Unit 5 - Life Insurance Riders

The insured in a $25,000 life insurance policy died of a heart attack. Since the policy had a double indemnity provision, the policy beneficiary received

$25,000 Under a double indemnity provision, the policy beneficiary would receive double the face amount in the event of a fatal accidental injury. Since the insured's death was not due to an accident, the policy paid its $25,000 face amount.

What can an insured add to a permanent insurance policy which will provide additional coverage, yet cost less than purchasing a separate policy?

TERM INSURANCE RIDER A term insurance rider may be added to a permanent policy. If the insured dies while the term rider is in force, the beneficiary will receive the death benefit form a permanent policy and the term policy. Adding a rider to an existing policy has a lower premium than writing it as a stand-alone policy.

Which of the following statements regarding accelerated death benefits is NOT correct?

ACCELERATED DEATH BENEFIT PAYMENTS ARE ALWAYS 100% OF THE DEATH BENEFIT Because accelerated death benefit payments reduce the actual death benefit, payments range anywhere from 25-100% of the death benefit.

Which of the following statements regarding the standard cost-of-living rider used with life insurance policies is NOT correct?

THER IS NO ADDITIONAL PREMIUM REQUIRED TO PAY FOR INCREASES IN THE DEATH BENEFIT RESULTING FROM THE COST-OF-LIVING RIDER. With the cost-of-living rider, any increase in the death benefit as a result to this rider will also result in an increase in premium.

Which of the following types of life insurance riders is NOT based on term life insurance?

WAIVER OF PREMIUM The waiver of premium rider is based more on the actuarial principles of disability insurance than life insurance. All the other riders listed are based on some form of term life insurance.

Which of the following types of life insurance riders is NOT based on term life insurance?

WAIVER OF PREMIUM The waiver of premium rider is based more on the actuarial principles of disability insurance than life insurance. All of the other riders listed are based on some form of term life insurance.

Which of the following statements regarding the cost-of-living rider is NOT correct?

A DRAWBACK FO THE RIDER IS THAT A DRO IN THE CONSUMER PRICE INDEX (CPI) CAN RESULT IN A DECREASE IN THE COVERAGE PREVIOUSLY ADDED Declines in the CPI are not matched by a decline in the amount of coverage; instead, future increases are held off until the CPI exceeds its prior high point.

An accidental death and dismemberment (AD&D) policy rider's principal sum is equal to

THE DEATH BENEFIT ON THE BASE LIFE INSURANCE POLICY An AD&D principal sum is paid out if the insured dies within 90 days of an accident. Th principal sum paid from the rider is equal to the death benefit on the base life insurance policy. Essentially, this could be considered a double death benefit or double indemnity.

Which of the following statements about accelerated benefit provisions is NOT correct?

THE INSURED MUST BE EXPECTED TO DIE WITHIN 6 MONTHS An accelerated benefit rider provides for the early payment of a portion of a policy's face amount if the insured is expected to die within 24 months.

Which of the following statements regarding a disability income rider is NOT correct?

THE ONLY WAY TO PROVIDE DISABILITY BENEFITS IN A LIFE INSURANCE POLICY IS THROUGH A DISABILITY INCOME RIDER A waiver of premium rider (a type of disability coverage) is generally included with guaranteed renewable and on cancelable individual disability income policies. it is a valuable provision because it exempts the policy owner from paying premiums during periods of total disability.

Which of the following statements regarding the standard cost-of-living rider used with life insurance policies is NOT correct?

THERE IS NO ADDITIONAL PREMIUM REQUIRED TO PAY FOR INCREASES IN THE DATH BENEFIT RESULTING FORM THE COST-OF-LIVING RIDER With the cost-of-living rider, any increase in the death benefit as a result of this rider will also result in an increase in premium.

Which of the following statements regarding a spousal rider to a life insurance policy is NOT correct?

THIS RIDER USUALLY PROVIDES COVERAGE THAT LASTS AS LONG AS THE COVERAGE THAT IS PROVIDED THROUGH THE BASE POLICY Like any additional insured rider, the spousal rider usually consist of level term life insurance coverage that terminates at a specified date (IE 10 years after policy issue) or age (IE the spouse's 65th birthday).

Jay has a $50,000 life insurance policy with an accidental death benefit that pays triple the face amount. If Jay commits suicide three years after purchasing the policy, how much will his beneficiary receive?

$50,000 An accident is defined as an event that is unknown and unforeseen by nature. Therefore, suicide does not qualify as an accident be3cause it is done wakefully, and there is no coverage under the accidental death rider. Moreover, the base policy includes a 2-year suicide clause that excludes coverage if the insured commits suicide during that period following the effective date. Because the suicide occurred more than 2 years after the policy effective date, the face amount will be paid form the base policy only.

Jay has a $50,000 life insurance policy with an accidental death benefit that pays triple the face amount. If Jay commits suicide 3 years after purchasing the policy, how much will his beneficiary receive?

$50,000 An accident is defined as an event that is unknown and unforeseen by nature. Therefore, suicide does not qualify as an accident because it is done willfully, and there is no coverage under the accidental death rider. Moreover, the base policy includes a 2-year suicide clause that excludes coverage if the insured commits suicide during that period following the effective date. Because the suicide occurred more than 2 years after the policy effective date, the face amount will be paid form the base policy only.

Sarah owns a life insurance policy with a $50,000 face amount and a 10-year return-of-premium rider. She pays an annual premium of $700. If she were to die 6 years after purchasing the policy, what would be the total amount payable to the beneficiary?

$54,200 The return-of-premium rider increases the death benefit by the sum or premiums paid to date.

Which of the following statements regarding a disability income rider is NOT correct?

THE ONLY WAY TO PROVIDE DISABILITY BENEFITS IN A LIFE INSURANCE POLICY IS THROUGH A DISABILITY INCOME RIDER. A waiver of premium rider (a type of disability coverage) is generally included with guaranteed renewable and non cancelable individual disability income policies. It is a valuable provision because it exempts the policy owner form paying premiums during periods of total disability.

Which of the following statements about accelerated living benefits is NOT correct?

THE PROCEEDS MUST BE SPENT ON THE INSURED'S MEDICAL EXPENSES Accelerated benefit provisions are standard in life insurance policies and are included at no additional cost to the policy owner. They allow access to the policy's face value if the insured suffers from a terminal illness or injury. (The death benefit, less any accelerated payment, is still payable.) The insured can spend the proceeds in any manner.