Life Insurance Exam: Chapter 3

NAIC

National Association of Insurance Commissioners; an organization composed of insurance commissioners

Minor

a person under legal age

activities of daily living (ADLs)

a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence

Indemnity

a principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss

Grace Period

time period after the premium due during which the policy will not lapse

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in a. automatic lapse b. recession of the policy c. adjustment in the amount of death benefit d. no change whatsoever

c. adjustment in the amount of death benefit

All of the following are nonforfeiture options except a. extended term b. reduced paid-up c. interest only d. cash surrender

c. interest only

Lump Sum

payment of the entire benefit in one sum

Fixed period is also called

period certain

Entire Contract

policy (with riders and amendments) and copy of the application

Consideration

something of value that each party gives to the other (binding force in any contract)

Principal

the face value of the policy; the original amount invested before the earnings

According to the Entire Contract provision, a policy must contain a. a copy of the original application for insurance b. a declarations page with a summary of insureds c. buyer's guide to life insurance d. listing of the insured's former insure(s) for incontestability provisions

a. a copy of the original application for insurance

Which of the following best describes fixed-period settlement option? a. both the principal and interest will be liquidated over a selected period of time b. only the principal amount will be paid out within a specified period of time c. the death must be paid out in a lump sum within a certain time period d. income is guaranteed for the life of the beneficiary

a. both the principal and interest will be liquidated over a selected period of time

An individual is purchasing a permanent insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy. a. guaranteed insurability option b. dividend options c. guaranteed renewable option d. nonforfeiture options

a. guaranteed insurability option

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? a. insuring clause b. entire contract clause c. beneficiary clause d. consideration clause

a. insuring clause

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. life income with period certain b. joint and survivor c. single life d. fixed-amount

a. life income with period certain

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called a. paid-up additions b. one-year term purchase c. accumulation at interest d. reduction of premiums

a. paid-up additions

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. payor benefit b. jumping juvenile c. juvenile premium provisions d. waiver of premium

a. payor benefit

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? a. universal life b. adjustable life c. term life d. limited pay

a. universal life Universal life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called a. waiver of premium b. guaranteed insurability c. waiver of cost of insurance d. payor benefit

a. waiver of premium

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? a. nonforteiture options b. guaranteed insurability option c. dividend options d. guaranteed renewable option

b. guaranteed insurability option This option allows the insured to purchase specific amounts of additional insurance at specific times WITHOUT proving insurability.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? a. consideration clause b. insuring clause c. entire contract clause d. beneficiary clause

b. 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.

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

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called a. reduction of premiums b. paid-up additions c. one-year term purchase d. accumulation at interest

b. paid-up additions

Which of the following riders would not cause the death benefit to increase? a. accidental death rider b. payor benefit rider c. guaranteed insurability rider d. cost of living rider

b. payor benefit rider

If the policy owner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights? a. insured b. policyowner c. the insured and the policyowner d. beneficiary

b. policyowner

Who can request changes in premium payments, face value, loans, and policy plans? a. producer b. policyowner c. contingent beneficiary d. beneficiary

b. policyowner

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.

Under which of the following circumstances would an insurer pay accelerated benefits? a. an insured is looking for a way to put her daughter through college b. a couple wants to build a house and would life to make a larger down payment c. an insured is diagnosed with cancer and needs help paying for her medical treatment d. a couple is nearing retirement and needs a steady stream of income

c. an insured is diagnosed with cancer and needs help paying for her medical treatment

An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called a. utmost good faith b. acceptance' c. consideration d. conditions

c. consideration Consideration is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.

What happens when a policy is surrendered for its cash value? a. the policy can be reinstated by paying back all policy loans and premiums b. the policy cana be converted to term coverage c. coverage ends and the policy cannot be reinstated d. coverage ends but the policy can be reinstated at any time

c. coverage ends and the policy cannot be reinstated

The provisions which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the a. aleatory contract b. complete contract c. entire contract d. total contract

c. entire contract The policy, together with the attached application, constitutes the entire contract. This provision limits the us of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? a. fixed amount b. interest only c. fixed period d. life with period certain

c. fixed period

Which two terms are associated directly with the premium? a. term or permanent b. renewable or convertible c. level or flexible d. fixed or variable

c. 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.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the a. juvenile rider b. payor rider c. other-insured rider d. change of insured rider

c. other-insured rider

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

Which of the following is true about nonforfeiture values? a. a table showing nonforfeiture values for the next 10 years must be included in the policy b. policyowners do not have the authority to decide how to exercise nonforfeiture values c. they are required by state law to be included in the policy d. they are optional provisions

c. they are required by state law to be included in the policy

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? a. extended term b. reinstatement c. reduced paid-up option d. automatic premium loan

d. automatic premium loan

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the a. reinstatement clause b. insuring clause c. misstatement of age clause d. incontestability clause

d. incontestability clause

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

Which of the following is true about the 10-day-free-look period in a life insurance policy? a. it begins when the application is signed b. it applied only to term life insurance policies c. it is optional on all life insurance policies d. it begins when the policy is delivered

d. it begins when the policy is delivered The 10-day-free-look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid.

Which of the following is true about the premium on the children's rider in a life insurance policy? a. it decreases when the oldest child reaches at age of 21 b. it increases when a newborn baby is added to the policy c. it decreases when an adopted child is added to the policy d. it remains the same no matter how many children are added to the policy

d. it remains the same no matter how many children are added to the policy

An absolute assignment is a a. transfer of some ownership rights in a policy b. change of beneficiary c. change of insurer d. transfer of all ownership rights in a policy

d. transfer of all ownership rights in a policy

the waiver of cost of insurance rider is found in what type of insurance? a. whole life b. joint and survivor c. juvenile life d. universal life

d. universal life

Assignment

transfer of rights of a policy ownership