#3 Life Insurance Policies- Provisions, Options, and Riders

Additional coverage can be added to a Whole Life policy by adding a(n)

"Decreasing term rider". A decreasing term rider can add additional coverage to a whole life policy

Which life insurance rider typically appears on a Juvenile life insurance policy?

payor benefit rider

whole life insurance is sometimes referred to as "straight life" what does the word "straight" indicate when using this phrase.

the duration of premium payments

Which type of policy is considered to be overfunded, as stated by IRS guidelines?

"Modified Endowment Contract". A policy that is overfunded to where it does not meet the 7-pay test is considered a Modified Endowment Contract.

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?

"Pay face amount minus the past due premium". In this situation, the insurer would pay the death benefit less the past-due premium because death occurred within the grace period.

What type of life insurance incorporates flexible premiums and an adjustable death benefit?

"Universal Life". Universal Life is designed to provide flexible premiums and an adjustable death benefit

A policy loan is made possible by which of these life insurance policy features?

(Cash value provision)- The Cash value provision makes a policy loan possible.

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?

(Variable Universal Life)- is comprised of monthly mortality charges and self directed investment choices.

A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?

20-Pay Life accumulates cash value faster than Straight Life

What type of policy would offer a 40-year-old the quickest accumulation of cash value?

20-pay life

which statement is true regarding a variable whole life policy?

A minimum guaranteed Death benefit is provided

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?

Beneficiary will be paid the Death Benefit

S is covered by a whole life policy. Which insurance product can cover his children?

Child term rider

when a policy owner exchanges a term policy for a whole life policy without providing proof of good health which of these apply?

Conversion provision

which provision prevents an insurer from changing the term of the contract with the policyowner by referring to documents not found within the policy itself?

Entire Contract Provision

which of these statements about a Guaranteed Insurability Option rider is NOT true?

Evidence of insurability is required when the option is exercised

which of these statements describe a modified endowment contract (MEC)?

Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract

An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?

Full face amount minus any past due premiums

The purpose of the _______ Period clause is to avoid an unintentional lapse of a life insurance policy.

Grace

which statement is TRUE in regards to a policy loan?

Past-due interest on a policy loan is added to the total debt

B recently died and was insured with a life insurance policy for over five years. during the claims process, the insurer discovered that B had understated his age by five years at the time of application. in this situation the insurer will..

Pay the amount that the premium would have purchased at the correct age.

which is true concerning a variable universal life policy?

Policyowner controls where the investment will go and selects the amount of the premium payment

which of these characteristics is consistent with a straight life policy?

Premiums are payable for as long as there is insurance coverage in force

what benefit does the Payor clause on a juvenile life policy provide

Premiums are waived if payor becomes disabled

which of the following actions is NOT possible with a universal life policy?

Premiums may be applied as a credit against income tax

what advantage does the renewable feature give to a term policy?

The insured may extend the coverage period.

The advantage of reinstating an original life policy is..

The premiums are based on a younger age

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will:

adjust the death benefit to a reduced amount

Variable Whole Life Insurance can be described as

both an insurance and securities product

The incontestable clause allows an insurer to:

contest a claim during the contestable period

Which provision allows the policy owner to change a term life policy to a permanent one without providing proof of good health?

conversion

additional coverage can be added to a whole life policy by adding a

decreasing term rider

which of these needs satisfied by adjustable life insurance??

insured's need for flexible premiums

B receives yearly dividends and interest from a participating life insurance policy. which of these should B include as gross income from federal income tax purposes?

interest only

Credit life insurance is:

issued in an amount not to exceed the amount of the loan

K purchased a life insurance policy in 1986 which paid 10% interest in the early years of the policy. 20 years after the purchase she receives a notice from the insurer stating that the policy will soon terminate unless a much higher premium is paid because of falling interest rates. this type of policy is known as a _________ life policy.

universal

the cash value in a _____ life policy may fluctuate to reflect changing assumptions regarding mortality cost, interests, and expense factors.

universal

Which of these types of life insurance allows the policy owner to have a level premium and to also choose from a selection of investment options?

variable life

which of the following policies is characterized by flexible premium and death benefit and allows the policy owner control of the investment aspect of the plan?

variable universal life

A policy that becomes a modified endowment contract (MEC):

will lose many of its tax advantages