Policy Provisions, Riders & Options Cont... 08/20

What happens when a policy is surrendered for its cash value? A The policy can be converted to term coverage. B Coverage ends and the policy cannot be reinstated. C Coverage ends but the policy can be reinstated at any time.

B Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

Which of the following settlement options in life insurance is known as straight life? A Single life B Life with period certain C Fixed amount D Life income

D Life income The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary's death.

Which of the following applies to the 10-day free-look privilege? A It can be waived only by the insurance company. B It is granted only at the option of the agent. C It permits the insured to return the policy for a full refund of premiums paid. D It allows the insured 10 days to pay the initial premium.

C It permits the insured to return the policy for a full refund of premiums paid. A policyowner may return a policy for any reason during the free-look period and receive a full refund.

What is the waiting period on a Waiver of Premium rider in life insurance policies? A 30 days B 3 months C 5 months D 6 months

D 6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Under which of the following circumstances would an insurer pay accelerated benefits? A An insured is looking for a way to put her daughter through college. B A couple wants to build a house and would like to make a larger down payment. C An insured is diagnosed with cancer and needs help paying for her medical treatment. D A couple is nearing retirement and needs a steady stream of income.

C An insured is diagnosed with cancer and needs help paying for her medical treatment. Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called A Irrevocable designation. B Stirpes designation. C Class designation. D Revocable designation.

C Class designation. A designation such as the child of the insured, or all children of the insured, or all current members of a group, is called a "class designation." The individuals need not be specifically named, since each who meet the qualifications of being included in the class will share in the benefit.

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called A Supplemental add on. B Cost of living. C Guaranteed insurability. D Waiver of cost of insurance.

C Guaranteed insurability. Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

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? A Her parents' federal income tax receipts B Medical exam and parents' medical history C Proof of insurability is not required. D Medical exam

C Proof of insurability is not required If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

What is the purpose of settlement options? A They guarantee a return of excess premiums. B They provide the beneficiary with the income he/she cannot outlive. C They determine how death proceeds will be paid. D They are guarantees built into the policy.

C They determine how death proceeds will be paid. Settlement options are methods used to pay the death benefits to a beneficiary upon the insured's death, or to pay the endowment benefit if the insured lives to the endowment date.

The paid-up addition option uses the dividend A To reduce the next year's premium. B To accumulate additional savings for retirement. C To purchase a smaller amount of the same type of insurance as the original policy. D To purchase a one-year term insurance in the amount of the cash value.

C To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

The Waiver of Cost of Insurance rider is found in what type of insurance? A Joint and Survivor B Juvenile Life C Universal Life D Whole Life

C Universal Life The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.

According to the Entire Contract provision, a policy must contain A A declarations page with a summary of insureds. B Buyer's guide to life insurance. C Listing of the insured's former insurer(s) for incontestability provisions. D A copy of the original application for insurance.

D A copy of the original application for insurance. An insurance contract must contain a copy of the original application.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? A Value Adjustment Rider B Return of Premium Rider C Inflation Rider D Cost of Living Rider

D Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

Which nonforfeiture option provides coverage for the longest period of time? A Extended term B Paid-up option C Accumulated at interest D Reduced paid-up

D Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

Using a class designation for beneficiaries means A Naming an estate as the beneficiary. B Naming each beneficiary by his or her name. C Naming beneficiaries as a group. D Not naming beneficiaries.

C Naming beneficiaries as a group. 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 rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member? A Children's rider B Additional insured rider C Family term rider D Spouse rider

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

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. What amount would his beneficiary receive as a settlement? A $0 B $100,000 C $200,000 D $100,000 plus the total of paid premiums

C $200,000 The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the A Paid-up additions. B One-year term option. C Paid-up option. D Accelerated endowment.

B One-year term option. The dividend is utilized to purchase one-year term insurance.

After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive? A Monthly premium waiver and monthly income B Percentage of medical costs paid by the insurer C Payments for life D Yearly premium waiver and income

A Monthly premium waiver and monthly income The Disability Income Benefit rider waives the policy premiums, just like the Waiver of Premium rider. Unlike the Waiver of Premium rider, it also allows the insured to receive a weekly or monthly income during the disability period.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? A Assignment B Automatic premium loan C Waiver of premium D Incontestability period

B Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

All of the following are true regarding the guaranteed insurability rider EXCEPT A This rider is available to all insureds with no additional premium. B The insured may purchase additional coverage at the attained age. C The insured may purchase additional insurance up to the amount specified in the base policy. D It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events.

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

Which settlement option provides a single beneficiary with income for the rest of his/her life? A Single Life B Fixed Amount C Lump Sum D Retained Assets

A Single Life The Single Life Option provides a single beneficiary with income for the rest of his/her life.

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? A $0 B $50,000 (50% of the policy value) C $100,000 D $300,000 (triple the amount of policy value)

C $100,000 The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

Children's riders attached to whole life policies are usually issued as what type of insurance? A Adjustable life B Whole life C Term D Variable life

C Term Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.

All of the following are Nonforfeiture options EXCEPT A Cash surrender B Extended term C Reduced paid-up D Interest only

D Interest only Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option.