Finance Quiz #2 - C12
T/F Evidence of insurability must be demonstrated to purchase additional life insurance under a guaranteed purchase option
False
T/F Interest is not required on life insurance policy loans
False
T/F Failure to pay a life insurance premium by the due date automatically results in a policy lapse
False, grace period
T/F All ownership rights in a policy are transferred through a collateral assignment
False, limited assignment designed to provide security for a loan
All of the following are dividend options except: dividend accumulations, fixed-period option, paid-up additions, reduction of premiums
Fixed-period option
Divided options: alternative methods of using policyowner (_____) dividends
participating
Absolute assignment
transfers all interests in the policy
Ned purchased a life insurance policy on his own life. He was concerned that he might not be able to pay premiums if he became disabled. He added a provision to his policy that relieved him from paying premiums if he becomes totally disabled before a specified age. This provision is called
waiver-of-premium provision
Suicide clause
first two years of policy, insurer must only refund the premiums
Incontestable clause
insurer cannot deny claims after the policy has been in force for two years
Collateral assignment
limited to amount of the outstanding debt
Barb purchased a whole life policy on her own son, Tom, twelve years ago. She named herself the beneficiary. Tom, now age 19, would like to take out a policy loan to help fund the purchase of a sports car. Barb does not believe that Tom has the right to take out a policy loan. Which contractual provision supports Barb's position?
ownership clause
Rod committed suicide four months after purchasing a $100,000 life insurance policy. Her insurer must pay
a refund of the premiums paid
Entire Contract clause
application and the policy constitute the complete agreement between the parties
Misstatement of Age Clause
misstatement, not misrepresentation, insurance proceeds are adjusted
Reinstatement clause
permits policyowner to reinstate lapsed policy, insurability must be established
Assignment clause
policy rights may be fully or partially transferred through an assignment
T/F The purpose of the suicide clause is to reduce adverse selection against the insurer
True
T/F Under a waiver-of-premium provision, if the insured becomes totally disabled before a stated age, all premiums coming due during the period of disability are waived
True
Settlement options are available for
all policies
Which statement is true with regard to the incontestable clause? I) It protects the beneficiary if the insurer attempts to deny payment of the death claim more than two years after the policy was purchased. II) It allows the insurer to deny a death claim during the first two years of coverage on the basis of concealment or misrepresentation by the applicant
both I and II
Policy loan provision
can borrow cash value at interest
Waiver of premium rider
disabled, don't have to pay premium
Grace Period
policyowner has 31 days to pay overdue premium
Ownership clause
policyowner makes major decisions, not the insured or beneficiary
Beneficiary designation
policyowner selects the beneficiary
Beneficiaries may be
primary or contingent, revocable or irrevocable, specific or class
Nonforfeiture options
reduced paid-up insurance, cash, extended term insurance
T/F A change-of-plan provision permits the policyowner to exchange his/her present policy for a different life insurance contract
True
T/F Cash value life insurance contracts include nonforfeiture options
True
Settlement options
cash, fixed amount, interest ("parking"), fixed period, life income
Accidental death (double indemnity) rider
2 times the face value will be paid to beneficiary, illogically
Christine has paid-up $50,000 whole life policy. She would like to transfer all ownership rights in the policy to her favorite charity. Christine can accomplish the transfer through a(n)
absolute assignment
Mary is concerned that inflation will reduce the purchasing power of her life insurance proceeds when she dies. To provide protection against this risk, she added a rider to her policy that allows her to purchase one-year term insurance equal to the cumulative change in the consumer price index from the issue date of the policy. This provision is called a
cost-of-living rider
Nonforfeiture Options: alternatives for the cash value if a life insurance policy is ____
surrendered
Nonforfeiture options only for
cash value policies
Dividend options
cash, apply to premium, accumulate at interest, paid-up additions, one-year term insurances
T/F If a policy loan has not been repaid by the time the insured dies, the amount paid to the beneficiary is reduced by the amount of the debt
True
T/F Settlement options are available on all insurance contracts
True
T/F Reduced paid-up insurance is a divided option
False, nonforfeiture option
All of the following are settlement options except: fixed period, interest option, extended term insurance, life income
extended term insurance
Tom was just diagnosed with an inoperable brain tumor. According to his doctor, Tom has less than three months to live. A life insurance premium notice just arrived. Tom purchased his whole life policy over 40 years ago. Tom does not want to pay the premium. Which nonforfeiture option should Tom exercise?
extended term insurance
Which statement is true with regard to the options available in life insurance contracts? I) All life insurance policies provide dividend options. II) All life insurance policies provide nonforfeiture options.
neither I or II, participating get dividends, cash value provide nonforfeiture