CH 4 Life Provisions

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?

$20,000 death benefit

How long is the grace period for ordinary insurance?

30 days

Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?

Decreasing Term

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?

Evidence of insurability is required when the option is exercised

A young, married teacher has two children and owns a Whole Life policy. If the teacher wants an increasing Death Benefit to protect against inflation, the teacher should select which of the following Dividend Options?

Paid-Up Additional Insurance

Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?

It is taxed as ordinary income

An error was made on Mary's life insurance application. Which of the following areas do errors commonly occur on applications and for which the incontestable clause does NOT apply?

Age

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

An insurer's basic promise

Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?

Collateral assignment

All of these statements concerning Settlement Options are true, EXCEPT:

Only the beneficiary may select

In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits form the policy?

Owner's Rights

A waiver of premium benefit for a life insurance policy is utilized when the insured:

becomes completely disabled

Which rider allows a policyowner to purchase life insurance coverage at specified dates without providing evidence of insurability?

guaranteed insurability option rider

A beneficiary can only be designated by the:

policyowner

The free-look provision gives the policyowner:

the right to return the policy for a full refund within a specified number of days

A life insurance company has determined that a recently deceased insured had understand her age at the time of application five years prior. How will this affect the insurer's claim disbursement?

Beneficiary will receive reduced policy benefits

Which rider allows a policyowner to switch to a new policy in the future if they desire?

Exchange Privilege Rider

A life insurance policyowner falls behind on his premium payments and dies during the grace period. How will the insurer handle this claim?

Face amount will be paid minus the past due premium

All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death, EXCEPT:

Interest Only

Which statement is TRUE in regards to a policy loan?

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

A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the:

Policy Loan provision

S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?

Return of premium rider

How are the dividends from a participating life insurance policy normally treated?

Typically not subject to Federal income taxes

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

Variable Life

A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?

Waiver of Premium