CH#4: Life Insurance Policy Provisions, Options and Riders Q&A

Collateral assignment

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible A) Insurable interest B) Modification clause C) Ownership provision D) Collateral assignment

Revocable beneficiary

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the A) Primary beneficiary. B) Irrevocable beneficiary. C) Revocable beneficiary. D) Secondary beneficiary

Autopsy

A provision in a life or health insurance policy that may assist an insurance company in determining the cause of death of an insured is called A) Inspection. B) Attending physician's report. C) Medical exam. D) Autopsy

Other-insured rider

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the A) Juvenile rider. B) Payor rider. C) Other-insured rider. D) Change of insured rider

Cost of living rider

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called A) Living need rider. B) Payor rider. C) Cost of living rider. D) Accelerated benefit rider.

Paid-up additions

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called A) Reduction of premiums. B) Paid-up additions. C) One-year term purchase. D) Accumulation at interest

Adjustment in the amount of death benefit

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in A) Adjustment in the amount of death benefit. B) No change whatsoever. C) Automatic lapse. D) Recession of the policy

Reduction of Premium

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe A) Flexible Premium B) Reduction of Premium C) Accumulation at Interest D) Cash option

Pay the death benefit

An insured purchases a policy in 2008 and died in 2013. The insurance company discovers at that time that the insured concealed information during the application process. What can they do A) Sue for the right to not pay the death benefit B) Pay the death benefit C) Refuse to pay the death benefit because of the fraud D) Pay a decreased death benefit

Cash option

An insured receives an annual life insurance dividend check. What term best describes this arrangement A) Reduction of Premium B) Annual Dividend Provision C) Accumulation at Interest D) Cash option

Reinstatement provision

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this A) Waiver of premium provision B) Incontestable clause C) Grace period D) Reinstatement provision

Guaranteed insurability

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called A) Guaranteed insurability. B) Waiver of cost of insurance. C) Supplemental add on. D) Cost of living

6 months

At times, it is possible for a life insurance producer to affect a savings of premium rates by backdating an application for life insurance. What is the maximum amount of time that an application may be backdated A) One year B) It is not allowed. C) It varies from insurer to insurer. D) 6 months

The contingent beneficiary

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to A) The insurance company. B) The contingent beneficiary. C) The insured's spouse. D) The policyowner

To avoid an increase in premium rate for the insured

Under what circumstances may a life insurance producer deliver a policy that is dated up to six months before the application was taken A) To avoid an increase in premium rate for the insured B) To meet sales quotas established by the insurer C) To make a policy effective during a period when the producer's appointment was in force D) To shorten the period of contestability

The insured's estate

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to A) The state. B) The beneficiary's estate. C) The insured's estate. D) Probate

2 years

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years A) 1 year B) 2 years C) 5 years D) 7 years

The same face amount as in the whole life policy

Under an extended term nonforfeiture option, the policy cash value is converted to A) A lower face amount than the whole life policy. B) A higher face amount than the whole life policy. C) The same face amount as in the whole life policy. D) The face amount equal to the cash value

Exclusions clause

Items stipulated in the contract that the insurer will not provide coverage for are found in the A) Exclusions clause. B) Insuring clause. C) Benefit Payment clause. D) Consideration clause

$9,800

Lyle has a $10,000 term life policy. He paid his annual premium on February 1. Lyle fails to renew the policy and dies on February 28 of the following year. Accounting for the $200 of earned premium, how much will the beneficiary receive from Lyle's insurance company A) $200 B) $0 C) $10,000 D) $9,800

Cash surrender

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner A) Cash surrender B) Reduced paid-up C) Paid-up options D) Extended term

Military service or war

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military A) Military service or war B) Limited C) Aviation D) Hazardous occupation

Lump sum

What is the other term for the cash payment settlement option A) Principal amount B) Face amount C) Proceeds D) Lump sum

6 months

What is the waiting period on a Waiver of Premium rider in life insurance policies A) 30 days B) 3 months C) 5 months D) 6 months

Cash value

What limits the amount that a policyowner may borrow from a whole life insurance policy A) Cash value B) Premiums paid C) Amount stated in the policy D) Face amount

Grace period

What provision in a life or health insurance policy extends coverage beyond the premium due date A) Free look B) Automatic premium loan C) Waiver of premium D) Grace period

Increasing Term

What type of insurance would be used for a Return of Premium rider A) Decreasing Term B) Annually Renewable Term C) Increasing Term D) Level Term

Cause the insured to pay a lower premium

When Jerry purchased a life insurance policy, the producer dated the application 4 months prior. When asked by Jerry, the producer said he was allowed to backdate policies up to six months if it would A) Help him meet a sales quota for that period. B) Cause the insured to pay a lower premium. C) Shorten the contestability period. D) None of the above

Return of premium

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy as well as a refund of all of the premiums paid. Which rider is attached to the policy A) Return of premium B) Cost of living C) Decreasing term D) Premature death

Fixed amount

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option A) Extended term B) Fixed amount C) Fixed period D) Life income period certain

Funds exceeding the premium paid are taxable as ordinary income

Which is TRUE about the cash surrender nonforfeiture option A) Funds exceeding the premium paid are taxable as ordinary income. B) After the cash surrender, the insured is covered for a grace period of 1 month. C) The policy remains active for some time after the policyholder opts for cash surrender. D) The policyholder receives the original cash value of the policy

Extended Term

Which nonforfeiture option has the highest amount of insurance protection A) Conversion B) Decreasing Term C) Reduced Paid-up D) Extended Term

Reduced paid-up

Which nonforfeiture option provides coverage for the longest period of time A) Accumulated at interest B) Reduced paid-up C) Extended term D) Paid-up option

Payor Benefit

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled A) Jumping Juvenile B) Juvenile Premium Provision C) Waiver of Premium D) Payor Benefit

It begins when the policy is delivered

Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy A) It applies only to term life insurance policies. B) It is optional on all life insurance policies. C) It begins when the policy is delivered. D) It begins when the application is signed

It can protect the policy proceeds from creditors of the beneficiary

Which of the following is true regarding the spendthrift clause in life insurance policies A) It is only used when the beneficiary is a minor. B) It is the same as irrevocable settlement clause. C) It can protect the policy proceeds from creditors of the beneficiary. D) It allows the beneficiary to select a different settlement option

Automatic premium loan

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium A) Extended term B) Reinstatement C) Reduce-paid up D) Automatic premium loan

Payor Benefit Rider

Which of the following riders would NOT cause the Death Benefit to increase A) Cost of Living Rider B) Accidental Death Rider C) Payor Benefit Rider D) Guaranteed Insurability Rider

Suicide is excluded for a specific period of years and covered thereafter

Which of the following statements about a suicide clause in a life insurance policy is TRUE A) Suicide is covered as long as the policy is in force. B) Suicide is excluded as long as the policy is in force. C) Suicide is excluded for a specific period of years and covered thereafter. D) Suicide is covered for a specific period of years and excluded thereafter

It transfers rights of ownership from the owner to another person

Which of the following statements is TRUE about a policy assignment A) It is the same as a beneficiary designation. B) It permits the beneficiary to designate the person to receive the benefits. C) It authorizes an agent to modify the policy. D) It transfers rights of ownership from the owner to another person

It will pay double or triple the face amount

Which of the following statements is TRUE concerning the Accidental Death Rider A) It is also known as a triple indemnity rider. B) This rider is only available to insureds over the age of 65. C) It is only available in group insurance. D) It will pay double or triple the face amount

Monthly premium waiver and monthly income

Z falls from the roof of his house while fixing it and damages his spinal column enough to render him disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will Z receive A) Payments for life B) Yearly premium waiver and income C) Monthly premium waiver and monthly income D) Percentage of medical costs paid by the insurer

Paid-up option

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use A) Reduction of premium B) Accumulation at interest C) Paid-up option D) One-year term

The insured's premiums will be waived until she is 21

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums A) The insured's premiums will be waived until she is 21. B) The premiums will become tax deductible until the insured's 18th birthday. C) Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. D) The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums

Automatic premium loan

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision A) Assignment B) Automatic premium loan C) Waiver of premium D) Incontestability period

The interest is not taxable since it remains inside the insurance policy

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A) The policyholder has the right to withdraw the accumulations at any time. B) The interest is not taxable since it remains inside the insurance policy. C) The annual dividend is retained by the company. D) The interest is credited at a rate specified by the policy

Specified

All of the following are beneficiary designations EXCEPT A) Contingent. B) Primary. C) Specified. D) Tertiary

This rider is available to all insureds with no additional premium

All of the following are true regarding the guaranteed insurability rider EXCEPT A) The insured may purchase additional insurance up to the amount specified in the base policy. B) It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. C) This rider is available to all insureds with no additional premium. D) The insured may purchase additional coverage at the attained age

Guaranteed insurability option

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy A) Dividend options B) Guaranteed renewable option C) Nonforfeiture options D) Guaranteed insurability option

The policy will terminate when the cash value is reduced to nothing

If an insured continually uses the automatic premium loan option to pay the policy premium A) The cash value will continue to increase. B) The insurer will increase the premium amount. C) The policy will terminate when the cash value is reduced to nothing. D) The face amount of the policy will be reduced by the automatic premium loan amount

0%

If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death A) 0% B) 50% C) 25% D) 10%

Policyowner

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights A) The insured and the policyowner B) Beneficiary C) Insured D) Policyowner

Set premium rates

The Ownership provision entitles the policyowner to do all of the following EXCEPT A) Set premium rates. B) Receive a policy loan. C) Assign the policy. D) Designate a beneficiary

Universal Life

The Waiver of Cost of Insurance rider is found in what type of insurance A) Joint and Survivor B) Juvenile Life C) Universal Life D) Whole Life

Grace period

The automatic premium loan provision is activated at the end of the A) Free-look period B) Elimination period. C) Policy period. D) Grace period

$100,000

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive A) $0 B) $50,000 (50% of the policy value) C) $100,000 D) $300,000 (triple the amount of policy value)

Incontestability clause

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the A) Insuring clause. B) Misstatement of Age clause. C) Incontestability clause. D) Reinstatement clause

The policyowner can specify the way proceeds are split in the policy

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say A) The proceeds will be split evenly between the two beneficiaries. B) The policyowner can specify the way proceeds are split in the policy. C) The way proceeds are split between beneficiaries is decided by which type of policy is chosen. D) Life insurance policies may have only one beneficiary

To purchase a smaller amount of the same type of insurance as the original policy

The paid-up addition option uses the dividend A) To reduce the next year's premium. B) To accumulate additional savings for retirement. C) To purchase a smaller amount of the same type of insurance as the original policy. D) To purchase a one-year term insurance in the amount of the cash value

Waiver of premium

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called A) Waiver of cost of insurance. B) Payor benefit. C) Waiver of premium. D) Guaranteed insurability

The beneficiary will only receive payments of the interest earned on the death benefit

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean A) The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. B) The beneficiary will only receive payments of the interest earned on the death benefit. C) The beneficiary must pay interest to the insurer. D) The beneficiary will receive the lump sum, plus interest

Common Disaster Clause

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident A) Settlement Clause B) Nonforfeiture Clause C) Common Disaster Clause D) Spendthrift Clause

Equal to the original policy for as long a period of time that the cash values will purchase

When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount A) Equal to the original policy for as long a period of time that the cash values will purchase. B) In lesser amounts for the remaining policy term of age 100. C) Equal to the cash value surrendered from the policy. D) The same as the original policy minus the cash value

Spendthrift provision

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments A) Accelerated benefit provision B) Loan provision C) Spendthrift provision D) Settlement option

The insured's contingent beneficiary

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit A) The insured's contingent beneficiary B) The insurance company C) The insured's estate D) The primary beneficiary's estate

It is reduced to the amount of what the cash value would buy as a single premium

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy A) It decreases over the term of the policy. B) It remains the same as the original policy, regardless of any differences in value. C) It is reduced to the amount of what the cash value would buy as a single premium. D) It is increased when extra premiums are paid

Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit

Which of the following would be deducted from the death benefit paid to a beneficiary, if a partial accelerated death benefit had been paid while the insured was still alive A) There are no deductions taken from death benefits. B) Penalty imposed for early withdrawal of the death benefit, plus the amount of earnings lost by the insurance company in interest income C) 10% federal death benefit income tax, plus the amount of the accelerated benefit D) Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit

Paid-up option

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early A) Dividend Accumulation option B) Paid-up option C) Accumulation at Interest D) Paid-up additions