Chapter 7 Quiz financial lit

"When the insured dies, who stands first to receive the life policy's death benefit? A) The policyowner B) The primary beneficiary C) The insured's estate D) The insured's creditors"

"The primary beneficiary Explanation A primary beneficiary is the first party designated to receive the proceeds of a life insurance policy when they become payable."

"Samiya purchased a $500,000 life policy from LHC Insurance Company at the age of 35. At her death the insurance company discovered that her primary beneficiary was older than Samiya had stated on the application. How much will Samiya's beneficiary receive? A) 250000 B) 500000 C) Nothing D) The full amount of the benefits, but the policyowner's estate must pay a fine"

"500000 Explanation Misstatement of age does not invalidate a life insurance policy. However, the misstatement of age provision only applies to situations where the insured's age is misstated. The beneficiary's age, whether misstated or not, does not affect the amount of the death benefit to be paid."

"The payment of claims provisions states that the insurer will pay the death benefit within how many days after receiving notification of the claim? A) 145 days B) 90 days C) 60 days D) 120 days"

"60 days Explanation Payment of death claims must be made within 60 days after receiving notification of a claim. Interest will be added to the claim for payments made more than 60 days after the notification was received."

"In which of the following circumstances would the incontestable clause of an insurance policy apply? A) Impersonation of the applicant by another B) Intent to murder C) Concealment of smoking D) No insurable interest"

"Concealment of smoking Explanation After a policy has been in force for the specified term, the insurer cannot contest a death claim or refuse payment of proceeds for a concealment of smoking. A policy issued under any of the other 3 situations may be voided at any time, since it would not be considered a valid, enforceable contract."

"An exchange of value is necessary to form a valid contract. What is the legal term that means something of value? A) Endorsement B) Application C) Consideration D) Premium"

"Consideration Explanation The legal term is consideration. The insured's consideration is the premium paid and the representations made in the application. The insurer's consideration is the promise to pay the face amount of the contract to the named beneficiary upon the death of the insured."

"Which section of a life insurance policy specifies the conditions, times, and circumstances under which the insured is NOT covered by the policy? A) Insuring clause B) Exclusions C) Coinsurance provision D) Coverages"

"Exclusions Explanation The exclusions section of a life insurance policy specifies the conditions, times, and circumstances under which the insured is not covered by the policy."

"Ramon's premium payment was due on June 1, but the company did not receive it until June 28. Which policy provision kept Ramon's policy from lapsing? A) Reinstatement B) Automatic premium loan C) Grace period D) Facility-of-payment"

"Grace period Explanation If policyowners forget or neglect to pay their premiums by the date they are due, the grace period allows an extra 30 days, or 1 month, during which premiums for fixed premium policies may be paid to keep the policies in force."

"Which of the following provisions of a life insurance contract generally helps to keep policies in force if policyowners neglect to pay their premiums? A) Insuring clause B) Free-look period C) Grace period D) Incontestable clause"

"Grace period Explanation The grace period provides additional time—usually 31 days after the premium due date for fixed premium life policies and 61 days for flexible premium policies—in which the policyowner can pay the premium."

"Which of the following terms indicates the insured's right to change beneficiaries in a life insurance policy? A) Per stirpes B) Revocable C) Per capita D) Irrevocable"

"Revocable Explanation Revocable is a term indicating the insured's right to change beneficiaries in a life insurance policy."

"Ted, the insured in a $75,000 life policy, and his sole beneficiary, Maxine, are killed instantly when their car is struck by a train. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be payable? A) Ted's estate B) Maxine's estate C) Both Ted's and Maxine's estates, equally D) The proceeds will escheat to the state"

"Ted's estate Explanation The Uniform Simultaneous Death Act provides that, if the insured and the primary beneficiary are killed in the same accident and there is not sufficient evidence to show who died first, the policy proceeds are to be distributed as if the insured died last. Ted's estate would receive the proceeds, since Maxine, the beneficiary, was deemed to have predeceased Ted and no other beneficiary was named."

"Which of the following is stated in the consideration clause of a life insurance policy? A) The insured's risk classification B) Benefits payable upon the insured's death C) The amount and frequency of premium payments D) The insured's general health condition"

"The amount and frequency of premium payments Explanation The consideration clause specifies the amount and frequency of premium payments that the policyowner must make to keep the insurance in force."

"Ron, the insured, dies during the grace period for his $100,000 life insurance policy. Considering that the premium on the policy has not been paid, what happens? A) The premium due, plus a 10% penalty, is charged against the policy. B) The amount of the premium is deducted from the policy proceeds paid to the beneficiary. C) The beneficiary must pay the premium after the death claim is paid. D) The premium is canceled because the insured died during the grace period."

"The amount of the premium is deducted from the policy proceeds paid to the beneficiary. Explanation If the premium of a policy has not been paid and the insured dies during the grace period, the policy benefit is payable. However, the premium amount due is deducted from the benefits paid to the beneficiary."

"An exchange of value, consideration, is necessary to form a valid contract. Whose consideration is it, in a contract for insurance, to make truthful statements on an application? A) The beneficiary B) The insurer C) The insured D) The assignee"

"The insured Explanation The insured's consideration is payment of premiums and providing truthful statements on the application."

"What is the insurer's consideration or exchange of value regarding an insurance policy? A) To sign endorsements or modifications to the policy. B) To make representations on the application. C) To pay death benefits to the beneficiary when the insured dies. D) To pay premiums in whole or within the grace period."

"To pay death benefits to the beneficiary when the insured dies. Explanation The insurer's consideration is to pay the face amount of the contract to the beneficiary upon the death of the insured."

"Which of the following causes of death is generally NOT covered by a life insurance policy? A) Hazardous hobby B) Hazardous occupation C) Commercial aviation D) War"

"War Explanation Life insurance policies generally exclude death resulting from war or military duty. A life insurance policy might exclude death due to piloting an aircraft as a hazardous hobby, but it would not exclude death of a passenger in a commercial airline accident."

"An individual life insurance policy must include all of the following EXCEPT A) a table showing the annual loan values of the policy for at least 30 years B) an entire contract provision C) a 1-month grace period D) an incontestability provision"

"a table showing the annual loan values of the policy for at least 30 years Explanation Individual life insurance policies must include a table that shows, for at least 20 years, the annual loan values and options available under the policies upon default in premium payments. They must also contain a 1-month grace period, an incontestability provision, and an entire contract provision."

"Stella sends a written request to her insurer for a change to be made on her policy. What is that change called? A) an assignment B) a contract C) an endorsement D) an application"

"an endorsement Explanation A change to a policy is called an endorsement or modification. The change must be requested by the insured in writing and accepted by the insurer."

"After Joe died, Well Life Insurance Company discovered that he had misrepresented his health status when he applied for a life insurance policy 7 years ago. The insurer A) can void the policy B) does not have to pay the death benefit C) cannot void or revoke the policy D) must prove the misrepresentation was material before voiding the policy"

"cannot void or revoke the policy Explanation In most cases, life insurers have only a limited time in which to discover false statements, misrepresentations, or concealment. After that time period passes, usually 2 years from policy issue, the contract cannot be voided or revoked for those reasons."

"Nicole plans to take out a $200,000 mortgage for a vacation home. Her bank, however, requires her to provide some type of collateral for the loan. If Nicole owns a $500,000 whole life insurance policy, the policy A) will not have enough cash value to be used as collateral for the loan B) may be used as collateral for the loan C) may not be used as collateral for the loan D) may not be used as collateral for the loan because it cannot be attached by creditors"

"may be used as collateral for the loan Explanation Because Nicole's whole life insurance is considered property with a quantifiable cash value, it may be used as collateral or security for the loan."

"Premium payment amounts can be all of the following EXCEPT A) static B) flexible C) graded D) level"

"static Explanation Premium payment amounts can be level, graded, flexible, or single payment."

"Alexandria assigns her $10,000 life insurance policy to a bank as collateral for a loan. The assignee is A) the insurance company B) Alexandria, the insured C) the bank D) the beneficiary of the policy"

"the bank Explanation When a life insurance policy is assigned, the recipient of the policy (in this case, the bank) is called the assignee."

"The time period between the date when premium is due and when coverage lapses is called A) the grace period B) the consideration period C) the benefit period D) the incontestability period"

"the grace period Explanation The grace period is the time between the due date of the premium and the date upon which coverage will lapse."

"All of the following are rights of policy ownership EXCEPT A) to select a nonforfeiture option B) to assign the policy C) to designate a beneficiary D) to determine the method of submitting claims"

"to determine the method of submitting claims Explanation The rights of ownership include the right to pick a beneficiary, to choose the method of distributing the proceeds, to assign the policy, to receive dividends, to cancel the policy, and to select a nonforfeiture option. The right to determine the method of submitting claims and the time period in which to do so is the right of the insurer."

"Peggy takes out a $50,000 10-year term policy on herself and names her 2 children, aged 11 and 12, as primary beneficiaries to share equally in the proceeds. How much would each child receive if Peggy should die when the children are aged 19 and 20? A) 50000 B) Nothing C) $50,000 plus the cash value in the policy D) 25000"

"25000 Explanation If Peggy dies within the 10-year term period, her beneficiaries will equally split the $50,000 face amount, each receiving $25,000."

"Winston, the insured, and his spouse, Irene, his sole beneficiary, both died in a hotel fire. Hospital physicians witnessed that Irene lived at least 2 hours longer than Winston. The life policy had no common disaster clause. Which of the following will receive the policy proceeds? A) Irene's estate B) Winston's estate C) Winston's secondary beneficiary D) The state"

"Irene's estate Explanation In light of the witnesses to the deaths in this case and in the absence of the common disaster clause, Irene's estate should receive the proceeds. She, the primary beneficiary, outlived the insured policyowner."

"Which of the following statements regarding the insuring clause is NOT correct? A) It is usually signed by the insured. B) It states to whom benefits should be paid. C) It is usually found on the first page of the policy. D) It sets forth the insurer's promise to pay benefits upon the insured's death."

"It is usually signed by the insured. Explanation The insuring clause is usually signed by an authorized officer of the company."

"To reinstate a lapsed policy, the insured must do all of the following EXCEPT A) pay all back premiums B) sign a Notice to the Applicant Regarding Replacement C) submit a written application D) produce evidence of insurability, if required by the insurer"

"sign a Notice to the Applicant Regarding Replacement Explanation For a policy to be reinstated, the insured must submit a written application; produce satisfactory evidence of insurability, if required by the insurance company; pay all back premiums (with interest); and pay any other debt to the insurer. Only in a replacement transaction is the selling agent required to sign a Notice to the Applicant Regarding Replacement."

"A new life insurance policyowner has just received her policy. How long does she have to review and return it if she is not satisfied with it? A) 1 day B) 10 days C) 5 days D) 30 days"

"10 days Explanation Policyowners are guaranteed a free-look provision. This provision states that the policyowner has 10 days after the policy is delivered to return the policy to the insurer and receive a full refund for the premium."

"Which of the following statements pertaining to the insuring clause in a life insurance policy is NOT correct? A) It specifies the length of the grace period. B) It defines the responsibilities of the insurer. C) It names the beneficiary. D) It gives the effective date of coverage."

"It specifies the length of the grace period. Explanation The insuring clause explains the promise the insurer has made to the named insured to pay a death benefit to a designated beneficiary. The grace period is a separate policy provision."

"Which of the following policyowner rights relates directly to the cash value of permanent insurance? A) Right to assign proceeds B) Right to change premium mode C) Right to name beneficiaries D) Right to take a policy loan"

"Right to take a policy loan Explanation A policyowner has the right to take a policy loan based on the cash value accumulated in the policy."

"Which of the following is NOT required in order to reinstate a lapsed permanent life policy? A) Submit an application for reinstatement within 4 years of the lapse B) Provide satisfactory evidence of insurability C) Pay the premium for the reinstated policy D) Pay all past-due premiums with interest"

"Submit an application for reinstatement within 4 years of the lapse Explanation While not a requirement, the insurer may ask the insured to submit an application for reinstatement within 3 years of the lapse."

"A life insurance policyowner has all of the following rights EXCEPT A) the right to take a policy loan B) the right to change the grace period C) the right to name a beneficiary irrevocably D) the right to change the mode of premium payment"

"the right to change the grace period Explanation The policyowner has no right to change the grace period. That provision is a contractual clause developed by the insurer according to individual state laws."

"All of the following are required provisions in life insurance policies EXCEPT A) a 1-month grace period for payment of premiums after the first payment has been made B) a replacement provision C) a reinstatement provision D) a misstatement of age provision"

"a replacement provision Explanation Replacement is a tran"

"The purpose of the incontestability provision is to protect A) the insured B) the insurer C) he employer D) the beneficiary"

"the insured Explanation The incontestability provision protects the insured by stating that after a life insurance policy has been in effect for 2 years, the insurer cannot deny a claim by saying statements made in the application were intended to defraud the insurance company."

"The insurer is generally required to pay the death benefit claim within A) 90 days B) 30 days C) 60 days D) 45 days"

"60 days Explanation The provision says the insurer is to pay the death benefit promptly, which is interpreted by most companies to mean within 60 days after receiving notification of the death of the insured."

"All of the following are standard modes of premium payments EXCEPT A) annually B) semi-annually C) biennially D) quarterly"

"biennially Explanation The standard mode or frequency of premium payments is monthly, quarterly, semi-annually and annually."

"All of the following are required provisions in an individual life insurance contract EXCEPT A) grace period B) home health care C) payment of claims D) misstatement of age"

"home health care Explanation All individual life insurance policies must contain a misstatement of age provision, a grace period, and a payment of claims provision. A home health care provision would not be part of a life insurance policy; rather, it might be found in an accident and health insurance policy."

"When the insured and the beneficiary in a life insurance policy die simultaneously, how must the proceeds of the policy be distributed? A) As if the beneficiary had survived the insured B) As if the insured had survived the beneficiary C) As if the insured had assigned the policy to the beneficiary D) As if the insured had designated another beneficiary"

"As if the insured had survived the beneficiary Explanation If the insured and the beneficiary designated in a life insurance policy both die and there is insufficient evidence that they have died otherwise than simultaneously, the policy proceeds will be distributed as if the insured had survived the beneficiary, unless otherwise specified in the policy."

"Roland purchases a life insurance policy and names his spouse, Carol, as a beneficiary. Roland's children, Sasha and Alex, are to share the benefits equally if Carol dies before him. His church is to receive the proceeds if his spouse and children all predecease him. The primary beneficiary is A) Alex B) the church C) Carol D) Sasha"

"Carol Explanation When an insured dies, the first person in line to receive the death proceeds is the primary beneficiary."

"Which type of provision in a life insurance policy ensures that a beneficiary will not spend all of the insurance proceeds at once? A) Spendthrift provision B) Guardianship provision C) Control of beneficiary provision D) Change of beneficiary provision"

"Spendthrift provision Explanation Some individual life insurance policies contain a spendthrift provision specifying that the proceeds will be paid to the beneficiary in equal installments during the beneficiary's lifetime. To ensure that the beneficiary does not spend all the proceeds at once, the insured can void the beneficiary's right to exchange, surrender, assign, or borrow against the policy."

"Which of the following phrases best describes a life insurance policy under the entire contract clause? A) The policy, any amendments or riders, and a copy of the signed application B) The basic policy document only C) The policy document plus riders as agreed to by the applicant D) The policy document plus riders and the initial premium deposit receipt"

"The policy, any amendments or riders, and a copy of the signed application Explanation The application, all amendments and riders, a copy of the signed application, and any attached documents make up the entire contract."

"A provision in a policy that expressly cites a risk that is NOT covered is known as A) an exclusion B) an eliminated loss C) an omission D) a reduction"

"an exclusion Explanation An exclusion is a policy provision that specifically restricts coverage from certain risks or otherwise limits the scope of coverage."

"The free look, or right to examine provision allows a policyowner the right to review and then return a policy for a full refund within no less than how many days? A) 60 days B) 45 days C) 25 days D) 10 days"

"10 days Explanation The free look provision gives a policyowner generally no less than 10 days to review and return a policy for a full refund for any reason."

"When a policyowner cannot exercise her rights of ownership without the policy beneficiary's consent, the beneficiary is designated A) vested B) primary C) irrevocable D) contractual"

"irrevocable Explanation If a policyowner names an irrevocable beneficiary, the policyowner gives up her right to change that beneficiary, and unless otherwise specified in the policy, the owner cannot take any action that would affect the right of that beneficiary to receive the full amount of the insurance at the insured's death. This includes taking out a policy loan or surrendering the policy."

"All of the following are life insurance policy provisions EXCEPT A) modifications B) notice of claim C) payment of claims D) assignment"

"notice of claim Explanation Notice of claim is a health insurance provision, not a life insurance policy provision."

"An insured that wants to reinstate a lapsed permanent life policy must do so within A) 4 years B) 3 years C) 5 years D) 2 years"

"3 years Explanation In addition to other requirements, a permanent life insurance policy that an insured wishes to reinstate must be done within three years of the lapse."

"Tina's grandparents purchased a $250,000 universal life insurance with the intent to permanently transfer ownership to her when she turned 21. What is that transfer of rights known as? A) an absolute assignment B) a collateral assignment C) absolute change of beneficiary D) ownership rights"

"an absolute assignment Explanation The transfer of ownership rights in whole to another individual is known as an absolute or permanent assignment."

"Which is NOT a life insurance policy provision? A) consideration B) cancellation C) endorsements D) reinstatement"

"cancellation Explanation Consideration, reinstatement, and endorsements are all life insurance policy provisions. Cancellation is one of the health insurance policy provisions."

"When Mary applied for a life insurance policy, she did not disclose that she had just been treated for cancer 3 months ago. In addition, Mary intentionally misstated her age so that her premiums would be lower. If the insurer issues the policy but discovers the misrepresentations 1 year later, A) the insurer can challenge the validity of the contract B) Mary and the insurer cannot void the contract C) Mary can void the contract D) the insurer cannot challenge the validity of the contract"

"the insurer can challenge the validity of the contract Explanation If Mary intentionally failed to disclose that she had been treated for cancer, the insurer can void the contract. However, the insurer has a limited time (typically, 2 years from the date of issue) to challenge the validity of the contract. After that period, the insurer cannot contest the policy or deny benefits on the basis of material misrepresentations, concealment, or fraud. If Mary misstated her age, the misstatement of age provision allows the insurer to reduce benefits or refund premiums, and it may do this beyond the 2-year contestability window."

"The provision that allows a person to select the premium payment mode, settlement options, borrow cash values that have accumulated or cancel the policy is known as A) the modifications provision B) the assignment provision C) the insuring agreement D) the ownership rights provision"

"the ownership rights provision Explanation The provision of ownership rights allows the owner of a life insurance policy to choose or change a beneficiary, select settlement, conversion, and non-forfeiture options, receive or borrow funds from accumulated cash values, receive proceeds upon maturity or endowment, assign ownership, select the premium mode payment and cancel the policy."

"The incontestability period is usually A) shorter for individual term life insurance policies B) the shortest for group life insurance policies C) the same for both individual and group life insurance policies D) longer for individual whole life insurance policies"

"the same for both individual and group life insurance policies Explanation The time period for the incontestability provision in individual and group life insurance policies is usually the same, with the standard incontestability period being 2 years."

"Which of the following statements pertaining to reinstating a life insurance policy is NOT correct? A) All back premiums must be paid. B) Any outstanding policy loan must be repaid. C) The insured may need to provide evidence of insurability. D) The cash surrender value must be forfeited to the insurer."

"The cash surrender value must be forfeited to the insurer. Explanation Paying back premiums and any policy loans, and possibly having to prove insurability, are required before a lapsed policy will be reinstated. Reinstatement is only available to the policyowner if the policy was canceled for nonpayment."

"The contract provision that states that the policy, a copy of the application, and any attached papers constitute the complete insurance contract is the A) nonforfeiture provision B) entire contract provision C) incontestable clause D) statutory provision"

"entire contract provision Explanation Life insurance policies must contain an entire contract provision that specifies that the policy, along with an attached copy of the application and any other attached documents, constitutes the entire insurance contract. Furthermore, all statements made on the application are, in the absence of fraud, considered to be representations and not warranties."

"Which life insurance policy provision refers to the prompt payment of the death benefit? A) payment of premium B) grace period C) consideration D) payment of claims"

"payment of claims Explanation The payment of claims provision states the insurer must pay death benefits promptly, which usually means no longer than 60 days."

"Jerry has just purchased a life insurance policy and is taking time to review the policy's provisions. He will find that his policy excludes death by all of the following means EXCEPT A) scuba diving B) cancer C) auto racing D) skydiving"

"cancer Explanation Most life insurance policies exclude the following risks: war, private aviation, hazardous occupation or hobbies, commission of a felony, and suicide."

"Roberta is the insured in a $30,000 life insurance policy for which she pays an annual premium of $700. There is an outstanding policy loan of $2,500. Her last premium due has not been paid, and she dies during the grace period. How much will her beneficiary receive? A) 26800 B) 30000 C) 29300 D) 27500"

"26800 Explanation When a death claim is filed against a life policy, all amounts due on that policy are subtracted from the death benefit. This includes any policy loans, plus interest due, and any outstanding premiums. In this case, $30,000 minus $700 (annual premium owed) minus $2,500 (outstanding policy loan) equals $26,800."

"If a life insurance policy lapses for nonpayment, within how many years from the date of premium default may the policy be reinstated? A) 2 years B) 4 years C) 3 years D) 5 years"

"3 years Explanation Lapsed life insurance policies can be reinstated at any time within 3 years from the date of premium default. To reinstate the policy, the former policyholder must provide satisfactory evidence of insurability, if required by the insurer; pay back premiums (with interest on premium loans); and pay any other indebtedness on the policy. However, the policy cannot be reinstated if it has been surrendered for its cash surrender value, if its cash surrender value has been exhausted, or if its paid-up term insurance has expired."

"In which of the following cases would the insurance company most likely cover the loss under a life insurance policy? A) Graham is killed by a shark while scuba diving. B) While robbing a convenience store, Sam is killed by the accidental detonation of a homemade bomb. C) During a cross-country flight to a shareholders' meeting, Judy's commercial airliner suffers engine failure and crashes with no survivors. D) While on a night patrol, Andrea, a first lieutenant in the U.S. Army, is killed in a gun battle with the enemy."

"During a cross-country flight to a shareholders' meeting, Judy's commercial airliner suffers engine failure and crashes with no survivors. Explanation Exclusions for death resulting from commercial aviation are rarely found in modern life insurance policies. However, this exclusion was not uncommon when commercial aviation was a new means of transportation."

"Jamal's agent delivers his life policy to him on February 5. Until what date can Jamal opt to return his policy and receive a full refund of the premiums paid? A) Jamal can return it anytime as long as he is within his grace period B) Jamal can do this anytime C) March 5 D) February 15"

"February 15 Explanation All individual life insurance policies must include a 10-day free-look period. The policyowner has the right to return the policy within 10 days of delivery for a full refund of the premiums paid if he is dissatisfied for any reason."

"All of the following are required provisions of group life insurance policies EXCEPT A) an individual policy contract B) a grace period C) an incontestability provision D) a misstatement of age provision"

"an individual policy contract Explanation A grace period, a misstatement of age provision, and an incontestability provision are all required provisions, as well as provisions for the entire contract, evidence of individual insurability, individual certificates (rather than individual policies), and assignment."

"All of the following are rights of policy ownership EXCEPT A) selecting a settlement option B) changing a policy provision with the agent's approval C) designating beneficiaries D) selecting a nonforfeiture option"

"changing a policy provision with the agent's approval Explanation Owning a life insurance policy provides certain rights and choices. However, changing a policy provision, with or without the agent's approval, is not one of them. Only the insurance company can change policy provisions, never the policyowner or the agent."

"The policy provision that permits the insurer to adjust benefits because of an incorrect age is A) the entire contract provision B) the free-look provision C) the incontestable provision D) the misstatement of age provision"

"the misstatement of age provision Explanation The misstatement of age provision permits the insurer to adjust benefits or premiums if the insured misstates his age. This adjustment will reflect the amount of benefits that would have been paid relative to the individual's correct age. If the misstatement of age is such that no policy would have been issued had the correct age been reported, then the insurer's liability is a refund of any premiums paid."

"When a life insurance beneficiary is revocable, A) the policyowner can change that beneficiary at any time with written notice B) the policyowner is limited with respect to how many times he can change the beneficiary during the policy's term C) the policyowner and the beneficiary share ownership of the policy D) the policyowner may only change the beneficiary with the beneficiary's consent"

"the policyowner can change that beneficiary at any time with written notice Explanation When beneficiaries are revocable, the policyowner may change this designation at any time. The policyowner also retains complete ownership of the policy and may change the beneficiary any number of times during the policy's term. A revocable beneficiary has no vested claim in the policy or its proceeds while the insured is living."

"The death benefit proceeds of a life insurance policy are protected from the beneficiary's creditors unless A) they are paid to a contingent beneficiary B) they are paid out in installments C) they are paid out in a lump sum D) they are held in trust by the insurer"

"they are paid out in a lump sum Explanation The spendthrift clause is designed to protect the proceeds of a life insurance policy from the beneficiary's spending habits and creditors. When this clause is included in the policy, the creditors cannot attach the death benefit proceeds before they are made to the beneficiary. Once the beneficiary has received the proceeds, however, the creditors can take steps to attach those proceeds. Since a lump-sum settlement would immediately place all of the proceeds in the beneficiary's possession, the proceeds would not be protected from the beneficiary's creditors."

"Which provision sets forth the insurer's basic promise to pay benefits upon the insured's death? A) Settlement options provision B) Consideration clause C) Insuring clause D) Reinstatement provision"

"Insuring clause Explanation The insuring clause sets forth the insurer's basic promise to pay benefits upon the insured's death. It is usually found on the first page of the policy and identifies the parties to the contract."

"Micah pays $220 annually for a $50,000 life insurance policy. The premium is due June 1, however it is not paid until June 24. If Micah died on June 15, what would the amount of the death benefit? A) 49220 B) 50000 C) 49780 D) 0"

"49780 Explanation Since Micah died during the grace period, the policy will pay the death benefit minus the amount of past due premium."

"A policy's grace period is usually no more than A) 60 days B) 45 days C) 10 days D) 31 days"

"31 days Explanation The time limit between when premium is due and date of policy lapse is known as the grace period and generally is no more than 31 days."

"What type of beneficiary on a life policy can only be changed with the written consent of that individual beneficiary? A) Primary B) Irrevocable C) Contractual D) Revocable"

"Irrevocable Explanation If a beneficiary is named irrevocably, the policyowner has given up her right to change that beneficiary, unless that beneficiary has provided written consent to do so."

"Vivian commits suicide 4 years after taking out a $100,000 life insurance policy on herself. Her beneficiary is concerned that the death claim will be denied. Which of the following statements is NOT correct? A) If the suicide clause were in effect, the company would refund the premiums paid. B) The company has definite proof of the cause of her death, so it can refuse to pay the death benefit. C) If the beneficiary were familiar with the policy's suicide clause, she would not doubt payment of the claim. D) The suicide clause in Vivian's policy would have expired, so it would not affect the death claim."

"The company has definite proof of the cause of her death, so it can refuse to pay the death benefit. Explanation As a general practice, the suicide clause provides that death benefits are payable in full after the policy has been in force for 2 years, even if the insured did commit suicide."

"A life insurance policy must give the policyowner at least how many days after delivery of the policy to cancel the policy? A) 15 days B) 10 days C) 20 days D) 31 days"

"10 days Explanation A policyowner must be given at least 10 days after delivery of the policy to cancel the policy. In this case, the policyowner is entitled to a full return of all premiums paid for the policy."

"An individual life insurance policy must become incontestable no later than how long after its effective date? A) 1 year B) 3 years C) 6 months D) 2 years"

"2 years Explanation Individual life insurance policies must include an incontestability provision stating that the policy will become incontestable no later than 2 years after its effective date (except for nonpayment of premiums)."

"With respect to life insurance policy beneficiaries, all the following are examples of a class designation EXCEPT A) my sisters and brothers B) my sister Mimi and my nephew Rodolfo C) children of the insured D) all my children"

"my sister Mimi and my nephew Rodolfo Explanation With a class designation the beneficiary is defined as a class or group of individuals easily identified by membership in a defined group. By definition, identifying a beneficiary by individual name means it is not a class designation."

"The purpose of the common disaster provision is to A) provide benefits in case of a common disaster, such as a flood B) protect the interests of the primary beneficiary C) protect the interests of the contingent beneficiary D) provide benefits to the primary beneficiary's heirs"

"protect the interests of the contingent beneficiary Explanation The common disaster provision provides a means for the policyowner to make certain that the contingent beneficiary receives the proceeds if both the insured and the primary beneficiary die within a short time of each other due to a common disaster. This provision states that the primary beneficiary must outlive the insured by a specified time period in order to receive the benefits. Otherwise, the policy proceeds go to the contingent beneficiary."

"All of the following policyowner rights contribute to the flexibility of a life insurance policy EXCEPT A) beneficiary selection B) settlement options C) nonforfeiture options D) classification of the applicant"

"classification of the applicant Explanation Nonforfeiture options provide help when the insured no longer wants to pay premiums. Settlement options offer a choice of how proceeds will be paid. Choosing and changing the beneficiary is a right of the policyowner. Classifying the applicant according to her risk is the right of the insurer."

"To have an individual life insurance policy reinstated, a person must do all of the following EXCEPT A) make back payments of premiums B) agree to a new policy without another reinstatement provision C) provide satisfactory evidence of insurability, if required D) pay any other indebtedness owed to the insurer"

"agree to a new policy without another reinstatement provision Explanation All individual life insurance policies must include a reinstatement provision stating that if the policyowner defaults in premium payments, the value of the policy can be applied to purchase other insurance. If the insurance is in force and the original policy has not been canceled or surrendered to the company, the policy can be reinstated within 3 years from the default. Satisfactory evidence of insurability must be provided, if needed, and back payment of premiums and payment or reinstatement of any other indebtedness to the company must be made."

"Who must sign endorsements, modifications, or any other changes to a life insurance contract? A) an executive officer of the company B) the principal of the brokerage firm C) the insured D) the agent of record"

"an executive officer of the company Explanation Any amendments to the policy must be signed by an executive officer of the insurance company. No other person or entity is authorized to do so."

"Abner's age was misstated in his application for a $50,000 life policy. What will the company do when it discovers the error? A) It will adjust either the premium rate or the amount of protection. B) It will amend the application, but no additional premium can be charged. C) It probably will void the policy. D) It will do nothing because the policy cannot be altered in any way after it has been issued."

"It will adjust either the premium rate or the amount of protection. Explanation Because Abner's age was misstated in his application, the company will adjust either the premium rate or the amount of the protection."

"Death benefits paid out to a beneficiary may NOT be protected from the insured's creditors A) if they are paid out in a lump sum B) if they are held in trust by the insurer C) if the beneficiary is the insured's estate D) if they are paid out in installments"

"if the beneficiary is the insured's estate Explanation When initially established, a life insurance contract is between the policyowner and the insurer. Upon the insured's death, however, the contractual agreement exists between the insurer and the named beneficiary. If there is no named beneficiary, meaning the proceeds will go to the insured's estate, then there is no protection from the insured's creditors. If the life insurance policy proceeds are paid to a named beneficiary upon the insured's death, the insured's creditors have no right to those proceeds. The proceeds of a life policy paid out to a beneficiary are generally protected from the insured's creditors; they may not be protected from the beneficiary's creditors. Please note, however, that this question is asking specifically about the insured's creditors, not the beneficiary's creditors."

"Individual life insurance policies can exclude benefits if death occurs as a result of any of the following EXCEPT A) suicide, if within 5 years from the date of policy issue B) specified hazardous occupation, if within 2 years from the date of policy issue C) aerial flight (except as a fare-paying passenger) D) war"

"suicide, if within 5 years from the date of policy issue Explanation Individual life insurance policies generally cannot exclude or restrict liability for certain named causes of death. However, policies can exclude or restrict coverage if death occurs as a result of war, from any aerial flight (except as a fare-paying passenger), while engaged in a specified hazardous occupation if within 2 years of the date of policy issue, or from suicide if within 2 years from the date of policy issue."

"Which of the following statements pertaining to reinstatement of a life insurance policy is NOT correct? A) When reinstating a policy, the insurer must charge the policyowner for past-due premiums. B) A suicide exclusion period is renewed with a reinstated policy. C) When reinstating a policy, the insurer must charge the policyowner for interest premium loans. D) A new contestable period becomes effective in a reinstated policy."

"A suicide exclusion period is renewed with a reinstated policy. Explanation When reinstating a life policy, no new suicide exclusion period goes into effect."

"What can a policyowner do if 9 days after an individual life insurance policy is delivered, he decides not to keep it? A) Return it, but lose the premiums paid B) Return it for a full refund of premiums C) Return it and receive back three-quarters of the premiums paid D) Return it and lose the premiums paid, unless it is replaced with another policy"

"Return it for a full refund of premiums Explanation Life insurance policies must include a 10-day free-look period that allows the policyowner to return the policy to the insurer within 10 days of delivery. Upon delivery or mailing of the policy, the insurer will refund any premium paid and the policy will be considered void from its inception."

"Winnie is insured under a life insurance policy. She designates "all natural children of the insured" as beneficiaries in her life insurance policy. Which of the following phrases best describes this type of beneficiary designation? A) Juvenile beneficiaries B) Tertiary beneficiaries C) Class beneficiaries D) Generational beneficiaries"

"Class beneficiaries Explanation Rather than specifying one or more beneficiaries by name, a policyowner may designate a class or group of beneficiaries. Thus, if Winnie names "children of the insured" as her beneficiaries, she is designating a class of beneficiaries. Designating a class of beneficiaries allows for withdrawals or additions to the class without having to amend the designation."

"A lapsed life insurance policy may be reinstated if all of the following requirements are met EXCEPT A) the policy has not been surrendered B) no more than 3 years have passed since the date of premium default C) waiting 7 years after the premium default date to reinstate D) its cash value has not been exhausted"

"waiting 7 years after the premium default date to reinstate Explanation All individual life insurance policies must include a reinstatement provision stating that if the policy has not been surrendered, its cash surrender value has not been exhausted, and its paid-up term insurance has not expired, it can be reinstated at any time within 3 years from the date of premium default. To reinstate a policy, an individual must submit an application to the insurer; produce satisfactory evidence of insurability, if required by the insurer; pay back premiums (with interest on premium loans); and pay any other indebtedness upon the policy."

"An insurer may NOT contest an individual life insurance policy after it has been in force for how long? A) The insurer can contest the policy for the life of the policyholder B) 30 days C) 2 years D) 1 year"

"2 years Explanation An insurer may not contest a policy after it has been in force for 2 years, unless the insured fails to pay the premiums."

"While Debby was out of the country on vacation, she forgot to pay her life insurance premium, missed the grace period and wants to reinstate her policy. Which of the following is NOT a condition of reinstatement? A) satisfactory evidence of insurability B) payment of all past due premiums, plus interest C) application for reinstatement (within 3 years of lapse) D) assignment of a new beneficiary"

"assignment of a new beneficiary Explanation Provided that Debby has not surrendered the policy for cash, she must submit a new application, pay all past due amounts plus premiums and take a new medical exam to provide evidence of insurability."

"Which of the following is NOT a part of what constitutes the entire contract? A) any applicable riders B) the invoice for first month's premium C) the life insurance policy D) a copy of the original application"

"the invoice for first month's premium Explanation The entire contract is made up of the policy, a copy of the original application and any applicable riders or amendments."

"Edna stopped paying premiums on her permanent life insurance policy 7 years ago, though she never surrendered it. She is still insurable and has no outstanding loan against the policy. The company will probably decline to reinstate the policy because the time limit for reinstatement has expired. The limit is A) 60 to 90 days B) 1 year C) 3 years D) 6 months to 18 months"

"3 years Explanation The policyowner has only a limited period of time—3 years from the date of the last premium due—in which to reinstate a lapsed policy. It is important to remember that policyowners can only reinstate life policies that have lapsed for nonpayment only. If a policyowner intentionally surrenders the policy, reinstatement is not allowed."

"Joshua's insurance agent delivered his new term life policy to him. Three days later Joshua changed his mind—he no longer wanted the life policy and returned it to his agent. Joshua had paid the initial premium. Under the free-look provision, what is Joshua entitled to receive? A) The policy's cash surrender value B) A partial refund of the initial premium C) A credit that can be applied to the purchase of another policy D) A full refund of the initial premium"

"A full refund of the initial premium Explanation Under the free-look provision, policyowners have 10 days to examine their new life policies. If a policyowner is not satisfied with the policy, he may return it to the insurer and receive a full refund of the initial payment."

"An individual life insurance policy must contain all of the following provisions EXCEPT A) accelerated benefit B) incontestability C) entire contract D) free-look"

"accelerated benefit Explanation All individual life insurance policies must contain an entire contract provision stating that the policy and the application constitute the entire insurance contract. Policies also must provide a 10-day free-look period during which the owner may return the policy and have the premiums refunded. An incontestability provision is mandatory and states that a policy is incontestable after being in force for 2 years, except for nonpayment of premiums. An accelerated benefit provision is an optional provision that may be included in a life insurance policy."

"Under a common disaster clause in a life insurance policy, it is assumed that A) the insured and primary beneficiary died simultaneously B) the primary beneficiary died last, unless the insured lives beyond a stipulated period C) the contingent beneficiary is entitled to the policy proceeds D) the insured died last, unless the primary beneficiary lives beyond a stipulated period"

"the insured died last, unless the primary beneficiary lives beyond a stipulated period Explanation Under a common disaster clause in a life insurance policy, it is assumed that the insured died last, unless the primary beneficiary lives beyond a stipulated period (usually 30 or 90 days). If the primary beneficiary does not live beyond that period, proceeds are payable to the insured's secondary beneficiary or to her estate."

"If an individual life insurance policy contains a spendthrift provision, the policy can prohibit the beneficiary from taking all of the following actions EXCEPT A) borrowing against the policy B) exchanging the policy C) receiving equal installment payments under the policy D) surrendering the policy for cash"

"receiving equal installment payments under the policy Explanation A life insurance policy with a spendthrift provision can prohibit the beneficiary from exchanging, surrendering, and borrowing against the policy. To ensure that the beneficiary does not spend all the proceeds at once, the policy will specify that proceeds are to be paid to the beneficiary in equal installments during the beneficiary's lifetime."

"All of the following statements regarding the insuring agreement are true EXCEPT A) the insuring agreement is usually found on the first page B) the clause includes the death benefit amount C) the agent or producer must sign the clause D) the beneficiary is named in the insuring agreement"

"the agent or producer must sign the clause Explanation An insuring clause or agreement in life insurance contains the insurer's promise to pay the death benefit to a named beneficiary. An authorized officer of the company must sign the clause, not an agent or producer."

"Endorsements or modifications to a contract A) must be signed by the insured's agent B) must be in writing and agreed to by both the insurer and the policyowner C) require the signature of an executive officer of the insurance agency D) are requested by the agent/producer"

"must be in writing and agreed to by both the insurer and the policyowner Explanation Endorsements to a contract may be made by the policyowner. The changes must be made in writing and agreed to by both the policyowner and the insurer. An agent or producer cannot authorize the amendment. An executive officer of the insurance company must sign the amendment."

"The best reason for designating a trust as a life insurance policy beneficiary is to A) make it possible to manage the policy proceeds for the long-term benefit of an individual or organization B) make it possible to benefit an individual or organization that might have otherwise been ineligible to be a designated beneficiary C) remove the policy proceeds from the insured's taxable estate D) make it possible to accumulate income tax-free interest on the policy proceeds once they are paid into the trust"

"make it possible to manage the policy proceeds for the long-term benefit of an individual or organization Explanation The primary reason for naming a trust as a beneficiary is to let the insured control the proceeds after death. The trust can be set up to distribute the proceeds in whatever manner the grantor (insured) wishes. There are no special tax advantages for choosing a trust over an individual named beneficiary."

"The mode of premium payment refers to A) the frequency of the payment B) the type of payment C) the number of payments in total D) the amount of the payment"

"the frequency of the payment Explanation The mode of the premium payment is the frequency of the payment. Modes are usually monthly, quarterly, semi-annually, and annually."

"All individual life insurance policies must include a reinstatement provision providing that the policy can be reinstated at any time within how many years from the date of premium default? A) 3 years B) 4 years C) 1 year D) 2 years"

"3 years Explanation A policy must provide for reinstatement at any time within 3 years from the date of premium default if satisfactory evidence of insurability is provided, back premiums (with interest on premium loans) are paid, and any other indebtedness on the policy is paid."

"Which of the following statements pertaining to the spendthrift clause in a life insurance policy is NOT correct? A) The spendthrift clause is designed to protect beneficiaries against the claims of creditors. B) The spendthrift clause does not exempt proceeds paid to beneficiaries in a lump sum. C) The exemption applies only to money held in trust by the insurance company that is payable at some future time to the named beneficiary. D) A beneficiary receives $125 per month from a life policy under the fixed-amount settlement option and a spendthrift clause. The beneficiary may have the company send the payments to a creditor to pay off a debt."

"A beneficiary receives $125 per month from a life policy under the fixed-amount settlement option and a spendthrift clause. The beneficiary may have the company send the payments to a creditor to pay off a debt. Explanation The spendthrift clause in a life insurance policy is designed to protect beneficiaries from their creditors by providing that the death benefits are not subject to creditor claims. This clause applies only while the insurer holds the money, and only to installment payments."

"Which of the following causes of death would most likely be covered in a life insurance policy issued today, though for many years it was typically excluded from coverage? A) A commercial airline pilot is killed when his personal airplane crashes into the ocean. B) A skydiving hobbyist dies when his parachute fails to open during a skydive. C) A soldier is killed while on a night patrol in a war zone. D) A fare-paying passenger is killed in a commercial airplane crash while flying to visit a relative."

"A fare-paying passenger is killed in a commercial airplane crash while flying to visit a relative. Explanation The aviation exclusion eliminates coverage for private pilots, test pilots, military pilots, and their crew members. Commercial flight is no longer an exclusion. Military service and hazardous occupations and hobbies are still excluded on most policies. While some companies may provide coverage, lower policy limits and higher premiums are to be expected."

"Which of the following statements pertaining to reinstatement of a life insurance policy is CORRECT? A) A new contestability period is renewed with a reinstated policy. B) The insurance company will make all beneficiaries prove insurability before reinstatement. C) When reinstating a policy, the insurer will change the premium based on the insured's attained age. D) Reinstatement is only available to policyowners who have intentionally surrendered their life policies."

"A new contestability period is renewed with a reinstated policy. Explanation When reinstating a life policy, a new 2-year contestability period starts. If the company reinstates the life policy, the premiums remain the same as they were before the policy lapsed for nonpayment. The insurance company never underwrites the beneficiaries on a life policy; only the insureds have to prove insurability. Reinstatement is only available to policyowners if the policy lapses for nonpayment and within 3 years."

"Which of the following statements about life insurance is NOT correct? A) Life insurance is not a personal contract between the insurer and insured. B) A policyowner must notify the beneficiary before transferring ownership. C) A policyowner must notify the insurer in writing to transfer a policy. D) If a policy is transferred, the new owner receives all of the rights of policy ownership."

"A policyowner must notify the beneficiary before transferring ownership. Explanation Life insurance is not a personal contract between the insurer and the insured. Policyowners actually own their policies and can give them away if they wish. To transfer a policy, a policyowner must simply notify the insurer in writing and need not notify the beneficiary. The new owner is then granted all the rights of policy ownership."

"Which of the following statements is CORRECT? A) If an insuring company revises its bylaws or practices, any life insurance contract issued before the change must be modified to reflect the company's new policies. B) If a premium deposit is not paid with the application, the policy will still be valid if the applicant is acceptable to the insurer's underwriters. C) After a policy is delivered to and accepted by the policyowner, it cannot be changed in any way, except in accordance with terms stated in the contract. D) Misrepresentations made in an application are always considered grounds for voiding an insurance contract."

"After a policy is delivered to and accepted by the policyowner, it cannot be changed in any way, except in accordance with terms stated in the contract. Explanation Because of the entire contract provision, policyowners are protected against arbitrary changes by the issuing company. Issued policies are not affected by later changes of any kind in an insurer's bylaws or practices. The policy can be changed only in accordance with terms spelled out in the contract. Applications for policies must be accompanied by the initial premium, or a portion of it. Misrepresentations are considered fraudulent and grounds for voiding a contract if they are material to the risk and are made with the intent to defraud."

"Which of the following statements pertaining to the suicide clause in a life insurance policy is NOT correct? A) An insured committed suicide on February 1. The insured had a $50,000 life insurance policy, which was issued on January 28 two years previously. The $50,000 death benefit was paid to the beneficiary of the policy. B) The suicide clause stipulates a period of time during which benefits will not be paid if the insured commits suicide. C) The suicide clause is designed to protect the insuring company. D) An insured with a $75,000 life insurance policy issued December 15 commits suicide two years later, on December 24th The beneficiary of the policy will receive a return of the premiums paid for the policy."

"An insured with a $75,000 life insurance policy issued December 15 commits suicide two years later, on December 24th The beneficiary of the policy will receive a return of the premiums paid for the policy. Explanation Suicide clauses typically extend 2 years, during which time the insurer will not have to pay benefits if the insured does, in fact, commit suicide. The insuring company is obligated to return the premiums paid. In this situation, the insured committed suicide 9 days after the clause time period expired; therefore, the insurer must pay the benefits to the beneficiary."

"What happens if the insurer discovers that the insured's age was accidentally misstated on an application for an individual life insurance policy? A) The policy will be canceled. B) Benefits will be calculated according to how much coverage the premium paid would have purchased for the correct age. C) Benefits are paid as if the misstated age is the insured's real age. D) The insured must pay a $5,000 fine."

"Benefits will be calculated according to how much coverage the premium paid would have purchased for the correct age. Explanation All individual life insurance policies must contain a misstatement of age provision stating that if the insured's age was accidentally misstated on an application for a life insurance policy, benefits will be calculated according to how much coverage the premium paid would have purchased for the correct age."

"What happens if, when paying benefits, the insurer discovers that a person's age had been misstated on his individual life insurance application? A) Benefits will be paid as if the incorrect age stated were actually the correct age. B) No benefits will be paid. C) Benefits will be paid for the amount of coverage the premium would have purchased at the correct age. D) The policyholder's estate must pay a $10,000 fine."

"Benefits will be paid for the amount of coverage the premium would have purchased at the correct age. Explanation When an insured's age has been misstated in applying for a life policy, the policy will pay the amount that the premium would have bought if the correct age had been stated."

"What happens if a claim arises during the grace period of an individual life insurance policy? A) The benefits will be doubled. B) Benefits will be paid, but unpaid premiums can be deducted from the policy proceeds. C) Benefits will not be paid, but premiums will be returned. D) No benefits and no return of premiums will be paid."

"Benefits will be paid, but unpaid premiums can be deducted from the policy proceeds. Explanation The standard life insurance grace period provides that if a claim is made during the grace period, any unpaid premiums may be deducted from the policy proceeds."

"Henry owns a variable life insurance policy in which his spouse, Colin, is the primary beneficiary. His children, Jacob and Charlotte, are equal secondary beneficiaries. The American Red Cross and his alma mater are listed as equal tertiary beneficiaries. If both Colin and Jacob predecease Henry, how will the policy's death benefit be distributed at Henry's death? A) Charlotte will receive 100% of the death benefit. B) Charlotte will receive 50% of the death benefit, and the American Red Cross and Henry's alma mater will each receive 25% of the death benefit. C) The American Red Cross, Henry's alma mater, and Charlotte will each receive one-third of the death benefit. D) The American Red Cross and Henry's alma mater will each receive 50% of the death benefit."

"Charlotte will receive 100% of the death benefit. Explanation As long as even one secondary beneficiary is alive at the insured's death, that person will receive the full benefit. The tertiary beneficiary will receive benefits only if the secondary and primary beneficiaries predecease the insured."

"Clarence, the insured, designated his estate as the beneficiary of his life insurance policy. Which of the following statements is CORRECT? A) The amount of Clarence's estate will be reduced by the amount of proceeds it receives. B) The proceeds will not be included in Clarence's gross estate for estate tax purposes. C) Clarence's creditors can make claims against the proceeds more readily than if the proceeds were paid to named beneficiaries. D) The heirs will be able to select specific settlement options from the estate, just as if they were the direct beneficiaries."

"Clarence's creditors can make claims against the proceeds more readily than if the proceeds were paid to named beneficiaries. Explanation If insurance proceeds are paid directly to an insured's estate, the size of the estate will be increased by the amount of the proceeds. Settlement options will be lost to heirs, since an estate will distribute its assets in lump sums. Creditors can attach proceeds more readily if they are paid to an estate. The value of the policy will be included in the gross estate for tax purposes."

"The beneficiary on Lina's life insurance policy is listed as "children of the insured." Which of the following terms best describes this type of beneficiary designation? A) Basic beneficiaries B) Class beneficiaries C) Generational beneficiaries D) Juvenile beneficiaries"

"Class beneficiaries Explanation A policyowner may designate a class of beneficiaries without specifying the beneficiaries by name. This is a practical way to accommodate changes in the group of beneficiaries. For instance, the policyowner may want to ensure that all of her children will benefit. A class designation will accommodate this by including her current offspring as well as any children yet to be born."

"What are the 2 types of assignment of rights to another in a life insurance policy? A) Dividend and cash value B) Direct and participating C) Collateral and absolute (also known as permanent) D) Whole and pieces"

"Collateral and absolute (also known as permanent) Explanation Assignments transfer an owner's interests. Collateral assignments do not change ownership. Most commonly, they pledge a portion of the death benefit as collateral. Absolute assignments transfer all rights of ownership."

"Which provision of a life insurance policy declares that the application is part of the contract? A) Insuring clause B) Incontestable clause C) Entire contract clause D) Ownership clause"

"Entire contract clause Explanation The entire contract clause states that the entire contract consists of the policy, any amendments or riders, and a copy of the original application."

"Which provision of a life insurance policy states that "no statement shall void this policy or be used in defense of a claim under it unless contained in the application"? A) Insuring clause B) Consideration clause C) Incontestable clause D) Entire contract clause"

"Entire contract clause Explanation The entire contract clause states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract. The policy cannot refer to any outside documents as being part of the contract."

"Which standard life provision allows a policyowner to return a life policy, for any reason, within 10 days of delivery for a full refund of the premium? A) Trial period provision B) Ownership provision C) Grace period provision D) Free-look provision"

"Free-look provision Explanation All individual life insurance policies must include a free-look provision stating that the policyowner, if she is not satisfied for any reason, may return the policy within 10 days of delivery for a full refund of the premium."

"Which of the following best describes the basic purpose for the facility-of-payment clause found in some life insurance policies? A) It requires the insurer to distribute the death benefit in a settlement option that it believes is best suited for the beneficiary's needs. B) It authorizes the insurer to designate the payee of the life insurance death benefits if the designated beneficiary cannot be located. C) It authorizes the insurer to distribute the life insurance death benefit as a lump-sum cash payment, even if the owner selected a different settlement option, if the death benefit is below a specified limit. D) It authorizes the insurer to change the beneficiary designation if the current beneficiary does not have an insurable interest in the insured."

"It authorizes the insurer to designate the payee of the life insurance death benefits if the designated beneficiary cannot be located. Explanation The facility-of-payment clause exists to expedite the claims process for life insurance companies by authorizing them to pay death benefit proceeds to a beneficiary of their choosing if the designated beneficiary cannot be located or the designated beneficiary is invalid (e.g., a minor)."

"A beneficiary receives the proceeds from a life insurance policy in a lump-sum payment. Which of the following statements best explains how the proceeds will be treated in relation to the debts of the beneficiary? A) It is protected from the beneficiary's creditors once it is paid to a beneficiary. B) It can be subject to the beneficiary's debts and creditors. C) It is protected from the beneficiary's creditors as long as it is paid in a lump sum. D) It is not subject to the beneficiary's debts and creditors."

"It can be subject to the beneficiary's debts and creditors. Explanation When proceeds of a life insurance policy are payable to a beneficiary but held in trust by the insurer, the beneficiary has an exclusive right to the proceeds. These payments are not subject to the beneficiary's debts and cannot be reached by creditors. This protection only applies to policies in which the proceeds are payable in installments. It does not protect proceeds paid in a lump sum. The protection also does not extend to proceeds once they are paid to a beneficiary."

"Which of the following statements about the spendthrift clause is NOT correct? A) It helps protect the death benefit proceeds from the beneficiary's creditors. B) It gives the beneficiary the right to use the death benefit as collateral for a loan. C) It states that the life policy proceeds will be paid directly to the beneficiary. D) Once the beneficiary has received payments from the proceeds, the creditors can take steps to attach those payments."

"It gives the beneficiary the right to use the death benefit as collateral for a loan. Explanation The spendthrift clause is a policy provision that makes it possible for an insured to protect the proceeds of a life insurance policy from the actions of a spendthrift beneficiary by preventing the beneficiary's creditors from attaching the proceeds until they have been received by the beneficiary. While the proceeds are protected from the beneficiary's creditors while they are still held by the insurance company, any accumulated interest that is involved would be taxable to the beneficiary. This clause provides for any proceed payments to be made directly to the beneficiary. Once the beneficiary has received payments from the proceeds, the creditors can then take steps to attach those payments."

"Which of the following statements regarding the grace period for life insurance is NOT correct? A) It is usually shorter than 30 days. B) It can vary according to the particular policy. C) It begins the date the premium is due. D) The overdue premium plus interest (if there is a loan) may be deducted from any death claim that occurs during the grace period."

"It is usually shorter than 30 days. Explanation The grace period is the period during which the premium must be paid. It begins with the premium due date as specified in the policy. The grace period can vary, but for most ordinary life policies, it is 1 month (30 or 31 days). The insurer may impose an interest penalty on premiums paid during the grace period."

"In which of the following cases would the insurance company most likely cover the loss under a life insurance policy? A) While taking her final pilot's test, Sandi losses control of her plane and dies in the crash. B) Frank's ski mask impairs his vision while he is robbing a bank, causing him to trip; he hits his head on the floor and is killed instantly. C) Joe, a retired army general, dies of a heart attack at age 85. D) While competing in the local county fair's derby race, Sanjay and Craig are both killed in an explosion as their cars collide."

"Joe, a retired army general, dies of a heart attack at age 85. Explanation Exclusions for war and military service do not pertain to retired military personnel."

"Kevin, the insured in a $200,000 life insurance policy, and his sole beneficiary, Lynda, are killed instantly in a car accident. Under the Uniform Simultaneous Death Act, to whose estate will the policy proceeds be paid? A) Both Kevin's and Lynda's estates, equally B) Kevin's estate C) Lynda's estate D) The proceeds will escheat to the state"

"Kevin's estate Explanation Under the Uniform Simultaneous Death Act, if the insured and primary beneficiary are killed in the same accident and there is not sufficient evidence to show who died first, the policy proceeds are to be distributed as if the insured died last. Kevin's estate would receive the proceeds because Lynda, the beneficiary, was deemed to have predeceased Kevin and no other beneficiary was named."

"Alecia buys a life insurance policy and names her spouse, Max, as a beneficiary. Alecia's children, Rosa and Manuel, are to share the benefits equally if Max dies before her. Her church is to receive the proceeds if her spouse and children predecease her. How would the proceeds of Alecia's policy be distributed if both her children predecease her? A) Max would receive 75% of the proceeds and the church would receive 25% B) The church would receive 100% of the proceeds C) Max and the church would each receive 50% of the proceeds D) Max would receive 100% of the proceeds"

"Max would receive 100% of the proceeds Explanation In this case, the church, as the tertiary (third) beneficiary, would receive proceeds only if and when all primary and secondary beneficiaries predecease the insured. As Max is the primary beneficiary, he would receive 100% of the proceeds."

"An insured may apply for reinstatement of a life policy within what period of time after voluntarily surrendering the life policy? A) Never B) Within 1 year C) Within 2 years D) Within 6 months"

"Never Explanation An insured may apply for reinstatement of a life policy after terminating premium payment if this action is taken within 3 years of the lapse of the policy. However, if the policyowner voluntarily surrenders the life policy, reinstatement is never available."

"After an individual life insurance policy has been in effect for 2 years, which of the following is grounds for cancellation? A) Material misrepresentation B) Implied warranties C) Nonpayment of premium D) Fraudulent statements"

"Nonpayment of premium Explanation The incontestability provision states that other than for nonpayment of premium, the validity of a policy may not be contested after it has been in force for 2 years."

"If a life insurance policy specifically names a beneficiary other than the insured's estate, what recourse may the creditors of the deceased insured take to attach the policy proceeds? A) File a petition with the insurer showing proof of the deceased insured's outstanding debts and thus qualify for a portion of the death benefit B) Attach a lien against the policy that automatically diverts a portion of the death benefit to the creditor C) Seek a court injunction to delay payment of the death proceeds until the issue of who gets paid is settled in court D) Nothing, because life insurance proceeds are exempt from the claims of the deceased insured's creditors as long as there is a named beneficiary other than the insured's estate"

"Nothing, because life insurance proceeds are exempt from the claims of the deceased insured's creditors as long as there is a named beneficiary other than the insured's estate Explanation One of the notable features of the spendthrift clause is that the life insurance proceeds are exempt from the claims of the deceased insured's creditors as long as there is a named beneficiary other than the insured's estate."

"Suppose a whole life insurance policy was issued on August 3. On August 31 two years later, the insured committed suicide. What action will the insurer probably take? A) Return all premiums paid plus interest B) Pay the policy's face amount minus premiums paid C) Pay the policy's face amount D) Return all premiums without interest"

"Pay the policy's face amount Explanation Since the policy was in effect beyond the 2-year suicide clause period, the insurer is obligated to pay the face amount of the policy."

"Which of the following is a required provision in all individual life insurance policies? A) Open enrollment B) Conversion C) Notice of claim D) Reinstatement"

"Reinstatement Explanation All individual life insurance policies must include a reinstatement provision stating that if the policyowner defaults on premium payments, the value of the policy can be applied to purchase other insurance. If the insurance is in force and the original policy has not been canceled or surrendered to the company, the policy can be reinstated within 3 years of default. Satisfactory evidence of insurance must be provided, if required; in addition, back payment of premiums with interest premium loans and payment of any other indebtedness to the company must be made."

"Janet, the insured, dies during a grace period for her $50,000 life policy. What happens, considering that her premium has not been paid? A) The premium due, plus a 10% penalty, is charged against the policy. B) The amount of the premium due is deducted from the policy proceeds paid to the beneficiary. C) The beneficiary must pay the premium after the death claim is paid. D) The premium is canceled because the insured died during the grace period."

"The amount of the premium due is deducted from the policy proceeds paid to the beneficiary. Explanation If an insured dies during the grace period of a life policy, the amount of the premium due is deducted from the policy proceeds paid to the beneficiary."

"John purchased a life insurance policy with a $250,000 death benefit at age 32. When John died the insurer discovered that he was really 25 years old at the time of application. How much will the beneficiary receive? A) Half the benefits will be paid for the age stated in the application. B) The death benefit will be increased according to how much coverage the premium John paid would have purchased had he reported his correct age. C) The beneficiary will receive $250,000. D) The beneficiary will receive nothing because John lied on his application."

"The death benefit will be increased according to how much coverage the premium John paid would have purchased had he reported his correct age. Explanation All individual life insurance policies must contain a misstatement of age provision. According to this provision, if the insured's age was misstated, the amount payable under the policy is that which the premium would have purchased if the correct age had been stated."

"What action will an insurer take if it learns that a deceased life insurance policyholder was actually older than the insurer had believed? A) The insurer cannot take any action. B) The face amount will be lowered to reflect the proper amount based on the correct age. C) The face amount will be paid to the beneficiary and the employer will be required to pay the additional premiums owed. D) The face amount will be increased to reflect the proper amount based on the correct age."

"The face amount will be lowered to reflect the proper amount based on the correct age. Explanation According to the misstatement of age provision in a life insurance contract, if the insured's age was misstated on an application, any amount payable under the policy will be determined according to how much coverage the premium would have purchased for the correct age. Consequently, if a deceased life insurance policyholder was actually older than the insurer had believed, the insurer can lower the face amount to reflect the proper amount based on the insured's correct age."

"Which of the following statements regarding trusts in life insurance is NOT correct? A) Life insurance proceeds may be handled by a trust. B) Trusts may be named as a beneficiary on behalf of a minor. C) The beneficiary is the person receiving the benefits from a trust. D) The grantee is the party that manages a trust."

"The grantee is the party that manages a trust. Explanation There are three parties to a trust - the grantor, the trustee, and the beneficiary. The grantor sets up and determines how a trust will operate. The trustee manages the trust according to the grantor's instructions. The beneficiary receives the benefits of the trust."

"Which of the following statements about reinstating an individual life insurance policy is CORRECT? A) Policies may be reinstated at any time within 4 years from the date of premium default. B) The insured never has to show evidence of insurability. C) The insured must pay all back premiums with interest premium loans before the policy can be reinstated. D) Policies that have been surrendered for their cash value may be reinstated."

"The insured must pay all back premiums with interest premium loans before the policy can be reinstated. Explanation All individual life insurance policies must include a reinstatement provision stating that the policy can be reinstated at any time within 3 years from the date of premium default, unless the policy has been surrendered for its cash value, its cash surrender value has been exhausted, or its paid-up term insurance has expired. For a policy to be reinstated, the insured must submit a written application; provide evidence of insurability, if required; and pay all back premiums plus interest."

"Who designates the beneficiary of a life insurance policy? A) The fiduciary B) The policyowner C) The insured D) The underwriter"

"The policyowner Explanation One of the rights of owning a life insurance policy is the right to designate and change the beneficiary of the policy proceeds."

"Which of the following statements pertaining to life policy assignment is NOT correct? A) To secure a loan, the policy temporarily can be transferred to the lender as security for the loan. B) The life insurance company assumes no responsibility for the validity of an assignment. C) The policyowner must obtain approval from the insurance company before a policy can be assigned. D) The policyowner must notify the company in writing of any assignment."

"The policyowner must obtain approval from the insurance company before a policy can be assigned. Explanation A policyowner may assign or transfer ownership of a life policy to anyone without the insurer's approval."

"Which of the following statements about the reinstatement of individual life insurance policies is NOT correct? A) To reinstate a policy, the insured is never required to provide evidence of insurability. B) The insured must make back payment of premiums and pay any other indebtedness. C) Policies can be reinstated within 3 years from the date of premium default. D) Policies cannot be reinstated if they were surrendered for their cash surrender value."

"To reinstate a policy, the insured is never required to provide evidence of insurability. Explanation All individual life insurance policies must include a reinstatement provision. The provision states that a policy can be reinstated at any time within 3 years from the date of premium default, provided that the insured proves insurability, if required by the insurance company; back payment of premiums is paid; and any other indebtedness to the insurer is paid or reinstated. Policies cannot be reinstated, however, if they have been surrendered for their cash surrender value, their cash surrender value has been exhausted, or the paid-up term insurance has expired."

"Individual life insurance policies must include all of the following provisions EXCEPT A) an entire contract provision B) a conversion provision C) a misstatement of age provision D) an incontestability provision"

"a conversion provision Explanation An individual life insurance policy must include provisions for entire contract, incontestability, and misstatement of age. A conversion provision is required only in group insurance policies."

"An assignment in which the assignee receives full control over the policy is called A) an absolute assignment B) a guaranteed assignment C) a revocable assignment D) a collateral assignment"

"an absolute assignment Explanation Under an absolute assignment, the transfer of rights and benefits is complete and irrevocable. A collateral assignment is one in which the policy is assigned to a creditor as security for a debt until the debt is satisfied."

"If the insured and the beneficiary of the insured's life insurance policy both die simultaneously, the policy proceeds will be distributed A) to the beneficiary's estate B) as if the insured had survived the beneficiary C) to the insured's next of kin D) according to the beneficiary's will"

"as if the insured had survived the beneficiary Explanation If the insured and the beneficiary designated in a life insurance policy both die and there is insufficient evidence that they have died otherwise than simultaneously, the policy proceeds will be distributed as if the insured had survived the beneficiary, unless otherwise specified in the policy."

"The significance of a free-look provision is that it A) provides life insurance policyholders with the right to return their policies for any reason within 10 days of delivery for a full refund of premiums B) means that the policyholder must be given access to the agent's records C) allows a life insurance policy to be issued without a physical examination D) is a special offer in which the policyholder receives the first 90 days of coverage for free"

"provides life insurance policyholders with the right to return their policies for any reason within 10 days of delivery for a full refund of premiums Explanation A free-look period gives policyholders the right to return their policies for a full refund at any time within 10 days of delivery."