Chapter 4 ~ Life Policy Provisions and Options

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Alice dies, so who receives the policy proceeds? a). Claire b). Bill c). The treasury of the state where Alice lives d). Alice's estate

a). Claire Since Claire outlived Bill and Alice, then Claire is next in line to receive the policy proceeds.

Assignment is _______________. a). The transfer of all or part of the ownership in a life insurance policy b). What the producer is asked to do prior to submitting the application for underwriting c). What the insured is asked to do during the underwriting process d). What the applicant is asked to do when completing the application

a). The transfer of all or part of the ownership in a life insurance policy Assignment is the transfer of ownership.

Which of the following beneficiary designations is a class designation? a). Mary Smith - spouse b). Any children of this marriage c). Bank of Springfield - creditor d). Frank Jones - son

b). Any children of this marriage A class designation is when the beneficiary is not directly identified by name.

An insured forgets to pay his insurance premium. Instead of the policy lapsing, the premium is paid by the company. This would suggest that a __________ policy was purchased. a). Level term b). Decreasing term c). Whole Life d). Renewable term

c). Whole Life Only cash value policies can provide for missed premium payments to be paid with the policy's cash value through an automatic premium loan.

Which of the following is FALSE regarding Settlement Options? a). If the policyowner has chosen an option prior to death, the beneficiary cannot change it at time of claim b). A policyowner may change a previously chosen settlement option before the insured dies c). Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary d). Settlement Options are used when the owner wants to convert a lump sum death benefit to an income stream for the beneficiary

c). Both principal and interest received as a result of a settlement option are taxed as ordinary income to the beneficiary Only the interest would be taxed to the beneficiary, not the principal.

If a beneficiary is designated as irrevocable, then all of the following require the irrevocable beneficiary's approval, except: a). Reducing the coverage b). Policy assignment c). Taking a policy loan d). Changing the mode of premium

d). Changing the mode of premium The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable beneficiary is named, the owner may not make changes to the policy that affect the coverage or benefits without consent of the beneficiary.

What is one of the main reasons for a Universal Life policy to have a surrender charge? a). It encourages large additional premium deposits from policyowners b). It is a way to recoup interest paid, but not earned by the policyholder c). This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy d). It motivates the producer to properly sell the policy

c). This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy Surrender charges provide a means for the insurer to recapture their upfront expenses involved in issuing the policy.

B's policy had a $1,000 annual premium. B has not paid it for 2 years and wants to put the policy back in force. The insurer charges 10% interest on overdue premiums. What does B have to pay in order to reinstate their policy? a). 2 years of premiums, plus interest due on overdue premiums amounts b). 2 years of premiums c). 2 years of premiums, a reinstatement fee, and interest d). One month's premium, plus a reinstatement fee specified in the policy

a). 2 years of premiums, plus interest due on overdue premiums amounts In order to reinstate the policy, the insured must provide evidence of insurability and the owner must pay all back premiums from the date of lapse plus interest. This means B needs to pay 2 years of unpaid premiums, plus the interest charged for overdue premiums. There is no additional reinstatement fee needed.

The nonforfeiture option that, if exercised, terminates all coverage is: a). Cash Surrender b). Reduced Paid-Up c). Paid-up Additions d). Extended Term

a). Cash Surrender Upon surrendering the policy back to the insurer, the policyowner will receive the cash surrender value stated in the policy less any outstanding loans and accrued interest. The insured no longer has insurance coverage if this option is selected.

The _________ is the time period provided after the premium due date before a policy lapses. a). Grace period b). Reinstatement period c). Premium mode d). Automatic premium loan period

a). Grace period The grace period is the time period provided after the premium due date before a policy lapses.

If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit? a). The insured's estate b). The state Guarantee Association c). A tertiary trust d). The treasury of the state where the insured resided

a). The insured's estate When no named beneficiaries are alive at the time the insured dies, the estate of the insured receives the death benefit.

A senior citizen is defined as an individual who is how many years of age or older on the date of purchase of a life insurance policy or an annuity? a). 50 b). 60 c). 59 1/2 d). 55

b). 60 A senior citizen is defined as an individual who is 60 years of age or older on the date of purchase of a life insurance policy or an annuity.

If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due. a). Settlement b). Grace c). Reinstatement d). Incontestability

b). Grace if the insured dies during the grace period, the death benefit of the policy is payable to the beneficiary, minus any premiums or loans due.

Failure to repay a loan or loan interest will void a life insurance policy: a). If interest rates increase by more than 3% in any 1 year b). If the total amount due equals or exceeds the policy's cash values c). After the loan has been outstanding for more than 5 years d). After the insurer calls in the loan with 30 days advance notice

b). If the total amount due equals or exceeds the policy's cash values Failing to repay a loan or loan interest will not void a policy until the total amount due becomes greater than the policy's cash value.

The _________ clause states what each party exchanges in the contract. a). Entire Contract b). Incontestability c). Insuring d). Consideration

d). Consideration The consideration clause states what each party exchanges in the contract.