Chapter 4

Tom elects the Life Income with 10-year Period Certain settlement option. Tom dies in year 6. The beneficiary receives payments for _______.

4 years

Generally, an insurer may defer the granting of a policy loan for up to ______ months.

6

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Claire dies, then Alice dies, so who receives the policy proceeds?

Alice's estate

Which of the following is the overall least expensive premium mode?

Annually

All of the following regarding revocable beneficiaries is true, except:

They have rights in the policy just like any other party to the contract

If the premiums are not paid on a Traditional Whole Life policy that has been in force for decades with no loan outstanding, what happens?

Unless specified otherwise, the cash values buy extended term

The entire contract typically consists of all of the following, except:

A copy of the cancelled check and receipt

Sylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will:

Accept the beneficiary change

What will cause the time period of the fixed amount settlement option to be extended?

An increase in interest credited

For which of the following reasons may an insured return the policy for a full refund within the Free Look Period?

Any reason

When is the earliest a beneficiary designation can be made?

At the time of policy application

The ____________ provision prevents a Whole Life Policy from lapsing, as long as there is adequate cash value, if the insured/policyowner forgets to pay the premium by the end of the grace period.

Automatic Premium Loan

If overdue premiums are not paid by the end of the grace period, a traditional Whole Life policy will automatically:

Become extended term

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Alice dies, so who receives the policy proceeds?

Bill

An insured with a participating life insurance policy receives an annual dividend check in the mail. He must have selected which Dividend Option:

Cash

Mona let her permanent policy lapse. She discovered there was $2,498 in cash value remaining in the policy and decided to pay off some of her credit card debt. She exercised which Nonforfeiture Option?

Cash Surrender

The nonforfeiture option that, if exercised, terminates all coverage is:

Cash Surrender

The cash received by the policyowner when he/she terminates a policy is known as what?

Cash Surrender Value

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?

Claire

An insured goes to the bank for a business start-up loan. Asking for more security, the bank agrees to accept a(n) __________ on a permanent life insurance policy owned by the customer.

Collateral Assignment

The bank may require its borrowers to have a life insurance policy to secure a loan in the event of the borrower's death. Which provision gives the bank proportional protection but not control of the policy?

Collateral Assignment

Which of the following is TRUE concerning reinstatement of a life insurance policy?

Companies have the right to require medical examinations

The _________ clause states what each party exchanges in the contract.

Consideration

What is the additional premium cost to have the automatic premium loan provision included in a permanent policy?

Nothing

The insuring clause is found:

On the first page of the policy

An insured with a participating life insurance policy receives annual dividends. She has opted for the insurer to use these funds to increase her overall amount of insurance. This would refer to which option:

Paid-Up Additions

A Whole Life policyowner elects to use his dividends to pay off the policy sooner than originally planned. Which option allows this to occur?

Paid-Up Option

Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy?

Partial surrender

The __________ has the right to change the premium mode.

Policyowner

A life Insurance policyowner receives an annual dividend. One option for this dividend is to use it to offset the annual obligation to the insurer. What is this option called?

Premium Reduction

Lyle owns a $50,000 20-Pay Life Policy that he lets lapse at the end of the fourth year. The Nonforfeiture Option providing the longest period of coverage would be:

Reduced Paid-Up

The nonforfeiture option that provides protection to age 100 is:

Reduced Paid-Up

Which of the following is NOT a Dividend Option?

Reduced Paid-Up

An insured, whose policy is in force, intentionally kills herself 7 months after purchasing the policy. How much will the insurer pay?

Refund of premiums paid only

All of the following are traditional whole life policy nonforfeiture values, except:

Renewable and convertible features

Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use?

Revocable beneficiary

Options allow for the distribution of the life insurance death benefit, to the named beneficiary or contract owner, as the situation warrants.

Settlement

The interest earned on dividends is:

Taxable

Which of the following two documents always constitutes part of the entire contract?

The application and policy

The Mode of Premium provision addresses:

The frequency of premium payment

After a life insurance policy has been in force for 5 years the insured dies. During the claims process, the insurer discovers that the insured did not disclose material health information that had it known, would have caused the application to be rejected. What can the insurer do at this point in time?

The insurer must pay out the death benefit of the policy to the named beneficiary

Maria's policy was issued with an incorrect age. She was actually older than what was listed in the policy. Which of the following will the insurer most likely do if she had died 5 years after policy issue, but prior to this discovery?

The insurer would pay out a reduced benefit in proportion to the underpayment of premium

A policyowner has chosen the Fixed Amount Settlement Option. Which of the following best describes this option?

The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds plus interest are depleted

If a life insurance policy lapses due to nonpayment of premium, then reinstatement requires:

The payment of back premiums, plus interest, and proof of insurability

Jerry has selected a Life Income 10 year Period Certain. What happens to the income payments if he dies in year 4 after starting to receive income benefit payments?

The payments continue for the balance of the Period Certain to a named beneficiary.

Who retains all of the rights in a life insurance policy?

The policy owner

All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except:

The premiums have not been paid and have been overdue for 3 years

What is the primary purpose of the free look period?

To allow the applicant time to reconsider their purchase decision and to see if the policy was issued as applied for

What is the intent of the suicide clause?

To discourage individuals from purchasing an insurance policy while contemplating suicide

What is the primary purpose of the reinstatement provision?

To put a policy back in force as if it had never lapsed

A partial withdrawal is permitted on which of the following policies?

Universal Life

What is the purpose of nonforfeiture values?

Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium

After a life insurance policy has been in force for more than _____ years the policy is considered incontestable.

2

How long, typically, is the reinstatement period from policy lapse?

3 years

K has a $100,000 traditional whole life policy with $30,000 of cash values and a $10,000 loan outstanding. What is the maximum additional amount she could borrow from the policy at this time?

$20,000 .

An insured has a $25,000 annual renewable term life policy, originally purchased on her birthday, April 1st of last year. She forgot to pay the $250 renewal premium, and dies in an accident on April 15. The beneficiary will receive:

$25,000 less the earned premium due

A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy's named beneficiary receive?

$90,000

An aunt and uncle purchase a life insurance policy on their niece, for whom they are the legal guardians. Both guardians perish in an accident some time later. Who receives the death benefit?

No claim is paid out

Burt named Liz as his beneficiary; however, he did not choose a Settlement Option. At the time of his death, who determines the option to be used to receive the benefits?

Liz the beneficiary determines which option she would like to have

Which of the following death benefit settlement options pays out a benefit that is 100% income tax-free to the recipient?

Lump Sum

All of the following are common exclusions, except:

Driving

What provision describes the parts of the life insurance contract?

Entire Contract

Which individual policy standard provision stipulates the conditions under which the insurer will not pay a claim while the policy was in force at the time of death of the insured?

Exclusions

are conditions stipulated in the contract for which the insurer will not provide coverage

Exclusions

Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy, but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection?

Extended Term

The nonforfeiture option that provides the most amount of coverage is:

Extended Term

An insured has a $175,000 permanent life insurance policy and is having difficulty keeping up with the premium payments. Which Nonforfeiture Option would allow him to forego the premiums and retain the same face amount until the cash surrender value is exhausted?

Extended term

All of the following are situations in which a life insurance company can legally get out of paying a death claim after the insured has died, except:

Five years after the policy was issued, the insurer discovered that the insured was actually older than was stated on the application

If the beneficiary is concerned about a particular amount of cash flow each month, the _______ settlement option should be selected.

Fixed Amount

If the beneficiary is concerned about a payout for a particular period of time, the _______ settlement option should be selected.

Fixed Period

If the policyowner specifies the time over which all settlement option installments are to be paid, he/she has chosen which Settlement Option?

Fixed Period

Which of the following is FALSE about the Automatic Premium Loan Provision (APL)?

For it to be included in the policy, there is an additional premium charge

Which of the following statements regarding life insurance policy exclusions is TRUE?

Generally, aviation is excluded, except for fare-paying passengers on a commercial flight

If overdue premiums are paid during the __________ period, the policy will remain in effect.

Grace

All of the following must be included in a whole life policy, except:

Guaranteed dividend table

Which of the following correctly describes the effect of the Common Disaster Clause?

If an insured and primary beneficiary both are killed when the bus they are riding in goes over a cliff and if it cannot be determined who died first, the insured or primary beneficiary, the insured will be presumed to have survived the primary beneficiary so the contingent beneficiary will be able to receive the death proceeds

The provision that limits the amount of time an insurer has to challenge a claim and void the contract upon proof of a material misstatement is called the ____________ clause.

Incontestability

The _________ clause identifies the parties to the contract and the perils it covers.

Insuring

Which of the following identifies the parties to the contract and the perils it covers and the circumstances under which the insurer will pay a life insurance policy claim?

Insuring Clause

Which of the following beneficiary designations prevents a policyowner from assigning the policy, taking a policy loan, or surrendering the policy without the beneficiaries consent?

Irrevocable

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, except:

It is available on any type of life insurance policy

No assignment of a policy will be binding on the insurer, unless:

It is in writing and received at the insurer's home office

K has a $10,000 traditional whole life policy with a loan outstanding of $1,000 and a 5% interest charge. At the end of the first year of the loan, K did not pay the loan interest. What is the result of K's inaction?

K's new loan balance is $1,050

When there is enough cash value within a life policy to pay the premium, the Automatic Premium Loan provision prevents the policy from:

Lapsing

Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose:

Life Income Only