Unit 7 - Life Insurance Policy Provisions
Which of the following statements regarding the grace period for life insurance is NOT correct?
IT IS USUALLY SHORTER THAN 30 DAYS. The grace period is the period during which the premium must be paid. It begins with the premium due date as specified in the policy. The grace period can vary, but for most ordinary life policies, it is 1 month (30 or 31 days). The insurer may impose an interest penalty on premiums paid during the grace period.
Stella sends a written request to her insurer for a change to be made on her policy. What is that change called?
AN ENDORSEMENT A change to a policy is called an endorsement or modification. The change must be requested by the insured in writing and accepted by the insurer.
An individual life insurance policy must include all of the following EXCEPT
A TABLE SHOWING THE ANNUAL LOAN VALUES OF THE POLICY FOR AT LEAST 30 YEARS Individual life insurance policies must include a table that shows, for at least 20 years, the annual loan values and options Davao;ab;e under the policies upon default in premium payments. They must also contain a 1-month grace period, an incontestability provision, and an entire contract provision.
Which of the following statements pertaining to the insuring clause in a life insurance policy is NOT correct?
IT SPECIFIES THE LENGTH OF THE GRACE PERIOD The insuring clause explains the promise the insurer has made to the named insured to pay a death benefit to a designated beneficiary. The grace period is a separate policy provision.
All of the following are required provisions in life insurance policies EXCEPT
A REPLACEMENT PROVISION Replacement is a transaction whereby one life insurance policy replaces another already in effect. It is not a required policy provision.
Which life insurance policy provision refers to the prompt payment of the death benefit?
PAYMENT OF CLAIMS The payment of claims provision states the insurer must pay death benefits promptly, which usually means no longer than 60 days.
Which of the following policy owner rights relates directly to the cash value of permanent insurance?
RIGHT TO TAKE A POLICY LOAN A policy owner has the right to take a policy loan based on the cash value accumulated in the policy.
A beneficiary receives the proceeds from a life insurance policy in a lump-sum payment. Which of the following statements best explains how the proceeds will be treated in relation to the debts of the beneficiary?
IT CAN BE SUBJECT TO THE BENEFICIARY'S DEBTS AND CREDITORS When proceeds of a life insurance policy are payable to a beneficiary but held in trust by the insurer, the beneficiary has an exclusive right to the proceeds. These payments are not subject to the beneficiary's debts and cannot be reached by creditors. This protection only applies to policies in which the proceeds are payable in installments. It does not protect proceeds paid in a lump sum. The protection also does not extend to proceeds once they are paid to a beneficiary.
While Debby was out of the country on vacation, she forgot to pay her life insurance premium, missed the grace period and wants to reinstate her policy. Which of the following is NOT a condition of reinstatement?
ASSIGNMENT OF A NEW BENEFICIARY Provided that Debby has not surrendered the policy for cash, she must submit a new application, pay all past due amounts plus premiums and take a new medical exam to provide evidence of insurability.
Which is NOT a life insurance policy provision?
CANCELLATION Consideration, reinstatement, and endorsements are all life insurance policy provisions. Cancellation is one of the health insurance policy provisions.
All of the following are life insurance policy provisions EXCEPT
NOTICE OF CLAIM Notice of claim is a health insurance provision, not a life insurance policy provision.
Which of the following is a required provision in all individual life insurance policies?
REINSTATEMENT All individual life insurance policies must include a reinstatement provision stating that if the policy owner defaults on premium payments, the value of the policy can be applied to purchase other insurance. If the insurance is in force and the original policy has not been cancelled or surrendered to the company, the policy can be reinstated within 3 years of default. Satisfactory evidence of insurance must be provided, if required; in addition, back payment of premiums with interest premium loans and payment of any other indebtedness to the company must be made.
Which of the following is NOT required in order to reinstate a lapsed permanent life policy?
SUBMIT AN APPLICATION FOR REINSTATEMENT WITHIN 4 YEARS OF THE LAPSE While not a requirement, the insurer may ask the insured to submit an application for reinstatement within 3 years of the lapse.
Peggy takes out a $50,000 10-year term policy on herself and names her 2 children, aged 11 and 12, as primary beneficiaries to share equally in the proceeds. How much would each child receive if Peggy should die when the children are aged 19 and 20?
$25,000 If Peggy dies within the 10-year term period, her beneficiaries will equally split the $50,000 face amount, each receiving $25,000.
The payment of claims provisions states that the insurer will pay the death benefit within how many days after receiving notification of the claim?
60 DAYS Payment of death claims must be made within 60 days after receiving notification of a claim. Interest will be added to the claim for payments made more than 60 days after the notification was received.
The mode of premium payment refers to
THE FREQUENCY OF THE PAYMENT The mode of the premium payment is the frequency of the payment. Modes are usually monthly, quarterly, semi-annually, and annually.
Under a common disaster clause in a life insurance policy, it is assumed that
THE INSURED DIED LAST, UNLESS THE PRIMARY BENEFICIARY LIVES BEYOND A STIPULATED PERIOD Under a common disaster clause in a life insurance policy, it is assumed that the insured died last, unless the primary beneficiary lives beyond a stipulated period (usually 30 or 90 days). If the primary beneficiary does not live beyond that period, proceeds are payable to the insured's secondary beneficiary or to her estate.
The best reason for designating a trust as a life insurance policy beneficiary is to
MAKE IT POSSIBLE TO MANAGE THE POLICY PROCEEDS FO RHT ELONG-TERM BENEFIT OF AN INDIVIDUAL OR ORGANIZATION The primary reason for naming a trust as a beneficiary is to let the insured control the proceeds after death. The trust can be set up to distribute the proceeds in whatever manner the grantor (insured) wishes. There are no special tax advantages for choosing a trust over an individual named beneficiary.
Tina's grandparents purchased a $250,000 universal life insurance with the intent to permanently transfer ownership to her when she turned 21. What is that transfer of rights known as?
AN ABSOLUTE ASSIGNMENT The transfer of ownership rights in whole to another individual is known as an absolute or permanent assignment.
The purpose of the common disaster provision is to
PROTECT THE INTERESTS OF THE CONTINGENT BENEFICIARY The common disaster provision provides a means for the policy owner to make certain that the contingent beneficiary receives the proceeds if both the insured and the primary beneficiary die within a short time of each other due to a common disaster. This provision states that the primary beneficiary must outlive the insured by a specified time period in order to receive the benefits. Otherwise, the policy proceeds go to the contingent beneficiary.
Which of the following is stated in the consideration clause of a life insurance policy?
THE AMOUNT AND FREQUENCY OF PREMIUM PAYMENTS The consideration clause specifies the amount and frequency of premium payments that the policyowner must make to keep the insurance in force.
Which of the following statements pertaining to reinstatement of a life insurance policy is CORRECT?
A NEW CONTESTABILITY PERIOD IS RENEWED WITH A REINSTATED POLICY When reinstating a life policy, a new 2-year contestability period starts. If the company reinstates the life policy, the premiums remain the same as they were before the policy lapsed for nonpayment. The insurance company never underwrites the beneficiaries on a life policy; only the insureds have to prove insurability. Reinstatement is only available to policy owners if the policy lapses for nonpayment and within 3 years.
Which section of a life insurance policy specifies the conditions, times, and circumstances under which the insured is NOT covered by the policy?
EXCLUSIONS The exclusions section of a life insurance policy specifies the conditions, times, and circumstances under which the insured is not covered by the policy.
All of the following statements regarding the insuring agreement are true EXCEPT
THE AGENT OR PRODUCER MUST SIGN THE CLAUSE An insuring clause or agreement in life insurance contains the insurer's promise to pay the death benefit to a named beneficiary. An authorized officer of the company must sign the clause, not an agent or producer.
Vivian commits suicide 4 years after taking out a $100,000 life insurance policy on herself. Her beneficiary is concerned that the death claim will be denied. Which of the following statements is NOT correct?
THE COMPANY HAS DEFINITE PROOF OF THE CAUS EOF HER DEATH, SO IT CAN REFUSE TO PAY THE DEATH BENEFIT. As a general practice, the suicide clause provides that death benefits are payable in full after the policy has been in force for 2 years, even if the insured did commit suicide.
Who designates the beneficiary of a life insurance policy?
THE POLICY OWNER One of the rights of owning a life insurance policy is the right to designate and change the beneficiary of the policy proceeds.
The incontestability period is usually
THE SAME FOR BOTH INDIVIDUAL AND GROUP LIFE INSURANCE POLICIES The time period for the incontestability provision in individual and group life insurance policies is usually the same, with the standard incontestability period being 2 years.
Which of the following statements pertaining to reinstatement of a life insurance policy is NOT correct?
A SUICIDE EXCLUSION PERIOD IS RENEWED WITH A REINSTATED POLICY When reinstating a life policy, no new suicide exclusion period goes into effect.
Which provision of a life insurance policy states that "no statement shall void this policy or be used in defense of a claim under it unless contained in the application"?
ENTIRE CONTRACT CLAUSE The entire contract clause states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract. The policy cannot refer to any outside documents as being part of the contract.
Which of the following statements regarding the insuring clause is NOT correct?
IT IS USUALLY SIGNED BY THE INSURED The insuring clause is usually signed by an authorized officer of the company.
To reinstate a lapsed policy, the insured must do all of the following EXCEPT
SIGN A NOTICE TO THE APPLICANT REGARDING REPLACEMENT For a policy to be reinstated, the insured must submit a written application; produce satisfactory evidence of insurability, if required by the insurance company; pay all back premiums (with interest); and pay any other debt to the insurer. Only in a replacement transaction is the selling agent required to sign a Notice to the Applicant Regarding Replacement.