CH 2 Provisions, Options and Riders: Provisions

A long-term care rider in a life insurance policy may trigger a benefit in the event of the inability of the insured to perform more than 2 Activities of Daily Living (ADL's).

A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following?

the beneficiary will receive the face amount of the policy less any past due premiums.

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?

"Interest on accumulations is taxed". If the dividends exceed the total premium payments for the insurance policy, the excess dividends are considered taxable income.

How are policyowner dividends treated in regards to income tax?

L's spouse has coverage until age 65.

L, aged 50, and L's spouse, 48, have one natural child and one adopted child. They purchase a Family Policy that covers L's spouse to age 65. A death benefit will NOT be paid in which of the following circumstances?

Life insurance that covers an insured's whole life with level premiums paid over a limited time is called Limited Pay Life.

Life insurance that covers an insured's whole life with level premiums paid over a limited time is called:

Claim will be denied.

N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?

In this situation, a whole life policy with an other insured rider would be appropriate.

Q would like to purchase $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy. What kind of policy should Q purchase?

$50,000

S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?

Variable Whole Life Insurance is both an insurance and securities product.

Variable Whole Life Insurance can be described as:

"Whole Life". A policy that provides permanent life insurance with premiums payable for life is called Whole Life.

What type of insurance offers permanent life coverage with premiums that are payable for life?

"at future dates specified in the contract with no evidence of insurability required". This rider provides specific dates on which additional life insurance policies can be bought without providing proof of insurability.

When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?

The face amount of a Whole Life policy will be paid when the insured dies or on maturity of the policy, whichever occurs first.

When is the face amount of a Whole Life policy paid?

"Payor provision". A payor provision provides that in the event of death or disability of the adult premium payor, the premiums on a juvenile policy will be waived until the insured child reaches a specified age or the maturity date of the contract.

A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?

"Conversion privilege". The conversion privilege allows an individual to leave the group term plan and continue his or her insurance without providing evidence of insurability.

Which of the following features of a group Term Life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability?

"15-year decreasing term". A 15-year mortgage is best protected by a 15-year decreasing term policy.

A 15-year mortgage is best protected by what kind of life policy?

"Universal Life". Universal life insurance is characterized by flexible premiums and an adjustable death benefit.

A 42-year-old executive wants to purchase life insurance that will allow for increases or decreases to coverage as his/her needs change. Which of the following policies will best meet this need?

A Renewable Term Policy is renewable at the option of the insured.

A Renewable Term Policy is renewable at the option of the:

insurance at specified times.

B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of

"issued in an amount not to exceed the amount of the loan". Credit life insurance is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid.

Credit Life insurance is: issued in any amount at the discretion of the applicant used in the event of loss of income issued in an amount not to exceed the amount of the loan coverage that waives the premiums on a loan payment in the event of total disability

Level Term

D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?

"Accidental Death and Dismemberment (AD&D) rider". An Accidental Death and Dismemberment (AD&D) rider provides an additional death benefit for a limited period of time at the lowest possible cost.

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n):

"Decreasing term". A decreasing term policy has a death benefit that adjusts periodically and is written for a specific period of time.

What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?

The policyowner (investor) benefits upon the death of the insured.

Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?

"Variable Life". The cash value and death benefits of a Variable Life policy can fluctuate according to the performance of its underlying investment portfolio.

A life policy with a death benefit that can fluctuate according to the performance of its underlying investment portfolio is referred to as:

The beneficiary will receive $50,000 less any outstanding loans and interest. At the time of the insured's death, the policy is beyond the contestable period.

P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?

"Premiums may be applied as a credit against income tax". All of these actions are possible with a Universal Life policy EXCEPT "Premiums may be applied as a credit against income tax".

Which of the following actions is NOT possible with a Universal Life policy? Policy's cash value may be used to pay premiums Premium payments may be made at unscheduled times Premiums may be applied as a credit against income tax Face amount may be adjusted

"Universal Life". A Universal Life policy has a cash value that may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors.

Which of the following types of policies BEST identifies one in which the cash value may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors? Universal Life Endowment Life Modified Whole Life Graded Premium Whole Life

"30 Pay Life". Limited pay whole life policies have level premiums that are limited to a certain period.

N is a 40-year old applicant who would like to retire at age 70. He is looking to buy a life insurance policy with level premiums, permanent protection, and be paid-up at retirement. Which of these should N purchase?

A policy that provides an income for a specific period starting at the death of the insured is a Family Maintenance Policy.

What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?

The type of insurance used for Credit life is typically decreasing term, with the term matched to the length of the loan period.

Credit life insurance is typically issued with which of the following types of coverage?

variable insurance products do not guarantee contract cash values, and it is the policyowner who assumes the investment risk. Variable life insurance contracts do not make any promises as to either interest rates or minimum cash values.

A variable insurance policy: guarantees a minimum rate of return does not allow the policyowner to assume the investment risk does not guarantee a return on its investment accounts does not guarantee an assignment provision

Modified Whole Life

All of these insurance products require an agent to have proper FINRA securities registration in order to sell them, EXCEPT for: Variable Life Modified Whole Life Universal Variable life Variable Annuity

20 pay life

J is 35-years old and looking to purchase a whole life insurance policy. Which of the following types of policies will provide the most rapid growth of cash value?

$20,000

K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?

If the insured dies before the endowment's maturity, the policy's face value — also known as the "death benefit" — is paid in a lump sum to any beneficiaries.

K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?

"Insuring Agreement". The insuring clause or provision sets forth the company's basic promise to pay benefits upon the insured's death.

The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n):

the cash value

The investment gains from a Universal Life Policy usually go toward:

"automatically add the amount of interest due to the loan balance". Unpaid interest from a policy loan is added to the loan balance if not paid by the due date.

What action will an insurer take if an interest payment on a policy loan is not made on time?

The insuring agreement in a Life insurance contract establishes the basic promise of the insurance company.

What does the insuring agreement in a Life insurance contract establish?

"Family Maintenance Policy". A Family Maintenance Policy pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period.

What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years?

"Convertible Term". Convertible term provides temporary coverage that may be changed to permanent coverage without evidence of insurability.

What kind of life insurance starts out as temporary coverage but can be later modified to permanent coverage without evidence of insurability?

"Modified Endowment Contract (MEC)". When a life insurance policy exceeds certain IRS table values, the result would create a Modified Endowment Contract (MEC).

When a life insurance policy exceeds certain IRS table values, the result would create which of the following?

exclusion

When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n):

"The duration of premium payments". The word "straight" denotes the duration of premium payments, usually for the rest of the owner's life.

When applied to Whole Life insurance, the word "straight" denotes:

Accumulation at interest

Which of the following Dividend options results in taxable income to the policyowner?

increase face amount

Which of the following actions require a policyowner to provide proof of insurability in an Adjustable Life policy?

"There is a flexible premium payment". An Interest-Sensitive Whole Life policy is characterized by premiums that vary to reflect the insurer's changing assumptions regarding its death, investment, and expense factors.

Which of the following characteristics is CORRECT about Interest Sensitive Whole Life?

Conversion Privilege

Which of the following features of a group Term Life policy enables an individual to leave the group and continue his or her insurance without providing evidence of insurability? Owner's Rights clause Incontestable Period Insuring Agreement Conversion privilege

"Reduced Paid-Up". A Reduced Paid-Up option would provide continuing cash value build-up.

Which of these Nonforfeiture Options continue a build-up of cash value? Waiver of Premium Extended Term Reduced Paid-Up Cash Surrender

"Life Income". All of these are examples of Nonforfeiture options EXCEPT Life Income.

Which of these are NOT an example of a Nonforfeiture option? Extended Term Reduced Paid-up Cash Surrender Life Income

Straight whole life provides permanent level protection with level premiums from the time the policy is issued until the insured's death (or age 100).

Which of these characteristics is consistent with a Straight Life policy? Owner can adjust both premium and death benefit Premiums are lower for the first five years, increase the sixth year, then levels off for the remaining length of the contract Owner has the option of converting to term insurance Premiums are payable for as long as there is insurance coverage in force

Changing contract provisions is not a policyowner right.

Which of these is NOT considered to be a right given to a policyowner? Surrendering the policy's cash value Modify a provision in the insurance contract Assignment of ownership Change the beneficiary, if revocable

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

Which of these statements describe a Modified Endowment Contract (MEC)? Falls below the minimum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract The 7-pay test is used to determine the minimum death benefit of the policy The 7-pay test is used to determine the maximum death benefit of the policy

Policies that do not meet the 7-pay test are considered MEC's and will lose favorable tax treatment. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven year period.

Which of these statements describe a Modified Endowment Contract (MEC)? Falls below the minimum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract The 7-pay test is used to determine the minimum death benefit of the policy The 7-pay test is used to determine the maximum death benefit of the policy

Entire Policy Provision

Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself? Policy Exclusion Incontestable Entire Contract Provision Assignment

"child". A payor benefit clause is generally added to a life policy that insures the life of a juvenile. It provides continuance of insurance coverage in the event of the death or total disability of the individual responsible for the payment of premiums.

Whose life is covered on a life insurance policy that contains a payor benefit clause?