Chapter Exam 2 - Policy Provisions, Options and Riders
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
variable universal Life
What does the ownership clause in a life insurance policy state?
who the policy owner is and what rights the policyowner is entitled to
return of premium life insurance policy is:
whole life and increasing term- if the insured dies within the period of term, the beneficiary will receive face amount plus the value of all paid premiums.
What action will an insurer take if an interest payment on a policy loan is not made on time?
Automatically add the amount of interest due to the loan balance
The automatic premium loan provisions is designed to?
Avoid a policy lapse
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?
Beneficiary will be paid the Death Benefit- The incontestable clause prevents the insurer from canceling the contract even for a material misrepresentation.
A policy loan made possible by which of these life insurance policy features?
Cash value provision
Which rider provides coverage for a child under a parent's life insurance policy?
Child term rider
Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?
Collateral assignment-
Whose life is covered on a life insurance policy that contains a payor benefit clause?
a child
Additional coverage can be added to a Whole Life policy by adding a(n)
a decreasing term rider can add additional coverage to a whole life policy
S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?
a return of premium
Which of these statements about a Guaranteed insurability option rider is NOT TRUE
a) Coverage can be added at specific events such as marriage or having a child b)Evidence of insurability is not required when the option is exercised c)evidence of insurability is required when the option is exercised d)coverage can be added a specific ages C- not true
all of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death, Except
a) Fixed period b) Interest Only c) Fixed Amount d)Life income - Interest only
all of the following statements are true regarding a policy's Grace period, EXCEPT?
a) Past due premiums are waived b) Policy loans may still be made c)full coverage continues d)Grace period terms are stated in the policy -a)
S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT
a) Type of life insurance b) S's attained age c) dividends amount used toward purchase d)beneficiary's age -Beneficiary's age
Which of these are NOT an example of a nonforfeiture option?
a) extended term b)reduced paid up c)Cash Surrender D)Life income -Life income d)
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
a) modified Whole life b)20- pay life c)decreasing Term d) Endowment -C decreasing term
All of these statements about the Waiver of Premium provision are correct EXCEPT
a)a waiting period must pass before becoming eligible for benefits b)Waiver of Premium is available on both permanent and term insurance policies c) Insured must be eligible for Social Security Disability for claim to be accepted d)insured must be totally disabled to qualify Anser- c)
a Whole Life insurance policy-owner does NOT have the right to?
a)designate a beneficiary b)take out a policy loan c)change the grace period d)assign the policy -Change the grace period
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional Whole life coverage at specified times
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n)
an exclusion
What does the insuring agreement in a Life insurance contract establish?
an insurer's basic promise
Which of the following provisions guarantees that premiums will be waived if a juveniles lie policy owner becomes disabled?
Payor Clasue
D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive?
The full face amount- In this situation, the beneficiary will receive the full death benefit state in the policy.
B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will
The misstatement of age provision stats an adjustment be made in the amount of insurance if the age of the insured is misstated.
M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the
The policy proceeds
A policy owner may generate taxable income from which of the following dividend options
While policy dividends are not taxable, any interest paid on them is taxable income in the year the interest is credited to the policy.
A Nonforfeiture clause gives the policyowner
guaranteed values even if the policy has lapsed
Dividends paid from a life insurance policy are
issued by the insurer
What is the Suicide provision designed to do?
safeguard the insurer from an applicant who is contemplating suicide
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the:
Policy Loan Provision
The ----- has the right to change a life insurance policy's beneficiary
Policyowner
The is authorized to assign a Life Insurance policy as collateral for a loan.
Policyowner
Typically a life insurance death benefit is paid by a lump-sum payment. A(n) __________ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment.
Settlement
which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?
Taxed as ordinary income
Which of these life insurance riders allows the applicant to have excess coverage?
Term Rider
The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured?
is blinded in an accident
A(n) ----- Rider may be used to include coverage for children under their parents' life insurance policy.
term
The consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and
the initial premium
In a life insurance contract, an insurance company's promise to pay stated benefits is called the?
the insuring clause in a life insurance contract establishes the basic promise of the insurance company
The incontestable clause allows an insurer to?
"contest a claim during the contestable period". The incontestable clause or provision specifies that after a certain period of time (usually two years from the issue date), the insurer no longer has the right to contest the validity of the life insurance policy so long as the contract continues in force.
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
$20,000 death benefit If the insured dies before the endowment's maturity, the policy's face value - also know as the "death benefit"- is paid in a lump sum to any beneficiaries.
P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?
$50,000 minus any outstanding policy loans. ( In this situation, the beneficiary will receive $50,000 less any outstanding loans and interest. At the time of the insured's death, the policy is beyond the contestable period.
A potential client, age 40 would like to purchase a whole life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?
20- pay life
which of these is not considered to be a right given to a policy owner?
Modify a provision in the insurance contract
T took out a $50,000 life insurance policy with and accidental death and dismemberment rider. Five year later, T commits suicide. How much will the insurer pay?
50,000- The suicide occurred outside the. Suicide clause period (normally 1-2 years), thus the face amount will be paid.
An insurer may normally delay the payment of a cash value loan or surrender value for up to
6 months.
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT
A) K must reinstate within a stated period b) K must pay back interest and premiums c) K will forfeit the right to use the automatic loan provision upon reinstatement d)K must provide evidence of insurability --c)
P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?
AD&D clause accidental death and dismemberment clause
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n)?
Accidental Death and Dismemberment rider (AD&D)
a term life rider offers the insured?
Additional life coverage
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued
What provision in a life insurance policy states that the application is considered part of the contract?
Entire Contract provision
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself?
Entire Contract provision -- The entire contract provision, found at the beginnning of the policy, states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract. Nothing may be "incorporated by reference," meaning that the policy cannot refer to any outside documents as being part of the contract.
In a life insurance policy, which feature states that the policy will not cover certain risks?
Exclusion
N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?
Exclusions are specified hazards listed in a policy for which benefits will not be paid
D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with?
Extended Term- Choosing the nonforfeiture extended term option allows the policy owner to use the cash value to purchase a term insurance policy with a death benefit equal to that of the original whole-life-policy. Extended-term insurance is often the default nonforfeiture option in the event of nonpayment of premiums.
Which of the following nonforfeiture options offers the highest death benefit?
Extended term Choosing the extended term option allows the policy owner to use the cash value to purchase a term insurance policy with a death benefit equal to that of the original whole-life policy.
an insured is past due on his life insurance premiums, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?
Full face amount minus any past due premiums
The purpose of the ---- period clause is to avoid an unintentional lapse of a life insurance policy
Grace
a long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following?
Inability of the insured to perform more than 2 activities of Daily living (ADL's)
The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a
Insuring agreement- The insuring clause or provision sets forth the company's basic promise to pay benefits upon the insured's death.
How are policyowner dividends treated in regards to income tax?
Interest on accumulations is taxed
B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes?
Interest only
Which of the following statements is CORECT about accelerated death benefits?
Must have a terminal illness to qualify accelerated death benefits provide for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness or injury.
All of these statements concerning Settlement Options are true, EXCEPT:
Only The beneficiary may select is incorrect. Settlement options may be selected by the policyowner.
in a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy?
Owner's rights.
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?
P will Still Receive declared dividends
K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose?
Paid-Up Additional Insurance
Which statement is true in regards to policy loan?
Past-due interest on a policy loan is added to the total debt
M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?
Pay the face amount minus the past due premiums b/c death occurred within the grace period
Which life insurance rider typically appears on Juvenile life insurance policy?
Payor Benefit rider
Which of these Nonforfeiture Options continue a build-up of cash value?
Reduced Paid up- options would provide continuing cash value build up.
Which of the following is an example of a nonforfeiture option?
Reduced Paid-Up option is an example of a nonforfeiture option
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called
Reinstatement
Which of these provisions require proof of insurability after a policy has lapsed?
Reinstatement
J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?
Reinstatement provision
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
Variable life
a life insurance policy owner would like to take out a policy loan against the cash value in his Whole life policy. The interest rate applied to this loan may vary over time. this is referred to as a(n) ----- rate loan
Variable rate loan
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?
Void the policy only if it is discovered during the Contestable period and proven to be material
a life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
Waiver of Premiums
When is the face amount of a Whole Life policy paid?
When the insured dies or at the policy's maturity date, whichever happens first.
Variable Whole Life Insurance can be described as
both an insurance and securities product
Which statement regarding the Misstatement of Age provision is considered to be true?
coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered.
D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?
ex wife until he changes the beneficiary
What action can a policyowner take if an application for a bank loan requires collateral?
Assign policy ownership to the bank
the accelerated death benefit provision in a life insurance policy is also known as a
Living Benefit
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
Long term care
The Consideration clause in a life insurance contract contains what pertinent information?
The Amount of premium payments and when they are due-- The consideration clause in a life insurance policy specifies the amount and frequency of premium payments that the policy owners must make to keep the insurance in force.
S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?
The beneficiary is entitled to receive $50,000
L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will
adjust the death benefit to a reduced amount
A cost of living rider
Additional death benefits- The cost of living rider can be purchased with many different types of life insurance. This type of coverage is designed to help you hedge your bets against inflation. For example, if you purchase this rider, your policy is going to increase in value if inflation increases.
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
At future dates specified in the contract with no evidence of insurability required
S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?
Automatic Policy Loan- will keep a whole life policy in force if a required premium payment is not made and there is sufficient cash value.
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
Claim will be denied- In this situation, the insurance company will deny the claim as the policy would have lapsed due to nonpayment by September 15
How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?
Claims are denied under the Suicide clause of the policy
The advantage of reinstating an original life policy is
The premiums are based on a younger age
What benefit does the Payor clause on a Juvenile Life policy provide?
The premiums are waived if payor becomes disabled
The free-look provision begins?
Upon receipt of the policy by the policyowner
