Chapter 3 Exam 2 - Life Insurance Policies - Provisions, Options and Riders

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?

$50,000

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?

$50,000

P purchases a $50,000 term life insurance policy in 2005. One of the questions on the application ask 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?

$50,000 minus any outstanding policy loans

How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?

Claims are denied under the Suicide clause of the policy

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

Collateral assignment

Which statement regarding the Misstatement of Age provision is considered to be true?

Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered

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?

Entire Contract

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

Evidence of insurability is required when the option is exercised

D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?

Ex-wife

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?

Full face amount minus any past due premiums

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?

Accidental Death and Dismemberment provision

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

Accidental Death and Dismemberment rider (AD&D)

The Consideration clause in a life insurance contract contains what pertinent information?

Amount of premium payments and when they are due

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

An insurer's basic promise

What action can a policyowner take if an application for a bank loan requires collateral?

Assign policy ownership to the bank

All of these statements about the Waiver of Premium provision are correct EXCEPT

Insured must be eligible for Social Security disability for claim to be accepted

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?

Claim will be denied

Which of these are NOT an example of a Nonforfeiture option?

Life Income

Which of these is NOT considered to be a right given to a policyowner?

Modify a provision in the insurance contract

Which of the following statements is CORRECT about accelerated death benefits?

Must have a terminal illness to qualify

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 from the policy?

Owner's Rights

P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?

P will still receive declared dividends

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?

Pay face amount minus the past due premium

Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?

Payor clause

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

What benefit does the Payor clause on a Juvenile Life policy provide?

Premiums are waived if payor becomes disabled

The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called

Reinstatement

Which of these provisions require proof of insurability after a policy has lapsed?

Reinstatement

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?

Reinstatement 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

Which of these life insurance riders allows the applicant to have excess coverage?

Term rider

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)

Insuring agreement

How are policyowner dividends treated in regards to income tax?

Interest on accumulations is taxed

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

at future dates specified in the contract with no evidence of insurability required

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

automatically add the amount of interest due to the loan balance

The automatic premium loan provision is designed to

avoid a policy lapse

S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT

beneficiary's age

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

additional Whole Life coverage at specified times

The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and

the initial premium

S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?

Automatic Policy Loan

In a Life insurance contract, an insurance company's promise to pay stated benefits is called the

Insuring clause

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

Child

How are surrender charges deducted in a life policy with a rear-end loaded provision?

Deducted when the policy is discontinued

D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive?

The full face amount

When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?

Void the policy only if it is discovered during the Contestable period and proven to be material

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

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

exclusion

What provision in a life insurance policy states that the application is considered part of the contract?

Entire Contract provision

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?

Exclusion

What does the ownership clause in a life insurance policy state?

Who the policyowner is and what rights the policyowner is entitled to

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will

adjust the death benefit to a reduced amount

The incontestable clause allows an insurer to

contest a claim during the contestable period

M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the

policy proceeds

What is the Suicide provision designed to do?

safeguard the insurer from an applicant who is contemplating suicide