Ch 5 pt1- Policy Provisions, Options, Riders
A full refund
A policyholder has the right to examine the policy purchased. If the policy owner returns the policy to the insurer within the specified time, to be cancelled, he/she can expect: The policyholder can expect a full refund if the policy is returned within the specified time.
-Right to name a beneficiary - Right to take out a policy loan - Right of assignment
All of the following are ownership rights
States that the insurer's promise to pay benefits is contingent upon the policyowner's premium payments
All of the following are part of the entire contract provision, EXCEPT: The insurer's promise to pay benefits in exchange for the policyowner's premium payments is part of the consideration clause.
The APL is unlike other policy loans, and if not repaid, it will not reduce the death benefit by the amount of the premium loan with interest.
All of the following statements are true regarding the APL provision in a life insurance policy, EXCEPT: An APL is like any other policy loan, and if not repaid will reduce the death benefit by the amount of the premium loan with interest.
Surrender or cancel the policy within 10 years of the reinstatement date
Gerry forgets to pay his life insurance premium, and the policy lapses. If he is within the reinstatement period and decides to reinstate his policy, he will be required to take all of the following actions, EXCEPT: When the insured reinstates a life insurance policy, all of the following must be done: 1.) Pay all past-due premiums; 2.) Pay any back-due interest on outstanding policy loans; and 3.) provide proof of insurability.
The insurer will automatically use the policy cash value to pay an overdue premium.
Which of the following best describes the automatic premium loan provision of a life insurance policy? The automatic premium loan provision permits the insurer to automatically use the policy cash value to pay an overdue premium.
a. All the rights of the policy are assigned. b. The assignee has the right to use the cash value of the policy. c. The policyowner cannot recover surrendered rights.
Gail has no children and has decided to make a gift of her life insurance to her alma mater. This type of assignment is voluntary and also usually absolute and complete. Specifics of this type of assignment include: With this type of assignment, all rights are assigned, the assignee can use the cash value and the assignment is usually permanent.
The policy is voided.
Helen was trying to quit smoking, so when she filled out her life insurance application, she listed herself as a nonsmoker. What will happen if the insurer discovers that she is still smoking one year after the policy was written? Misstatement of smoking status will result in the coverage immediately being voided.
a. Not more than three (3) years have elapsed b. Back premiums have been paid c. Proof of insurability is provided
If a life insurance policy lapses, it can be reinstated if which of the following conditions is met? All of the conditions are required to reinstate a policy.
The proceeds go to the estate of the insured.
If no beneficiary is named in the insuring clause of a life policy, what happens to the benefit proceeds? If no beneficiary is designated on a life policy, the proceeds go to the insured's estate.
2 years
In most states, the period of contestability for material misrepresentations made on a life insurance application is: In most states, the incontestable clause is a 2-year period. From the date of application, the insurer has 2 years to contest any material misrepresentations made on the application.
Statements made on the application and initial premium
Julie applies for a health insurance policy. Her consideration consists of: The applicant's consideration consists of the statements made on the application to the best of the applicant's knowledge, and the applicant's initial premium.
The death benefit would be lowered.
Annie was a beneficiary on her aunt's life policy. After Annie's aunt died, the insurer discovered that her aunt's age had been misstated on the original life insurance application. The aunt was actually 5 years older than what was stated on the policy. What affect does this have on the policy benefits? Because Annie's aunt was actually 5 years older than the age stated on the policy, the amount of the death benefit would be lowered.
Consideration
The ____________ clause states that the insurance coverage is in place on application and the payment of the first premium. The consideration clause grants coverage when the application has been made and the first premium paid.
representations; warranties
The applicant's statements in the application are considered ______________ and not _____________, unless fraudulent. The applicant's statements in the application are considered representations and not warranties, unless fraudulent.
Uses the cash value to pay unpaid premiums, thereby keeping the policy in force
The automatic premium loan provision is best described by the following: The automatic premium loan provision uses the policy's cash value to pay premiums so the policy does not lapse due to nonpayment of premiums.
Collateral
Which type of assignment is partial and temporary? A collateral assignment is a partial and temporary transfer of ownership rights and is usually used for securing a loan.
a. Applicant b. Insured c. Premium payor
Who of the following can be the owner of a life insurance policy? The owner of a policy is usually the applicant or insured, but can also be the premium payor.
The policyowner
Of the following individuals, who has the right to change the beneficiary designations in a life insurance policy? The policyowner has all rights of ownership, including changing the beneficiary designations in a life insurance policy.
The insurance company's promise to pay benefits
The insuring clause is best described as: The insuring clause contains the insurer's basic promise to pay benefits.
The amount of the policy premium
The insuring clause of a policy includes all of the following, EXCEPT: The amount of the policy premium is not part of the insuring clause.
The correct answer is: The death benefit was increased.
When Dakota's life insurance policy was written, it stated on the policy that Dakota was male. However, Dakota is female. On average, women tend to live several years longer than men. When Dakota died this misstatement was discovered. How did this impact the policy? On average, women tend to live several years longer than men. This is why life insurance premium rates tend to be lower for women. The death benefit would be increased.
Weekly
When Julie is choosing a payment option for her life insurance premium, which of the following is NOT normally an option?
Consideration clause
Which clause states that the policy owner must pay something of value for the insurer's promise to pay benefits? The consideration clause states that a policyowner must pay a premium in exchange for the insurer's promise to pay benefits.
Pay all back due premiums with interest and provide proof of insurability
Which of the following best describes what a policy owner must do to reinstate a lapsed life insurance policy?
2 years
How long is the loan period on STOLI arrangements? The loan period is typically 2 years on STOLI arrangements.
The automatic premium loan does not reduce the death benefit of the policy.
A policyholder can request an automatic premium loan (APL) provision on their cash value life policy to protect against an unintended lapse in coverage due to nonpayment of premium. All of the following are true statements regarding the automatic premium loan provision, EXCEPT
Term insurance builds cash value.
All life insurance is either term insurance or cash value insurance. Term insurance insures your life only for a specified time. Which of the following is not true about term insurance? Term insurance does NOT build any cash value. While age is not the only consideration, premiums are generally lower for younger insureds.
The correct answer is: Right to make changes to the policy
All of the following are ownership rights, EXCEPT: Only an authorized officer of the insurer can make changes to the policy; however, a policyowner can request a policy change.
The policy has not been expired for more than 1 year.
Dianne's life policy lapsed due to unpaid premiums. Which of the following statements is not true about conditions to reinstate a policy? Most states allow reinstatement up to three (3) years after the lapse of a policy.
Changing the grace period
Hank wants to understand his rights as the owner of a life insurance policy. All of the following are rights under the owners' rights provision, EXCEPT: Changing the grace period on a policy is not an owners' right.
STOLI
IOLI is a: Investor-originated life insurance (IOLI) is a type of STOLI. With IOLI, investors solicit elderly people to purchase life insurance, and an agent or broker agrees to loan insureds money to pay the premiums for a period of time, with the agreement that after two years in paying premiums the investors become the policyowners, and receive the policy death benefits upon the insured's death.
Repay th e loan with interest
If a policy loan is unpaid, the automatic premium loan provision has the effect of deducting the amount of the loan with interest from the death benefit. What should the policyowner do to avoid this reduction in the death benefit? To prevent the death benefit from being reduced, all outstanding loans plus interest must be repaid.
When she feels like it
Jennifer is trying to add her insurance premium payments to her budget. All of the following are accepted payment mode options, EXCEPT: When she feels like it is not a payment option for life insurance policies.
Adjust the premium to the correct amount for Judith's correct age
Judith unintentionally misstates her age on her policy application. The insurer discovers the mistake 15 years later, while Judith is still alive. What will the insurer do? Since Judith is still living, the insurer will adjust her premiums.
10 days
Richard's agent delivered his new life insurance policy to him for a free look. The free look provision may vary from state to state and for the type of policy. What is the minimum amount of time allowed for a free look on a newly issued life insurance policy? The minimum free look for a newly issued life insurance policy is 10 days.
Permission for producer to make changes to the policy
The entire contract clause of a life policy provides all of the following, EXCEPT: The entire contract clause prevents the producer and the policyholder from amending the policy.
Grace period
The stipulated period of time, allotted by the insurance company, to allow a policyholder to make an overdue payment while the policy remains in force and coverage is provided is called the _____________. The grace period is a stipulated period of time that policyowners are allotted to pay overdue premiums.
Pay the death benefit minus the overdue premium
Barney dies during the grace period of a life insurance policy. The insurer will: Coverage is still in force during the grace period. The insurer will deduct the overdue premium from the death benefit if the insured dies during the grace period.
Pay the death benefit based on Marcella's actual age
Marcella purchases a modified life insurance policy at the age of 31. Thinking she could get a slightly better rate on her policy, she lists her age as 21. If the insurance company discovers the error upon Marcella's death, what action will the insurance company take? The insurance company will pay the death benefit, but it will be reduced based on what the premium should have been with Marcella's correct age. Take note: even an intentional misstatement of age is not considered material enough to void the policy.
The correct answer is: Pay the death benefit, but deduct the premium due
Megan dies during the grace period. What will the insurance company do? Coverage is still in force during the grace period. The insurer will deduct the overdue premium from the death benefit if the insured dies during the grace period.
Misstatement of age
Once a life insurance policy has been in force for two years, the incontestable clause prevents the insurer from denying a claim or canceling the policy for anything other than nonpayment of premiums. Which of the following is NOT a reason for voiding a policy during the contestable period? Misstatement of age is not a reason to void a policy. The policy can be rewritten to reflect the premium for the correct age.
$40,000
Paul buys a $50,000 whole life insurance policy. After some time, he has $20,000 cash value in the policy. The interest rate on his policy is 7%. Paul decides to take out a policy loan in the amount of $10,000 on January 1, and decides to prepay the interest that would be due on the loan. That year he does not repay the loan. If Paul dies on December 31 of that year, what is the most his beneficiary will receive? The most Paul's beneficiary will receive is the face amount minus the policy loan (interest is not deducted because Paul prepaid the interest for the year).
Authorized officer of the insurer
Per specifications in the entire contract clause, who can amend the life policy? Only an authorized officer of the insurance company can amend a policy.
Total unconditional assignment
The transfer of some or all of a policyowner's legal rights to another party is called an assignment. Which of the following is NOT a type of assignment utilized to transfer rights? There is no assignment designated as total unconditional.
Insuring clause
This provision identifies the named insured, type, and amount of coverage provided by the policy: The insuring clause is found on the policy face (title page). It contains the insurer's basic promise to pay benefits. The insuring clause names the individuals covered by the policy, the policy effective date, and period of coverage.
Insuring clause
This provision identifies the named insured, type, and amount of coverage provided by the policy? The insuring clause is found on the policy face (title page). It contains the insurer's basic promise to pay benefits. The insuring clause names the individuals covered by the policy, the policy effective date, and period of coverage.
Absolute
This type of assignment is voluntary and involves a voluntary transfer of all ownership rights of a life insurance policy to another party. An absolute assignment is a voluntary assignment of all ownership rights to another person or entity.
Assignment clause
Transfer of ownership rights from one person to another is described by the: The assignment clause specifies the policyowner's right to transfer ownership rights from one person to another.
Provide assurance that the policyholder has all necessary policy documents in their possession
What is the primary purpose of the entire contract provision in a life insurance policy? The primary purpose of the entire contract clause is to make sure that the policyholder has all documents pertaining to the policy in their possession.
Insuring clause
What part of the insurance contract contains the insurer's consideration? The insuring clause contains the insurer's promise to pay benefits in the event of a covered loss. The consideration clause states that a policyowner must pay premium in exchange for the insurer's promise to pay benefits.
Keeps the policy in force by using the policy cash value to pay unpaid premiums
Which of the following best describes the automatic premium loan provision? The automatic premium loan provision uses the policy's cash value to pay premiums so the policy does not lapse due to nonpayment of premiums.
A policy loan in an amount up to the current cash value, less any existing indebtedness, may be made.
Which of the following best describes the cash loan provision in a life insurance policy? The cash loan provision states that policyowners can make a policy loan in an amount up to the current cash value, less any existing indebtedness (prior loans with interest). Policy loans need not be repaid, in which case the amount of the outstanding loan with interest would be deducted from the death benefit upon the insured's death.
Limits the time period the insurer can dispute the applicant's statements on the application
Which of the following best describes the incontestable clause? The incontestable clause allows the insurer to challenge the statements made in the application for a limited period of time, usually two years.
The insurance company is relieved of any responsibility to pay a benefit.
Which of the following does NOT happen if an insured dies during the grace period of a policy? The insurance company is NOT relieved of the responsibility to pay a benefit in the event the insured dies during the grace period.
The insurer's promise to pay benefits contingent on premium payments
Which of the following is not part of the entire contract provision in a life insurance policy? The insurer's promise to pay benefits in exchange for the policyowner's premium payments is part of the consideration clause.
Variable universal
Which of the following policies allows partial withdrawals or surrenders? Universal life policies (including variable universal) allow policyowners to take partial withdrawals or surrenders.
Misstatement of age clause
Which of the following provisions is not optional? The misstatement of age clause is a required provision which is intended to benefit the policyowner.
Grace period
Which provision is mandatory in life insurance policies? The grace period provision is required in life insurance policies.
Because the investor/stranger does not have an insurable interest in the insured
Why are STOLI arrangements ethical dilemmas? STOLI and IOLI arrangements are ethical dilemmas because the investor or stranger does not have insurable interest in the continued life and well being of the insured. They want the insured to die very soon, so that they will receive the policy death benefits. Often times, once the policy has been sold to a stranger/investor, the insured will be contacted several times a year to see if he/she has died.
How much can be withdrawn
Withdrawals or partial surrenders can be made on the cash value of a universal life policy. Which of the following is specified in the policy? The policy will specify how much can be withdrawn, at what frequency the withdrawals can be made, and the service charges applicable to the withdrawal. There is no presumption that the withdrawal will be repaid.
Right to make a policy change
ark understands that the _________ is not an ownership right for a life insurance policy. Only an authorized officer of the insurer can make changes to the policy; however, a policyowner can request a policy change.