life Policy Provisions & Options

All of the following are Settlement Options, except: A. Reduced Paid-Up B. Fixed Period C. Fixed Amount D. Life Income Joint and Survivor

A. Reduced Paid-Up is a Nonforfeiture Option, not a Settlement Option.

What is a material misstatement? A. One that is beyond the applicant's knowledge and belief B. One which would have caused the insurer to not issue the policy had it been known C. Stating that the proposed insured is 34 when in fact he or she is 35 D. Responding to a height and weight question with measurements 1 inch taller and 5 pounds lighter than is actually the case

B. A material misstatement is one which would have caused the insurer to not issue the policy had it been known.

If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit? A. The insured's estate B. The treasury of the state where the insured resided C. The state Guarantee Association D. A tertiary trust

A. When no named beneficiaries are alive at the time the insured dies, the estate of the insured receives the death benefit.

Which of the following is responsible for paying the premiums due on a life insurance policy? A. The insured B. The policyowner C. The beneficiary D. The producer

B. It is the policyowner's responsibility to pay the premiums due in full and on time.

When a life insurance policy's ownership is changed from the original owner to a new owner without payment, this is known as a(n) ___________. A. Viatical settlement B. Collateral assignment C. Absolute assignment D. Life settlement

C. When a life insurance policy's ownership is changed from the original owner to a new owner, this is known as an absolute assignment when no money is involved.

When is the earliest a beneficiary designation can be made? A. Upon policy renewal B. At time of claim C. Upon policy delivery D. At the time of policy application

D. Beneficiaries are indicated for the first time when the application for life insurance is completed for submission to the home office of the insurer.

All of the following regarding revocable beneficiaries is true, except: A. They have no vested interest in the policy B. The policyowner can change a revocable beneficiary at any time C. Most beneficiaries are designated as revocable D. They have rights in the policy just like any other party to the contract

D. The policyowner may change a revocable beneficiary at any time. This beneficiary does not have a vested interest in the policy. Most named beneficiaries are revocable and have no rights.

Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option? A. Life Income Only B. Joint Life C. Fixed Period D. Extended Term

A. Life Income Only guarantees payment for the lifetime of the recipient. Extended term is a nonforfeiture option.

No assignment of a life insurance policy will be binding on the insurer unless: A. It is in writing and received at the insurer's home office B. The creditor files the assignment with the Insurance Commissioner C. The insurer receives all of the documents relating to the assignment to verify its legitimacy D. The insurer is provided a 30 day time period in which to approve of the assignment

A. No assignment of a life insurance policy will be binding on the insurer unless it is in writing and received at the insurer's home office.

When does a change in beneficiary take effect? A. The date the policyowner signs the request to change the beneficiary B. The date the home office of the insurer receives the request for a beneficiary change C. The date the change of beneficiary form is mailed by the policyowner to the insurer D. The date the policyowner receives the change of beneficiary form from the insurer

Even if the insured dies prior to the time the insurer receives the change of beneficiary form, the change actually goes into effect as of the date the change of beneficiary form is signed by the policyowner.

Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose: A. Life Income Only B. Interest C. Fixed Period D. Fixed Amount

A. The option that will guarantee the beneficiary an income as long as she/he lives is Life Income Only.

If an insured wanted to choose the Nonforfeiture Option that would provide coverage for the longest period of time, then he or she should choose: A. Reduced Paid-Up B. Extended Term C. Paid-Up Additions D. Life Income Only

A. The question is asking which would provide the longest period of coverage, not the most amount of protection. Paid-Up Additions is a dividend option, and Life Income Only is a settlement option.

If an insured dies during the policy's grace period, the insurer will: A. Deny the claim B. Pay the death benefit and waive the premium due C. Pay the death benefit, less the amount of premium due D. Pay the death benefit after the beneficiary has paid the premium due

C. The policy is in force during the grace period and if death occurs during the grace period, the insurer pays the death benefit, minus any premiums or loans due.

K needs funds and needs to maintain the life insurance she has at the same time. Which of the following should K do with her traditional whole life policy? A. Take out a policy loan B. Elect the interest only settlement option C. Elect reduced paid-up insurance D. Make a cash surrender

A. A policy loan may be made from a cash value policy once there is sufficient cash value to borrow against. In most policies, cash value must be made available to borrow against after 3 years.

Angela bought a policy from her friend, an insurance producer. After looking it over thoroughly, Angela only has one question. Will she receive dividends? She will if the policy is which of the following? A. Accumulating B. Cash Value Policy C. Participating D. Nonparticipating

C. Dividends are declared under participating policies, are paid as declared, and are not guaranteed. The dividends are a return of excess premiums paid.

Burt named Liz as his beneficiary; however, he did not choose a Settlement Option. At the time of his death, who determines the option to be used to receive the benefits? A. Burt's estate, since no Settlement Option was chosen B. The insurer decides when the election is not made by the policyowner prior to death C. Liz the beneficiary determines which option she would like to have D. Lump sum is the automatic option when no option was preselected prior to death of the insured

C. If the owner of the policy does not select a Settlement Option while alive, then the beneficiary may choose an option at the time of claim.

Which of the following statements is accurate concerning the changing of an irrevocable beneficiary? A. The beneficiary can never be changed B. The beneficiary may be changed only on the anniversary date of the policy C. The beneficiary may be changed only with the written consent of the present beneficiary D. The owner may change the irrevocable beneficiary at any time

C. Once an irrevocable beneficiary has been declared by the owner of the policy, the beneficiary designation can then be changed only with the irrevocable beneficiary's prior written consent. An irrevocable beneficiary has a vested interest in the policy benefits.

K has a $100,000 traditional whole life policy with $30,000 of cash values and a $10,000 loan outstanding. What is the maximum additional amount she could borrow from the policy at this time? A. $20,000 B. $30,000 C. $40,000 D. $60,000

A. She can borrow up to the policy's cash value. She already has a loan of $10,000, so she could borrow another $20,000 at this time.

Contractual provisions explain all of the following, except: A. Where the premium is going to come from B. What the contract consists of C. The duties and responsibilities of the parties to the contract D. How the policy works

A. Contractual provisions explain what the contract consists of, what duties and responsibilities the parties to the contract have, how the policy works, and basically spell out the agreement between the policyowner and the insurance company.

Lyle owns a $50,000 20-Pay Life Policy that he lets lapse at the end of the fourth year. The Nonforfeiture Option providing the longest period of coverage would be: A. Reduced Paid-Up B. Extended Term C. Paid-Up Option D. Paid-Up Additions

A. Reduced Paid-Up provides the longest period of coverage. Extended Term would provide the most protection. The other two answers are not Nonforfeiture Options, rather they are dividend options.

All of the following are Dividend Options, except: A. Cash B. Reduced paid-up C. One-year term D. Paid-up additions

B. Reduced paid-up is a nonforfeiture option, not a dividend option.

All of the following are situations in which a life insurance company can legally get out of paying a death claim after the insured has died, except: A. Within 6 months after the policy issue date, the insurer discovers material misrepresentations made on the application which, had they been known, the policy would not have been issued B. The insured dies when he crashes his plane into the ground 2 hours after receiving his pilot's license C. Five years after the policy was issued, the insurer discovered that the insured was actually older than was stated on the application D. The insured died by suicide 9 months after the policy was issued

C. There is no time limit when it comes to misstatement of age or gender. The insurer must pay the claim but can reduce the amount of the payout based on a ratio of what was paid to what should have been paid.

What happens if a policyowner exercises the free look? A. All premiums and any policy fee paid for the policy must be refunded to the owner within 30 days from the date that the insurer is notified of the cancellation B. The policy is cancelled from that period forward and he/she does not owe any amount for breach of contract C. He/she will receive a refund of any premiums paid in excess of the cost of underwriting D. He/she will receive the cash values in the policy, if any

A. If the owner voids the policy from the beginning, the parties will be in the same position as if no policy had been issued which means that all premiums and any policy fee paid for the policy must be refunded to the owner within 30 days from the date that the insurer is notified of the cancellation.

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Claire dies, then Alice dies, so who receives the policy proceeds? A. Alice's estate B. Claire C. Bill D. The treasury of the state where Alice lives

A. With no surviving beneficiaries, the policy proceeds go to Alice's estate.

Which one of the following regarding collateral assignments is false? A. The insurer is not responsible for determining the validity of the assignment B. It is typically used when an insurance policy is used as collateral for a loan C. It causes a permanent change in ownership D. It takes precedence over any beneficiary designation

C. A collateral assignment does not cause a permanent change in ownership.