Life Insurance Policy Provisions, Options and Riders

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

The two types of assignments are

Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

The accelerated benefits provision will provide for an early payment of the death benefit when the insured

Becomes terminally ill. The accelerated benefits provisions allow the owner to be advanced a significant portion of the death benefit when the insured is terminally ill.

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time. Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the

Entire contract. The policy, together with the attached application, constitutes the entire contract. This provision limits the use 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.

Which nonforfeiture option has the highest amount of insurance protection?

Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

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?

If the primary beneficiary predeceases the insured The daughter, as contingent beneficiary, would

What type of insurance would be used for a Return of Premium rider?

Increasing Term The Return of Premium Rider 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.

Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?

Owner's Rights Policyowners can learn about their ownership rights by referring to the policy.

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced 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. However, it does not apply to statements relating to age, sex and identity.

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had concealed information during the application process. What can they do?

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.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Which settlement option provides a single beneficiary with income for the rest of his/her life?

Single Life The Single Life Option provides a single beneficiary with income for the rest of his/her life.

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?

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.

The Waiver of Cost of Insurance rider is found in what type of insurance?

Universal Life The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

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 rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider A single rider that provides coverage on every family member is called a "family rider".

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed amount When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

The automatic premium loan provision is activated at the end of the

Grace period Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

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?

Guaranteed insurability option The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

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

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.

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?

Payor Benefit 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.

Which of the following riders would NOT cause the Death Benefit to increase?

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 committed suicide one year after his life insurance policy was issued. The insurer will

Refund the premiums paid. If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium.

All of the following are beneficiary designations EXCEPT

Specified. Beneficiary designations determine the order in which benefits will be paid: primary or contingent, which includes secondary and tertiary.

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments?

Spendthrift provision When a life insurance policy contains a spendthrift provision, all rights of the beneficiary to change time of payment or amount of installments, surrender for cash, borrow against, or assign for any purpose, are withdrawn and those parts of the policy that may give the beneficiary such rights are declared inoperative and void.

Which of the following statements about a suicide clause in a life insurance policy is TRUE?

Suicide is excluded for a specific period of years and covered thereafter. In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit.

The interest earned on policy dividends is

Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

What is the advantage of reinstating a policy instead of applying for a new one?

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.

Which is true about a spouse term rider?

The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

Which of the following statements is TRUE concerning irrevocable beneficiaries?

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

The paid-up addition option uses the dividend

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.

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

Adjustment in the amount of death benefit. If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?

Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will pay double or triple the face amount. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

If a settlement option is not chosen by the beneficiary or policyowner, which option will be used?

Lump sum Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.