chapter 3 life insurance test
If a settlement option is not chosen by the beneficiary or policy-owner, which option will be used?
lump sum
What is the other term for the cash payment settlement option?
lump sum
Under an extended term nonforfeiture option, the policy cash value is converted to
the same face amount as the whole life policy
What provision in an insurance policy extends coverage beyond the due date?
Grace period
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?
Guaranteed insurability
What is the purpose of settlement options?
They determine how death proceeds will be paid
Items stipulated in the contract that the insurer will not provide coverage for are found in the
exclusions clause
What is the term for how frequently the policyowner is required to pay the policy premium?
mode
What is the advantage of reinstating a policy instead of applying for a new one?
The original age is used for premium determination
Automatic Premium Loan Provision is activated at the end of the?
grace period
If a life insurance policy has an irrevocable beneficiary designation,
The beneficiary can only be changed with written permission of the beneficiary.
What is the benefit of choosing extended term as a non forfeiture option?
it has the highest amount of insurance protection
An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?
$9,800
what is the purpose of a free-look period in insurance policies?
it allows the insured to reject the policy with a full refund ( typically 14 days in FL)
which of the following is true about the mandatory free look in a life insurance policy?
it commences when the policy is delivered
What would be an advantage to naming a contingent( or secondary) beneficiary in a life insurance policy?
it determines who receives policy benefits if the primary beneficiary is deceased
What is the benefit of choosing extended term as a nonforfeiture option?
it has the highest amount of insurance protection
What is the name of the clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war while serving in the military?
military service or war
A couple owns a life insurance policy with a children's term rider. their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. which of the following will she need to provide for proof of insurabillity? A) medical exam B) her parents' federal income tax receipts C) Medical exam and parents' medical history D) proof of insurabillity is not required
proof of insurabillity is not required
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?
reinstatement provision ( must be done in 3 years)
Nonforfeiture values guarantee which of the following for the policy owner? A) that the cash value will not be lost B) that the dividends will be paid annually C) that the death benefit will be paid in a lump sum D) that the policy premiums will never increase
that the cash value will not be lost
If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
the balance of the loan will be taken out of the death benefit
A life insurance policy does not have a war clause. if the insured is killed during a time of war, what will the beneficiary receive from the policy?
the full death benefit
the sole beneficiary of a life insurance policy dies before the insured. if the sole policy owner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to?
the insured's estate
All of the following are TRUE statements regarding the accumulation interest option EXCEPT A) the interest is not taxable since it remains inside the insurance policy B) the annual dividend is retained by the insurance company C) the interest is credited at a rate specified by the policy D) the policyholder has the right to withdraw the accumulations at any time
the interest is not taxable since it remains inside the insurance policy
All of the following are true regarding the guaranteed insurability rider EXCEPT? A) it allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events B) this rider is available to all insureds with no additional premium C) the insured may purchase additional coverage at the attained age D) The insured may purchase additional insurance up to the amount specified in the base policy
this rider is available to all insureds with no additional premium
an absolute assignment is a
transfer of all ownership rights in a policy
Which of the following premium payment modes will incur the lowest overall payment?
Annual
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?
$100,000
All of the following statements concerning dividends are true EXCEPT? A) they stem from favorable underwriting experience B) favorable investment results generate higher dividends C) dividend amounts are guaranteed in the policy D) lower insurance company costs generate higher dividends
dividend amounts are guaranteed in the policy
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
equal to the original policy for as long a period of time that the cash values will purchase
A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?
if the father is disabled for more than 6 months
Which of the following statements about a suicide clause in a life insurance policy is true? A) suicide is excluded as long as the policy is in force B) suicide is excluded for a specific period of years and is covered thereafter C) suicide is covered for a specific period of years and excluded thereafter D) suicide is covered as long as the policy is in force
suicide is excluded for a specific period of years and is covered thereafter
according to the entire contract provision, a policy must contain?
a copy of the original application for insurance
Under which of the following circumstances would an insurer pay accelerated benefits? A) an insured is diagnosed with cancer and needs help paying for her medical treatment B) a couple is nearing retirement and needs a steady stream of income C) an insured is looking for a way to put her daughter through college D) a couple wants to build a house and would like to make a larger down payment
an insured is diagnosed with cancer and needs help paying for her medical treatment
the ownership provision entitles the policyowner to do all of the following EXCEPT? A-Designate a beneficiary B-set premium rates C-receive a policy loan D-assign the policy
set premium rates
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to
purchase a single premium policy for a reduced amount
The interest earned on policy dividends is?
taxable
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?
0%
An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?
$50,000
Which of the following best describes fixed-period settlement option?
Both the principal and interest will be liquidated over a selected period of time
Which non-forfeiture option has the highest amount of insurance protection?
Extended term ( The extended term non-forfeiture option has the same face amount as the original policy, but for a shorter period of time)
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
Family term rider
The dividend option in which the policy-owner uses dividends to purchase a term policy for one year is referred to as the?
One-year term option
Which of the following factors determines the amount of each installment paid in a life income option arrangement?
Recipient's life expectancy and amount of principal
What is true about non-forfeiture values?
They are required by state law to be included in the policy.
the two types of assignments are?
absolute and collateral
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in
adjustment in the amount of death 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?
amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit
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?
automatic premium loan
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?
fixed period
All of the following are dividend options EXCEPT? A) accumulated at interest B) reduction of premium C) paid-up additions D) fixed-period installments
fixed-period installments ( its a settlement option not a dividend option)
What is true about cash surrender non-forfeiture option?
funds exceeding the premium paid are taxable as ordinary income
What is true about the cash surrender non-forfeiture option?
funds exceeding the premium paid are taxable as ordinary income
****An individual 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?
guaranteed insurability option ( the guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability)
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
guaranteed insurability rider
The policy-owner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. which settlement option should the policy-owner choose
interest only option
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
it is reduced to the amount of what the cash value would be as a single premium
Which of the following is true about the premium on a children's' rider in a life insurance policy? A) it increases when a newborn baby is added to the policy B) it decreases when an adopted child is added to the policy C) it remains the same no matter how many children are added to the policy D) it decreased when the oldest child reaches the age of 21
it remains the same no matter how many children are added to the policy
Which of the following statements about the reinstatement provision is true?
it requires the policy owner to pay all overdue premiums with interest before the policy is reinstated
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called
joint and survivor
Which 2 terms are associated directly with the premium?
level or flexible
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. this dividend option the insured has chosen is called?
paid-up additions
an insured pays $1200 annually for her life insurance premium. the insured applies this years $300 worth of accumulated dividends to the next years premium, thus reducing it to $900. What option does this describe?
reduction of premium ( RoP)
Methods used to pay the death benefits to a beneficiary upon the insured's death are called
settlement options ( settlement options are methods used to pay death benefits to a beneficiary upon the insured's death)
Children's riders attached to whole life policies are usually issued as what type of insurance?
term
An insured has chosen joint and 2/3 survivor as a settlement option. what dos this mean to the beneficiaries?
the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
What is the purpose of a fixed-period settlement option?
to provide a guaranteed income for a certain amount of time
which is NOT true about beneficiary designations?
The beneficiary must have insurable interest in the insured. (A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have interest in the policy holder.)
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. what does this mean?
The beneficiary will only receive payments of the interest earned on the death benefit
Which is true about spouse term rider?
The rider is usually level term insurance
Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?
life income with period certain
An insured and his wife are both involved in a head-on collision. the husband dies instantly, and the wife dies 15 days later. the company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?
Common Disaster
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?
Common disaster clause
If an insured continually uses the automatic premium loan option to pay the policy premium,
the policy will terminate when the cash value is reduced to nothing
How long is a typical grace period?
30-31 days
What would be an advantage to naming a contingent( or secondary) beneficiary in a life insurance policy?
It determines who receives policy benefits if the primary beneficiary is deceased
An insured committed suicide 6 months after his life insurance policy was issued. the insurer will?
Refund the premiums paid
The paid-up addition option uses the dividend
To purchase a smaller amount of the same type of insurance as the original policy.
The accelerated benefits provision will provide for an early payment of death benefit when the insured
becomes terminally ill
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
cash option ( annual, non taxable dividend)
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
cash surrender
What happens when a policy is surrendered for its cash value?
coverage ends and the policy cannot be reinstated
which of the following information will be stated in the consideration clause of a life insurance policy?
the amount of premium payment
What is the waiting period on a waiver of premium rider in life insurance policies?
6 months
An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called
consideration
Which of the following is NOT typically excluded from life policies? A) death due to war or military service B) death due to plane crash for a fare-paying passenger C) self inflicted death D) Death that occurs while a person is committing a felony
death due to plane crash for a fare-paying passenger
What is true about the reinstatement provision is true?
it requires the policyowner to pay all overdue premiums with interest before the policy is reinstated
**which of the following statements is TRUE about a policy assignment?
it transfers rights of ownership from the owner to another person
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 the premiums paid. which rider is attached to the policy?
Return of premium
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?
The insured's premiums will be waived until she is 21
An insured has a continuous premium whole like 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?
paid-up option
A 40 year old man buys a whole life policy an names his wife as the only beneficiary. his wife dies 10 years later. He never remarries and dies at the age of 61, leaving 2 grown up children. Assuming he never changed the beneficiary, the policy proceeds will go to?
The insured's estate
What required provision protects against unintentional policy lapse?
grace period
What type of insurance would be used for a return of premium rider?
increasing term
Which of the following allows the insurer to relieve a minor issued from premium payments if the minor's parents have died or become disabled?
payor benefit
the provision which states that both the policy and a copy of the application form the contract between the policy owner and the insurer is called the
entire contract
All of the following are non-forfeiture options EXCEPT? A) interest only B) cash surrender C) extended term D) reduced paid-up
interest only
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?
2 years
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 names as the
Revocable beneficiary
An insured purchased a life insurance policy on his life naming his wife as the primary beneficiary, and his daughter as contingent beneficiary. under what circumstances could the daughter collect the death benefit?
if the primary beneficiary predeceases the insured.
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?
owner's rights
When a life insurance policy was issued, the policyowner designated a primary and 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?
The insured's contingent beneficiary
Which of the following is true of a children's rider added to the insured's permanent life insurance policy? A) It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age B) it is permanent insurance C) the policy covers only the natural children of the insured D) Each child covered must show evidence of inseparability
It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the
one-year term option
The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT A) the insured's age at death B) the beneficiary's life expectancy C) projected interest rates D) face amount of the policy
the insured's age at death
Which non-forfeiture option has the highest amount of insurance protection?
extended term
which is True about the cash surrender non-forfeiture option?
funds exceeding the premium paid are taxable as ordinary income ( the insurers surrender the policy at its current cash value. only an excess of value is taxable as income. once the policyholder opts for cash surrender, the policy is immediately inactive)
Which of the following instances would the premium be tax deductible?
premiums paid by the employer on a $30,000 group term life insurance plan for employees ( premiums paid on life insurance aren't tax deductible, but if the employer buys group term life insurance for his employees, its considered a business expense
A return of premium rider is funded by using
increasing term insurance
An insured purchased a life policy in 2010 and died in 2017. the insurance company discovers at the time that the insured had concealed information during the application process. what can they do?
pay the death benefit
Which of the following riders would NOT cause the death benefit to increase? A) payor benefit rider B) Guaranteed inseparability rider C) Cost of living rider D) Accidental death rider
payor benefit rider
An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. he is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated in the application. what will the company do?
Pay a reduced death benefit
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?
incontestability clause
*which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?
insuring clause
regarding the free-look provision, the insurance company
must allow the policyowner to return the policy for a full refund
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?
Collateral assignment
What is true about a spouse term rider?
The rider is usually level term insurance ( until 65)
Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insurerds' death? A) a minor son of the insured B) a business partner of the insured C) the wide of the deceased insured D) the former wife of the deceased insured
a minor son of the insured
All of the following are true regarding insurance policy loans EXCEPT? A) policy owners can borrow up to the full amount of their whole life policy's cash value B) policy loans can be made on policies that do not accumulate cash value C) the amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies D) the policy will terminate if the loan plus interest equals or exceeds the cash value of the policy
policy loans can be made on policies that do not accumulate cash value
Which nonforfeiture option provides coverage for the longest period of time?
reduced paid-up
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?
reduction of premium
Which of the following describes attachments made to policies that can either add or modify coverage?
riders