Life policy, writers, provisions, options, and exclusions Quiz Questions Chapter Three

Using a class designation for beneficiary means?

Answer: Naming Beneficiaries as a group Explanation: class designations are used when an insured chooses to distribute benefits among the living beneficiaries, and/or their heirs without naming each individual person, such as "all my children".

Which of the following premium payment will incur the lowest overall payment?

Answer: Annual Explanation: annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

Which non forfeiture option has the highest amount of insurance protection?

Answer: Extended term Explanation: extended term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Answer: Family term rider Explanation: A single rider that provides coverage on every family member is called a "family rider".

Which of the following riders would not cause the death benefit to increase?

Payor Benefit Rider Explanation: PBR does not increase the death benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policy owner can increase death benefit at specified ages or events, i.e marriage or birth of a child; Cost of Living Rider increases death benefit to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, the death benefit is a multiple of the face amount.

Which of the following is true about mandatory free look in a life insurance policy?

Answer: It commences when the policy is delivered. Explanation: The free look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.

What would be an advantage to naming a contingent or secondary beneficiary and a life insurance policy?

Answer: It determines who receives policy benefits if the primary beneficiary is deceased. Explanation: naming a secondary beneficiary (also referred to as a contingent beneficiary) insure that there is a beneficiary to receive policy proceeds if the primary beneficiary dies before the insured. If there is no secondary beneficiary, the policy benefits will go to the insurance estate.

What type of insurance would be used for a return of premium rider?

Answer: Increasing Term Explanation: The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called?

Answer: Paid-up additions. Explanation: When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

All of the following are true regarding the guaranteed insurability rider EXCEPT

Answer: This rider is available to all insureds with no additional premium. Explanation: The guaranteed insurability rider may be structured to allow for specific additional amounts of the insurance to be purchased at specifics ages, dates and events without providing insurability; however, the coverage is purchased at the insurance attained age, and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insures age 40.

The policy owner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Answer: Reduction of premium Explanation: the reduction of premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all the premiums paid. Which rider is attached to the policy?

Answer: Return of premium Explanation: return of premium rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The return of premium rider is funded by using increasing term insurance.

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. How much will the beneficiary receive from the policy?

Answer: $200,000 Explanation: the beneficiary will most likely receive twice the face value of the policy, since the insured, fatal injuries were caused by an accident, and he died within the 90 day benefit limit stipulated in most policies.

A father purchased a life insurance policy on his teenage daughter and adds the Payor Benefit Rider. In which of the following scenarios will the rider waive the payment of premium?

Answer: if the father is disabled, for more than six months. Explanation: Payor benefit only pays if the owner, the father, and this example is disabled for at least six months.

A 40-year-old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarry and dies at the age of 61 leaving two grown-up children. Assuming he never changed the beneficiary the policy proceeds will go to?

Answer: the insure estate Explanation: because there is no viable beneficiary at the time of death, proceeds are paid to the insured estate.