Life/Health A.D. Banker - Chapter 4

A partial withdrawal is permitted on which of the following policies? A Universal Life B Current Assumption Whole Life C Variable Whole Life D Whole Life

A Policies on a universal life platform allow for partial withdrawals.

All of the following are common exclusions, except: A Hazardous hobbies B Aviation C Driving D Hazardous occupation

C Driving is not considered in and of itself an exclusion.

Which of the following is NOT a Dividend Option? A Paid in Cash B Reduced Paid-Up C Accumulate at Interest D Paid-Up Additions

B Reduced Paid-Up is a Nonforfeiture Option. The other answer choices are Dividend Options.

The provision which denies the beneficiary the right to commute, alienate, or assign his/her interest in the policy proceeds is: A The Insuring Clause B The Spendthrift Clause C The Common Disaster Clause D The Consideration Clause

B The question is defining the Spendthrift Clause. If benefits were paid out in a lump-sum rather than held by the insurance company, creditors could go after the funds in satisfaction of any outstanding debts.

A Whole Life policyowner elects to use his dividends to pay off the policy sooner than originally planned. Which option allows this to occur? A Paid-Up Option B Paid-Up Additions Option C Cash Surrender Option D Premiums Reduction Option

A The Paid-Up Option is designed so that at a future point the base policy is fully prepaid (i.e. no more premiums are due). In Paid-Up Additions, only the additions are paid up, not the base policy. Only a Whole Life can achieve paid-up status.

For which of the following reasons may an insured return the policy for a full refund within the Free Look Period? A Any reason B Increase in premium C Decline in financial rating of the insurance company D Death of the agent

A The insured/owner has the right to examine the policy for 10 days after delivery. If returned within that period, a full refund of premium is granted. It is the insurer's responsibility to prove the date of delivery.

When can a policyowner make a change in the policy's coverage or other benefits if an irrevocable beneficiary has been named? A. After obtaining a court order B. After the irrevocable beneficiary dies C. At any time D. After obtaining the insurer's consent

B. The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable beneficiary is named, the owner may not make changes to the policy that affect the coverage or benefits without consent of the beneficiary.

What is the easiest and best way to assure that the life insurance policy's death proceeds don't end up in probate court process? A. Ascertain that the client has a trust that is filed with the County court B. Make sure the client has a will that is current and in an easily accessible location C. List a primary and contingent beneficiary by their full name and relationship to the insured D. Name the estate as beneficiary

C. So long as the named beneficiaries are alive at the time of death of the insured, the proceeds bypass the probate process.

What will cause the time period of the fixed amount settlement option to be extended? A A stock market rally B A decrease in the insurer's expenses C Lower mortality D An increase in interest credited

D Fixed Amount Payments are for a specified dollar amount paid monthly until the benefits along with interest are exhausted. An increase in declared interest will extend the time period in which the benefits are paid.

An insured bought a whole life policy 15 years ago and it has accumulated a cash value of several hundred dollars. She named her spouse as the owner at the time of purchase. Who has the right to change beneficiaries and access the cash value? A The beneficiary B The insured C The insurer D The policyowner

D Ownership provides privileges. Only the owner, in this case the spouse, controls the rights in the policy. This is an example of third-party ownership.

Dividend options do not include which of the following choices? A. Paid-up additional insurance B. Refund in cash C. Reduce premiums due D. Lifetime income

D. Income for life is an annuity form of death benefit settlement option.

Dividend options do not include which of the following choices? A Refund in cash B Lifetime income C Paid-up additional insurance D Reduce premiums due

B Income for life is an annuity form of death benefit settlement option.

Ed purchased a policy naming his children as per capita beneficiaries. Upon his death the proceeds are paid to: A His surviving children, who will share the proceeds equally B His wife, then all children or their heirs C All beneficiaries, with any deceased beneficiary's share passed to his/her heirs equally D The estate of the insured, then passed down to the heirs

A Per capita means that surviving beneficiaries share equally in the death benefits. If Ed's policy has a $100,000 death benefit, and if upon his death, there are two surviving children, each gets $50,000.

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 $40,000 B $20,000 C $30,000 D $60,000

B 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.

A life insurance policy cannot be backdated more than ______ months. A. 12 B. 6 C. 18 D. 24

B. A life insurance policy cannot be backdated more than 6 months in order to save age for premium purposes.

What is meant when a life insurance policy becomes incontestable? A. After 2 years, the insurer will only pay for suicide if the insured was insane at the time B. After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original application for insurance C. After 2 years, the policy owner cannot sue the insurer for misstatements made by the producer in the sale of the policy D. After 2 years, the insurer will not argue about which beneficiary is primary or contingent

B. Incontestability means that the insurance company cannot use the statements in the original application for insurance as a reason to avoid paying a death claim. The policy becomes incontestable after two years in most states.

Paul is the insured and policyowner. Paul named Danny and Kayla as co-primary beneficiaries of Paul's $100,000 policy. Danny is to receive 70% and Kayla is to receive 30%, therefore Danny gets $________ and Kayla gets $______ when Paul dies. A $80,000/$20,000 B $60,000/$40,000 C $70,000/$30,000 D $50,000/$50,000

C When more than one primary beneficiary is listed, and the percentage for each is specified, then that is how much of the total death benefit each will receive.

What is the primary advantage to the policyowner in the reinstatement of a life insurance policy? A The insured is not required to prove insurability if under age 40 B All policy loans that were outstanding at the time of lapse are forgiven and full cash value is restored C The insurance company cannot start a new period of contestability D The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium

D Reinstatement restores the policy to its original condition as if it were never lapsed. Even though the policy is reinstated at a later age, the original issue premium is all that the insurer will require.

Paul is the insured and policyowner. Paul named Danny and Kayla as co-primary beneficiaries of Paul's $400,000 policy. Danny and Kayla each have 3 children. Danny dies, then Paul dies, so Kayla is entitled to receive $____________. A $200,000 B $300,000 C $100,000 D $400,000

D Since only one of the co-primary beneficiaries is alive at the time the insured dies, then they are entitled to the entire policy proceeds, regardless of how many children either of them had.

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 Claire B Alice's estate C The treasury of the state where Alice lives D Bill

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

What is meant when a life insurance policy becomes incontestable? A After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original application for insurance B After 2 years, the insurer will not argue about which beneficiary is primary or contingent C After 2 years, the insurer will only pay for suicide if the insured was insane at the time. D After 2 years, the policyowner cannot sue the insurer for misstatements made by the producer in the sale of the policy

A Incontestability means that the insurance company cannot use the statements in the original application for insurance as a reason to avoid paying a death claim. The policy becomes incontestable after two years in most states.

If a beneficiary has the choice and is interested in capital conservation, then which of the following settlement options should be chosen? A. Interest Only B. Life Only C. Fixed Amount D. Period Certain

A. With interest only, the death benefit proceeds may be left with the insurer while interest payments are paid at least annually or more frequently. The principal amount does not decrease. This method of providing income is known as capital conservation.

Which of the following policies allow for a partial withdrawal or partial surrender? A. Variable Whole Life B. Universal Life C. Current Assumption Life D. Traditional Whole Life

B. A partial withdrawal of cash value is permitted in a Universal or a Variable Universal Life policy.

An insured bought a whole life policy 15 years ago and it has accumulated a cash value of several hundred dollars. She named her spouse as the owner at the time of purchase. Who has the right to change beneficiaries and access the cash value? A. The beneficiary B. The policyowner C. The insured D. The insurer

B. Ownership provides privileges. Only the owner, in this case the spouse, controls the rights in the policy. This is an example of third-party ownership.

What is the primary advantage to the policyowner in the reinstatement of a life insurance policy? A. All policy loans that were outstanding at the time of lapse are forgiven and full cash value is restored B. The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium C. The insured is not required to prove insurability if under age 40 D. The insurance company cannot start a new period of contestability

B. Reinstatement restores the policy to its original condition as if it were never lapsed. Even though the policy is reinstated at a later age, the original issue premium is all that the insurer will require.

The _________ clause states what each party exchanges in the contract. A. Insuring B. Consideration C. Entire Contract D. Incontestability

B. The consideration clause states what each party exchanges in the contract.

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

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

K has a loan of $5,000 outstanding against her $25,000 traditional whole life policy. If K dies, how much will her beneficiaries receive? A $5,000 B $25,000 C $30,000 D $20,000

D Any outstanding loans will be deducted from the face amount at the time of claim, or from the cash values upon surrender, along with any interest due.

Which of the following is a reason why "class" designations of beneficiaries may be a problem? A. They prevent contingent beneficiaries from being named B. They are intended to allow unnamed persons to share policy proceeds C. They specify the exact persons who may claim policy proceeds D. They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds

D. Class designations of beneficiaries are intended to provide benefits to a number of unnamed persons but can be problematic when there is insufficient understanding about who is being named as a beneficiary. "All my children" does not clearly identify which children are included - the children of a former marriage, the current marriage, or both. Likewise, "My minor children" disregards the fact that children will eventually become adults, and can unintentionally exclude a child as a result.

Maria's policy was issued with an incorrect age. She was actually older than what was listed in the policy. Which of the following will the insurer most likely do if she had died 5 years after policy issue, but prior to this discovery? A. The insurer would simply reduce the death benefit by the amount of the premium underpayment B. The insurer would have to pay out the full face amount since the policy is now beyond the contestable period C. The insurer would bill the beneficiary for the underpayment in premiums D. The insurer would pay out a reduced benefit in proportion to the underpayment of premium

D. The Misstatement of Age or Sex provision allows the insurer to pay out the benefit that the correct premiums would have purchased. This means that the death benefit could be reduced if the age was understated.

All of the following are TRUE of Policy Loan Rate provisions, except: A Policies with fixed interest loan rates have a maximum interest rate of 10% B Policies with adjustable loan interest rates have a maximum interest rate based upon Moody's corporate bond yield average C The policy loan amount cannot exceed the available cash value D Interest, if not paid when due, is added to the total debt

A The policies with fixed interest loan rates usually have a maximum interest rate of 8%.

Interest only, life income with period certain, lump sum, and life income only are all forms of which of these life insurance policy options? A. Nonforfeiture options B. Dividend options C. Settlement options D. Beneficiary options

C. These are all forms of settlement options - how the beneficiary will receive the policy proceeds. Nonforfeiture options are concerned with cash value.

A contingent beneficiary has the right to which of the following? A Prevent the policyowner from taking a loan against the cash value B Share in the death benefit with the primary beneficiary C The policy proceeds only when there is no primary beneficiary D The policy proceeds if the primary beneficiary is a minor child

B A contingent beneficiary has no interest in the policy proceeds if there is a surviving primary beneficiary. Contingent and primary beneficiaries do not share the death benefit. Only an irrevocable primary beneficiary has the right to interfere with certain of the owner's rights in a life insurance policy.

The spendthrift laws of each state protect life insurance proceeds against the claims of which of the following? A. Primary beneficiaries only B. Creditors of the insured and/or the beneficiary C. Creditors of the insured only D. Contingent beneficiaries only

B. Spendthrift laws and policy provisions protect the death benefit from the claims of creditors of the deceased insured, the policyowner, and those creditors of any named beneficiary to whom the death benefit becomes payable. When death benefit principal is left with the insurance company, spendthrift laws prevent creditors from attacking that money, too.

What provision describes the parts of the life insurance contract? A Insuring B Incontestability C Entire Contract D Consideration

C The entire contract clause describes the documents that are parts of the life insurance contract.

A universal life policy has a death benefit of $125,000 and a cash accumulation value of $15,000. Generally, what will happen to the policy if there is a $5,000 partial withdrawal? A. The policy will be used as collateral for a loan from the insurer for which interest will be charged B. The policy will become paid up C. The policy will immediately be voided by the insurer D. The death benefit or cash accumulation will be reduced by the partial withdrawal

D. A partial withdrawal also known as a partial surrender will cause the policy to have either the face amount or cash accumulation reduced by the amount of the withdrawal.

Frank has a life insurance policy in which he chooses to have the dividends increase the death benefit. Which Dividend Option did he select? A. Fixed Amount B. Acceleration of Endowment C. Paid-Up Option D. Paid-Up Additions

D. Frank's objective is to use his dividends to increase the death benefit. Paid-Up Additions purchases single premium additional permanent benefits at the insured's attained age. The additional insurance is added to the face amount and it generates cash values and dividends as if the paid-up additional benefit was part of the original policy.

The spendthrift laws of each state protect life insurance proceeds against the claims of which of the following? A Creditors of the insured and/or the beneficiary B Creditors of the insured only C Contingent beneficiaries only D Primary beneficiaries only

A Spendthrift laws and policy provisions protect the death benefit from the claims of creditors of the deceased insured, the policyowner, and those creditors of any named beneficiary to whom the death benefit becomes payable. When death benefit principal is left with the insurance company, spendthrift laws prevent creditors from attacking that money, too

The grace period in a life insurance policy is typically 31 days, which allows: A The payment of the premium after the due date without a penalty or lapse in coverage B The policyowner to reinstate the policy before it lapses C The insurance company to delay payment of the death benefit while it determines the validity of the proof of death D The payment of the premium after the due date with a maximum 5% penalty

A The grace period allows payment of the past due premium without a penalty or lapse in coverage. Any claim arising in the grace period is payable, but any unpaid premium will be deducted from the claim when paid.

Policy loan provisions include all of the following, EXCEPT: A. Unpaid interest is added to the value of the loan B. Outstanding loans will be deducted from the face amount at the time of claim C. Interest is charged annually

A. Policy loans do not automatically reduce the death benefit in a policy. If an outstanding loan exists at the time of death, the amount of the loan will then reduce the benefit paid to the beneficiary.

The insuring clause is found: A On the last page of the policy B On the first page of the policy C In front of a copy of the paramedical exam results D Right before the copy of the application

B The insuring clause is typically found on the front or first page of the policy.

Interest only, life income with period certain, lump sum, and life income only are all forms of which of these life insurance policy options? A Beneficiary options B Settlement options C Nonforfeiture options D Dividend options

B These are all forms of settlement options - how the beneficiary will receive the policy proceeds. Nonforfeiture options are concerned with cash value.

Which of the following is a reason why "class" designations of beneficiaries may be a problem? A They are intended to allow unnamed persons to share policy proceeds B They specify the exact persons who may claim policy proceeds C They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds D They prevent contingent beneficiaries from being named

C Class designations of beneficiaries are intended to provide benefits to a number of unnamed persons but can be problematic when there is insufficient understanding about who is being named as a beneficiary. "All my children" does not clearly identify which children are included - the children of a former marriage, the current marriage, or both. Likewise, "My minor children" disregards the fact that children will eventually become adults, and can unintentionally exclude a child as a result.

The ________ decides which dividend option is in effect and can change his/her election at any time. A Insured B Beneficiary C Insurer D Policyowner

D The policyowner decides which dividend option is in effect and can change his/her election at any time.

Maria's policy was issued with an incorrect age. She was actually older than what was listed in the policy. Which of the following will the insurer most likely do if she had died 5 years after policy issue, but prior to this discovery? A The insurer would bill the beneficiary for the underpayment in premiums B The insurer would have to pay out the full face amount since the policy is now beyond the contestable period C The insurer would pay out a reduced benefit in proportion to the underpayment of premium D The insurer would simply reduce the death benefit by the amount of the premium underpayment

C The Misstatement of Age or Sex provision allows the insurer to pay out the benefit that the correct premiums would have purchased. This means that the death benefit could be reduced if the age was understated.

The insuring agreement in a life insurance policy states which of the following? A The policyowner will indemnify the insurance company the policy proceeds if the beneficiary is not named in the application B The insurance company may refuse to pay a death claim in the event a mistake is found in the original application for insurance at the time of the insured's death C The obligation of the insurance company to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force D The insurance company will not pay death claims in the event of suicide or other exclusion named in the policy unless all premiums are paid in advance

C The insuring agreement is the basic promise to pay the benefit described in the policy when a claim is proved. In life insurance, a true certified copy of the death certificate is valid proof of death.

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

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

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

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

A contingent beneficiary has the right to which of the following? A. The policy proceeds only when there is no primary beneficiary B. Prevent the policy owner from taking a loan against the cash value C. Share in the death benefit with the primary beneficiary D. The policy proceeds if the primary beneficiary is a minor child

A. A contingent beneficiary has no interest in the policy proceeds if there is a surviving primary beneficiary. Contingent and primary beneficiaries do not share the death benefit. Only an irrevocable primary beneficiary has the right to interfere with certain of the owner's rights in a life insurance policy.

A life insurance policy lists the names of 3 people as primary beneficiaries. Other than listing the person's names, which of the following is the most important next step? A Include the beneficiary's middle name or initial B Make certain the names are listed in alphabetical order C Indicate what percentage of the death benefit each is entitled to receive D Specify the occupation of each beneficiary

C Percentage should be used instead of dollar amounts just in case the policy has an outstanding loan or premium at the time of death.

What is the intent of the suicide clause? A To be able to pay out claims to beneficiaries whenever such a tragic event occurs B To pay out claims only if and when suicides are committed while sane C To discourage individuals from purchasing an insurance policy while contemplating suicide D To distinguish between sane and insane actions

C The intent of the suicide clause is to discourage individuals from purchasing an insurance policy while contemplating suicide.

After a life insurance policy has been in force for 5 years the insured dies. During the claims process, the insurer discovers that the insured did not disclose material health information that had it known, would have caused the application to be rejected. What can the insurer do at this point in time? A. The insurer can void the contract and refund any and all premium payments received plus interest B. The insurer can contest the claim C. The insurer must pay out the death benefit but can then take legal action against the beneficiary based on insurance fraud D. The insurer must pay out the death benefit of the policy to the named beneficiary

D. After the policy has been in force for 2 years, except for cases of nonpayment of premium, meaning the policy has lapsed, the insurer cannot contest any claim. The policy has become incontestable.

An insured has a $25,000 annual renewable term life policy, originally purchased on her birthday, April 1st of last year. She forgot to pay the $250 renewal premium, and dies in an accident on April 15. The beneficiary will receive: A. Nothing B. $25,250 C. $24,750 D. $25,000 less the earned premium due

D. If a death occurs during the grace period, only the earned premium may be deducted from the death benefit. The insurer cannot retain the entire annual premium, but is entitled to 15 days' premium (about $10.27 in this example). The beneficiary receives the balance of the death benefit.

The grace period in a life insurance policy is typically 31 days, which allows: A. The policy owner to reinstate the policy before it lapses B. The payment of the premium after the due date without a penalty or lapse in coverage C. The insurance company to delay payment of the death benefit while it determines the validity of the proof of death D. The payment of the premium after the due date with a maximum 5% penalty

B. The grace period allows payment of the past due premium without a penalty or lapse in coverage. Any claim arising in the grace period is payable, but any unpaid premium will be deducted from the claim when paid.

How long, typically, is the grace period on a $500,000 level term life insurance policy? A. One quarter B. One month C. One year D. One week

B. Typically, the grace period runs one month (30 or 31 days) from the premium due date.

B's policy had a $1,000 annual premium. B has not paid it for 2 years and wants to put the policy back in force. The insurer charges 10% interest on overdue premiums. How much will B have to pay to have coverage once again? A $200 B $1,800 C $2,200 D $2,000

C In order to reinstate the policy, the insured must provide evidence of insurability and the owner must pay all back premiums from the date of lapse plus interest (2 x $1000 = $2,000 + 10% = $2,200).

ylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will: A Require Sylvia to prove insurability B Require Sylvia to prove that her best friend is financially dependent on her C Decline the change due to lack of insurable interest D Accept the beneficiary change

D As the policyowner, Sylvia is free to change a revocable beneficiary at any time. She may also name a new beneficiary if an irrevocable beneficiary dies before the insured. A beneficiary is not required to have an insurable interest in the insured.

Failure to repay a loan or loan interest will void a life insurance policy: A After the insurer calls in the loan with 30 days advance notice B After the loan has been outstanding for more than 5 years C If interest rates increase by more than 3% in any 1 year D If the total amount due equals or exceeds the policy's cash values

D Failing to repay a loan or loan interest will not void a policy until the total amount due becomes greater than the policy's cash value.

Policy loan provisions include all of the following, EXCEPT: A Outstanding loans will be deducted from the face amount at time of claim B Unpaid interest is added to the value of the loan C Interest is charged annually D The death benefit of a policy is automatically reduced when a loan is requested

D Policy loans do not automatically reduce the death benefit in a policy. If an outstanding loan exists at the time of death, the amount of the loan will then reduce the benefit paid to the beneficiary.

Which of the following is the most expensive premium mode overall? A Annually B Semi-annually C Monthly D Quarterly

C The greater the frequency the higher the overall cost is.

The insuring agreement in a life insurance policy states which of the following? A. The policyowner will indemnify the insurance company the policy proceeds if the beneficiary is not named in the application B. The insurance company will not pay death claims in the event of suicide or other exclusion named in the policy unless all premiums are paid in advance C. The insurance company may refuse to pay a death claim in the event a mistake is found in the original application for insurance at the time of the insured's death D. The obligation of the insurance company to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force

D. The insuring agreement is the basic promise to pay the benefit described in the policy when a claim is proved. In life insurance, a true certified copy of the death certificate is valid proof of death.

Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy? A Policy loan B Cash surrender C Endowment D Partial surrender

D Partial surrenders are typically available only on universal life insurance types of policies.