdrawals or partial surrenders?
Universal life
to meet the requirement of the entire contract policy provision, an insurance policy must contain what?
a copy of the original insurance application
which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
absolute assignment
Under the fixed-period option (AKA period certain), a specified period of years is selected, and equal installments are paid to the recipient. What is liquidated over the selected period of time?
both the principal and interest
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 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
what does the common disaster clause protect?
contingent beneficiary
A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as Consumer Price Index, is called
cost of living rider
what life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?
entire contract
What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
extended term
Which nonforfeiture option has the highest amount of insurance protection?
extended term
What provision in a life insurance policy extends coverage beyond the premium due date?
grace period
What required provision protects against unintentional policy lapse?
grace period
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
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 policyowner or the beneficiary, what option will be used by the insurer?
lump-sum payment
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 is automatically selected by the company if not chosen by the policyowner?
paid-up additions
what dividend option can increase the death benefit of the existing life policy?
paid-up additions
Who has the right to the cash value of a life insurance policy?
policyowner
who controls changes in premium payments, face values, and loans in a life insurance policy?
policyowners
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
primary beneficiary
What nonforfeiture option provides coverage for the longest period of time?
reduced paid-up
What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?
reinstatement
what type of beneficiary can be changed at any point by the policyowner?
revocable
what happens to a policy'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
with the reduction of premium option, how is the dividend used?
the dividend is applied to the next year's premium (it reduces the next year's premium)
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 paid-up addition option uses the dividend _________________________.
to purchase a smaller amount of the same type of insurance as the original policy.
What's the difference between paid-up option and paid-up additions?
with the paid up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and policy's cash value, to pay the policy earlier than planned. with paid-up additions, dividends are used to buy additional policies that increase the face amount of the original policy.
Under a fixed-period life insurance settlement option (aka ________________), a specific period of years is selected, and ____________. What elements are liquidated together over the selected period of time?
- period certain, - equal installments are paid to the recipient. -both the principal and interest
An insured had a $10,000 term life policy. The annual premium of $200 was due on Feb. 1, but the insured failed to pay it. He died on Feb. 28. How much would the beneficiary receive from the policy? Explain.
-$9,800 - the death occurred within the mandatory 30-day grace period. past due premium would be subtracted from the face amount of the policy
The _______ rider provides for payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within ______.
-Living Needs Rider , -2 years
_________rider functions like the waiver of premium rider. It also provides for an owner other than the insured. It is primarily used with ____ policies or ____________.
-Payor benefit. -juvenile, -when the owner and insured are 2 different people.
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
what is the advantage of reinstating a life insurance policy as 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
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?
settlement options
When a life insurance policy contains ___________provision, all rights of the beneficiary to change time of payment or amount of installments, surrender for cash, borrow against, or assign for any purpose, are withdrawn and those parts of the policy that may give the beneficiary such rights are declared inoperative and void.
spendthrift provision
When a life insurance policy stipulates that the beneficiary will receive payments for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installment?
spendthrift provision
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
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
the insured's premiums will be waived until she is 21.
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 installer will be
what happens to the proceeds of life insurance policy if there's no named beneficiary?
the proceeds are paid to the insured's estate
The Extended Term nonforfeiture option has ____ face amount as the original policy, but for a ____ period of time
the same, shorter
what is the purpose of settlement options in life insurance policies?
to determine how the death benefit will be paid to the beneficiary
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 services, 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 insured