Exam FX Life Policy Provisions, Riders and Options

What is the other term for the cash payment settlement option? A. Proceeds B. Lump sum C. Principal amount D. Face amount

B. Lump sum *Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

If an insurer under a variable life insurance policy dies, how will the insurer respond to outstanding policy loans? A. The policy is withheld until payments are met B. The loan amount is charged to the beneficiaries C. The loans are waived D. The loan amounts are deducted from the death benefit

D. The loan amounts are deducted from the death benefit *In the event an insured dies, any outstanding policy loans and accrued interest is deducted from the policy proceeds. Loans cannot exceed the cash value of the policy.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the A. One-year term option B. Paid-up option C. Accelerated endowment D. Paid-up additions

A. One-year term option *The dividend is utilized to purchase one-year term insurance.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and whole the benefits will be paid? A. Entire contract clause B. Beneficiary clause C. Consideration clause D. Insuring clause

D. Insuring clause *The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

All of the following are dividend options EXCEPT A. Paid-up additions B. Fixed-period installments C. Accumulated at interest D. Reduction of premium

B. Fixed-period installments *Fixed-period installments is a settlement option, and not one of the dividend options.

Which of the following is TRUE concerning irrevocable beneficiaries? A. They may be changed at any time B. They can never be changed C. They may be changed only on the anniversary date of the policy D. They can be changed only with the written consent of that beneficiary

D. They can be changed only with the written consent of that beneficiary *Once irrevocable beneficiaries are indicated for the policy, there written consent is required to change the beneficiary.

A rider attached to a life insurance policy provides coverage on the insured's family members is called the A. Payor rider B. Other-insured rider C. Change of insured rider D. Juvenile rider

B. Other-insured rider *The other-insured rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as refund of all the premiums paid. Which rider is attached to the policy? A. Accidental death B. Return of premium C. Cost of living D. Decreasing term

B. Return of premium *The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to A. Purchase a single premium policy for a reduced face amount B. Purchase a term rider to attach to the policy C. Pay back all premiums owned plus interest D. Receive payments for a fixed amount

A. Purchase a single premium policy for a reduced face amount *When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

Which of the following riders would NOT cause the Death Benefit to increase? A. Cost of Living Rider B. Accidental Death Rider C. Payor Benefit Rider D. Guaranteed Insurability Rider

C. Payor Benefit Rider *Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? A. When the insured dies, the primary and contingent beneficiaries share death benefits equally B. With the primary beneficiary's written consent C. If the insured died from accidental means D. If the primary beneficiary predeceased the insured

D. If the primary beneficiary predeceased the insured *The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to A. The policyowner B. The insurance company C. The contingent beneficiary D. The insured's spouse

C. The contingent beneficiary *A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

An insured and his wife are both involved in a head-one collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision? A. Second-to-Die B. Common Disaster C. Accidental Death D. Survivor Life

B. Common Disaster *Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

The policyowner wants to make sure the upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? A. Fixed amount option B. Interest only option C. Life income with period certain D. Joint and survivor

B. Interest only option *With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? A. Single life B. Fixed-amount C. Life income with period certain D. Joint and Survivor

C. Life income with period certain *The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years? A. 1 year B. 2 years C. 5 years D. 7 years

B. 2 years *The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had misstated information during the application process. What can they do? A. Sue for the right to not pay the death benefit B. Pay the death benefit C. Refuse to pay the death benefit because of the misstatement on the application D. Pay a decreased death benefit

B. Pay the death benefit *The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first, Which of the following would receive the death benefit? A. The insured's contingent beneficiary B. The insurance company C. The insured's estate D. The primary beneficiary's estate

A. The insured's contingent beneficiary *Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled. A. Jumping Juvenile B. Juvenile Premium Provisions C. Waiver of Premium D. Payor Benefit

D. Payor Benefit *If the payor (usually a parent or guardian) becomes disabled for a least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21

The paid-up additions option uses the dividend A. To accumulate additional savings for retirement B. To purchase a smaller amount of the same type of insurance as the original policy C. To purchase a one-year term insurance in the amount of the cash value D. To reduce the next year's premium

B. To purchase a smaller amount of the same type of insurance as the original policy *The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

Which two terms are associated directly with the premium? A. Renewable or convertible B. Level or flexible C. Fixed or variable D. Term or permanent

B. Level or flexible *A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

What type of insurance would be used for a Return of Premium rider? A. Level Term B. Decreasing Term C. Annually Renewable Term D. Increasing Term

D. Increasing Term *The Return of Premium is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights? A. The insured and the policyowner B. Beneficiary C. Insured D. Policyowner

D. Policyowner *Only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary.

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members? A. Accidental death and dismemberment rider B. Guaranteed insurability rider C. Change of insured rider D. Term rider

D. Term rider *Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? A. The premiums will become tax deductible until the insured's 18th birthday. B. Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected C. The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. D. The insured's premiums will be waived until she is 21

D. The insured's premiums will be waived until she is 21 *If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy? A. It requires that someone who is not the primary beneficiary handles the estate B. It determines who receives policy benefits if the primary beneficiary is deceased C. It allows creditors to receive payment out of the proceeds D. It ensures the policy proceeds will be split between the primary and contingent beneficiaries

B. It determines who receives policy benefits if the primary beneficiary is deceased *Naming a secondary beneficiary (also referred to as contingent beneficiary) ensures that there is a beneficiary to receive policy proceeds if the primary beneficiary dies before the insured. If there is no secondary beneficiary, the policy benefits will go to the insured's estate.

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? A. The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. B. The beneficiary will only receive payments of the interest earned on the death benefit C. The beneficiary must pay interest to the insurer D. The beneficiary will receive the lump sum, plus interest

B. The beneficiary will only receive payments of the interest earned on the death benefit *With the Interest Only settlement option, the insurance company retains the policy proceeds and pays the interest on the proceeds to the recipient (beneficiary) at regular intervals.

The Ownership provision entitles the policyowner to do all of the following EXCEPT A. Assign the policy B. Designate a beneficiary C. Set premium rates D. Receive a policy loan

C. Set premium rates *The insurer sets premium rates based upon underwriting considerations

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A. The same as the original policy minus the cash value B. Equal to the original policy for as long as the cash values will purchase C. In lesser amounts for the remaining policy term of age 100 D. Equal to the cash value surrendered from the policy

B. Equal to the original policy for as long as the cash values will purchase *With this option the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

Which of the following information will be stated in the consideration clause of a life insurance policy? A. The conditions for insurability B. The amount of premium payment C. The parties to the contract D. The time period allowed for the payment of premium

B. The amount of premium payment *The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy? A. $20,000 B. $25,000 C. $50,000 D. The face amount will be determined by the insurer

C. $50,000 *The face of the term policy would be the same as the face amount provided under the whole life policy.

If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a A. Cost of living provision B. Nonforfeiture option C. Guaranteed insurability rider D. Paid-up additions option

C. Guaranteed insurability rider *The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

What is the advantage of reinstating a policy instead of applying for a new one? A. The face amount can be increased B. The cash values have gained interest while the policy was lapsed C. The original age is used for premium determination D. Proof of insurability is not required

C. The original age is used for premium determination *The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

Life income joint and survivor settlement option guarantees A. Payment of interest on the death proceeds B. Payout of the entire death benefit C. Equal payments to all recipients D. Income for 2 or more recipients until they die

D. Income for 2 or more recipients until they die *The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home? A. Accidental death B. Guaranteed insurability C. Payor benefit D. Long-term care

D. Long-term care *Long-term care rider provides for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home.