Chapter 3.2

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

An insurer's basic promise

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?

Beneficiary will be paid the Death Benefit

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

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

Deducted when the policy is discontinued

Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE? It is not taxable It is tax deductible It is taxed as capital gains It is taxed as ordinary income

It is taxed as ordinary income

Which of these are NOT an example of a Nonforfeiture option? Extended Term Reduced Paid-up Cash Surrender Life Income

Life Income

The Accelerated Death Benefit provision in a life insurance policy is also known as a(n)

Living Benefit

Which of these is NOT considered to be a right given to a policyowner? Surrendering the policy's cash value Modify a provision in the insurance contract Assignment of ownership Change the beneficiary, if revocable

Modify a provision in the insurance contract

All of these statements concerning Settlement Options are true EXCEPT Increased proceeds can be provided through accumulation of interest Rapid depletion of proceeds can be avoided Proceeds can be administered by the insurance company Only the beneficiary may select

Only the beneficiary may select

P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability? P cannot borrow against the policy's cash value while disabled P will have to pay income taxes on the amount of premiums waived P will still receive declared dividends P cannot assign ownership of the policy while premiums are being waived

P will still receive declared dividends

Which life insurance rider typically appears on a Juvenile life insurance policy?

Payor Benefit rider

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

Payor Clause

Which of these Nonforfeiture Options continue a build-up of cash value? Waiver of Premium Extended Term Reduced Paid-Up Cash Surrender

Reduced Paid-Up

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

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

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

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 automatic premium loan provision is designed to

avoid a policy lapse

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

child

Which rider provides coverage for a child under a parent's life insurance policy?

child term rider

The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured

is blinded in an accident

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

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

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? $100,000

$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 whole life insurance policy in 2005. One of the questions on the application asks 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

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)

Which of the following Dividend options results in taxable income to the policyowner? Paid-up Additions Cash Accumulation at Interest Reduced Premium

Accumulation at Interest

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

Amount of premium payments and when they are due

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

Assign policy ownership to the bank

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

A policy loan is made possible by which of these life insurance policy features?

Cash Value Provision

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

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

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

Entire Contract provision

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 provision

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE? Coverage can be added at specific events such as marriage or having a child Evidence of insurability is not required when the option is exercised Evidence of insurability is required when the option is exercised Coverage can be added at specific ages

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

In a life insurance policy, which feature states that the policy will not cover certain risks?

Exclusion

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

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

A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following?

Inability of the insured to perform more than 2 Activities of Daily Living (ADL's)

All of these statements about the Waiver of Premium provision are correct EXCEPT A waiting period must pass before becoming eligible for benefits Waiver of Premium is available on both permanent and term insurance policies Insured must be eligible for Social Security disability for claim to be accepted Insured must be totally disabled to qualify

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

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

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

Insuring clause

How are policyowner dividends treated in regards to income tax?

Interest on accumulations is taxed

All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT Fixed Period Interest Only Fixed Amount Life Income

Interest only

An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?

Long term care

Which of the following statements is CORRECT about accelerated death benefits? The full face amount is available as an accelerated benefit Those on Social Security disability automatically qualify for this benefit This provision is usually provided with an increase in premium Must have a terminal illness to qualify

Must have a terminal illness to qualify

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

All of the following statements are true regarding a policy's Grace period EXCEPT Past due premiums are waived Policy loans may still be made Full coverage continues Grace period terms are stated in the policy

Past due premiums are waived

Which statement is TRUE in regards to a policy loan? Past-due interest payments not paid after 3 months will void the policy Past-due interest on a policy loan is added to the total debt Insurance companies can send delinquent interest accounts to a collection agency Insurance companies can charge an interest rate based on the policyowner's credit report

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

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

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

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

Term Rider

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

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?

Variable Universal Life

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 is the face amount of a Whole Life policy paid?

When the insured dies or at the policy's maturity date, whichever happens first

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

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

A Return of Premium life insurance policy is

Whole life and Increasing term

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

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 type of life insurance S's attained age dividend amount used toward purchase beneficiary's age

beneficiary's age

The incontestable clause allows an insurer to

contest a claim during the contestable period

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

decreasing term

Additional coverage can be added to a Whole Life policy by adding a(n)

decreasing term rider

What is the Suicide provision designed to do?

safeguard the insurer from an applicant who is contemplating suicide

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

the initial premium