Ch. 4 Life and health

how long is the suicide clause?

2 years

what is the incontestable clause time limit?

2 years

B's policy had a $1,000 annual premium. B has not paid it for 2 years and wants to put the policy back in force. The insurer charges 10% interest on overdue premiums. What does B have to pay in order to reinstate their policy? A 2 years of premiums, plus interest due on overdue premiums amounts B 2 years of premiums C One month's premium, plus a reinstatement fee specified in the policy D 2 years of premiums, a reinstatement fee, and interest

2 years of premiums, plus interest due on overdue premiums amounts

how long do you have to reinstate a lapsed policy?

3 years

State law may vary, but life insurance policies GENERALLY cannot be backdated more than ______ months.

6 months

Dividends left to accumulate at interest: A Will decrease the face value of the certificate at death B Can be withdrawn without affecting the cash value of the policy C Are only available to the policy beneficiaries D Always accumulate tax deferred

Can be withdrawn without affecting the cash value of the policy

No assignment of a policy will be binding on the insurer, unless: A It is determined to be a valid by the insurer B Sworn affidavits accompany the request C It is in writing and received at the insurer's home office D It is accompanied by supporting legal documentation

It is in writing and received at the insurer's home office

A beneficiary wants a guarantee that benefits will be paid for a period of 10 years or life whichever time period is greater. Which of the following options should the beneficiary select? A Fixed Amount B Joint Life Income C 10-year Period Certain D Life with 10-year Period Certain

Life with 10-year Period Certain

The Reduced Face amount is always determined by the:

net amount of cash value at the time the option is exercised

what is spendthrift clause?

prevents creditors or beneficiaries from seizing the proceeds early

what is the proper sequence for beneficiaries?

primary, contingent, tertiary

what is a surrender charge?

provides an incentive for the policyowner to maintain a policy (decreases over time)

If the insured's age has been overstated at the time the policy was purchased, and the error is discovered prior to the death of the insured, the company will: A Increase future premium payments B Will increase the face amount of insurance to reflect the face amount that the premiums should have purchased C Always cancel the policy D Reduce future premium payments

reduce future premium payments

All of the following are Settlement Options, except: A Fixed Period B Fixed Amount C Life Income Joint and Survivor D Reduced Paid-Up

reduced paid-up

The nonforfeiture option that provides coverage for the longest period of time is:

reduced paid-up

Which nonforfeiture option would you use to keep your policy in force, but with a smaller face amount of the same type, and would eliminate any further premium payments? A Reduced paid-up option B Premium reduction C Extended term option D Cash surrender option

reduced paid-up option

describe dividends

several options to choose from, not guaranteed, not usually taxable, can be withdrawn

who is the irrevocable beneficiary

someone that cannot be removed without consent

A $100,000 life insurance policy has an Accidental Death double indemnity rider, and an outstanding $10,000 policy loan. Following the accidental death of the insured, the beneficiary will receive:

$180,000 bc outstaning policy loans are deducted from the face amount at the time of the claim. the accidental death rider does not affect it

K has a loan of $5,000 outstanding against her $25,000 traditional whole life policy. If K dies, how much will her beneficiaries receive?

$20,000

Albert owned a $100,000 policy that had accumulated a cash value of $20,000, against which he had borrowed $10,000. If he dies with this loan outstanding, his beneficiary will receive which of the following amounts?

$90,000 bc any outstanding loans at the insured's death will be deducted from the face amount (death benefit) along with any interest due

what is the most expensive overall premium mode? monthly quarterly annually

monthly

What is the purpose of nonforfeiture values?

Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium

what is reduced paid-up?

a nonforfeiture that keeps the policy in force

cash value is considered:

collateral used

Paul is the insured and policyowner. Paul named Danny and Kayla as co-primary beneficiaries of Paul's $100,000 policy. Danny is to receive 70% and Kayla is to receive 30%, therefore Danny gets $________ and Kayla gets $______ when Paul dies.

70,000/ 30,000

Which statement is FALSE regarding Nonforfeiture Options? A The 3 nonforfeiture options are Cash Surrender, Reduced Paid-Up, and Extended Term B They add flexibility to a cash value policy C They protect the policyowner against total loss of benefits if the policy should lapse or be cancelled D They are used when the insured lives to the endowment date of the policy or at the insured's death

They are used when the insured lives to the endowment date of the policy or at the insured's death

What is one of the main reasons for a Universal Life policy to have a surrender charge? A It motivates the producer to properly sell the policy B It is a way to recoup interest paid, but not earned by the policyholder C This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy D It encourages large additional premium deposits from policyowners

This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy

All of the following are life insurance policy prohibited provisions, except: A Limiting the time to bring legal action against an insurer to less than 1 year B Settlements for less than the face amount plus dividends minus the sum of outstanding policy loans, loan interest, and unpaid premium C Voiding a policy for failing to repay any policy loan or loan interest when the total outstanding policy debt is greater than the policy's cash value D Backdating a policy more than 6 months to save age in order to lower the policy premium

Voiding a policy for failing to repay any policy loan or loan interest when the total outstanding policy debt is greater than the policy's cash value

A partial withdrawal is considered ______________. A A policy loan B A partial surrender of the policy C A temporary event D A one-time event

a partial surrender of the policy

what is a a total transfer of value made (considered permanent)?

absolute assignment

Sylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will: A Accept the beneficiary change B Require Sylvia to prove insurability C Decline the change due to lack of insurable interest D Require Sylvia to prove that her best friend is financially dependent on her

accept the beneficiary charge

When can a policyowner make a change in the policy's coverage or other benefits if an irrevocable beneficiary has been named?

after the irrevocable beneficiary dies

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Claire dies, then Alice dies, so who receives the policy proceeds?

alice's estate

what is the cash surrender value?

amount received by the policy owner when the policy is terminated

Which of the following provisions is NOT a standard provision? A Insuring Clause B Backdating C Entire Contract Clause D Misstatement of Age

backdating

The cash received by the policyowner when he/she terminates a policy is known as what?

cash surrender value

An insured goes to the bank for a business start-up loan. Asking for more security, the bank agrees to accept a(n) __________ on a permanent life insurance policy owned by the customer. A Promissory Note B Exclusion Provision C Policy Loan D Collateral Assignment

collateral assignment

charge for variable life _________(increases/decreases) over time

decreases

All of the following are common exclusions, except: A Hazardous occupation B Aviation C Driving D Hazardous hobbies

driving

Once issued, if the application is attached to the policy itself, it then becomes part of the ___________.

entire contract

When a policy lapses due to nonpayment of premium, which nonforfeiture option is the automatic option?

extended term

what option provides the most amount of coverage for the least amount of time?

extended term

what option provides the most protection?

extended-term option

A policyowner allows a policy to lapse and the insurance company converts the policy to the extended term option. Which of the following from the original policy will automatically carry over into the new policy? -cost of living rider -auto premium loan provision -face value -payor benefit

face value

Frank, the owner of a life insurance policy, chooses a Settlement Option whereby the proceeds of his policy will be paid out over 20 years. Frank has chosen:

fixed period

how are settlement options paid?

in lump sum or mode of equivalent value

The settlement option under which the principal never decreases unless the beneficiary withdraws it is the: A Fixed period option B Interest option C Fixed amount option D Life income option

interest option

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, except: A It becomes effective, if elected, at the end of the grace period B It must be elected by the policyowner C It can be cancelled at any time by the policyowner D It is available on any type of life insurance policy

it is available on any type of life insurance policy

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, except: A It is available on any type of life insurance policy B It can be cancelled at any time by the policyowner C It must be elected by the policyowner D It becomes effective, if elected, at the end of the grace period

it is available on any type of life insurance policy

what are factors that determine the amount of payment under a fixed settlement?

length t of period fixed, face amount of policy and interest

Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose: A Interest B Fixed Amount C Life Income Only D Fixed Period

life income only

Automatic nonforfeiture benefit

means extended term

what is consideration?

money paid by the insured values exchanged

what is the reinstatement provision?

specifies what the insurer must do if the policy has lapsed

what does the reinstatement provison do?

specifies what the insurer must do if the policy lapses

Which of the following would prevent creditors of beneficiaries from seizing or receiving any death benefit proceeds prior to the beneficiary actually receiving benefits? common disaster clause assignment incontestability spendthrift clause

spendthrift clause

interest paid on dividends is:

taxable as income

Joe has a policy with a face amount of $50,000 and a policy loan of $2,000. He is also a week late on his $500 premium payment. Joe decides he can no longer make monthly payments, so he chooses the reduced paid up nonforfeiture option. What is the face value on the new policy? A $50,000 B The amount that the reduced paid up option purchased C A reduced amount minus the $2,000 loan balance D A reduced amount minus the $500 premium

the amount that the reduced paid up option purchased

what does premium reduction mean?

the dividends are applied to the Next (due) premium

An insured purchased an ordinary life policy 15 years ago, and at that time listed her husband as the only beneficiary. Her husband died 2 years ago but she never changed the beneficiary. She dies, leaving one surviving adult child. Who receives the death benefit?

the insured's estate

If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit?

the insured's estate

who can change the premium mode?

the policyowner

what does an interest option mean?

the principal never decreases unless the beneficiary withdraws

if policy lapses due to nonpayment...

the reinstatement requires payment of back premiums, plus interest, and proof of insurability

what is the only difference between cash value and cash surrender value in terms of a variable universal life policy?

the surrender charge

A partial withdrawal is permitted on which of the following policies? A Whole Life B Variable Whole Life C Current Assumption Whole Life D Universal Life

universal life

what is backdating?

used to save age, no more than 6 months. it is prohibited

what are exclusions?

where coverage is not provided. stipulates will not pay