Life Insurance Policy Provisions, Options, and Riders

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called

Cost of Living Rider

The policyowner pays for her life insurance annually. Until now, she has collected a non taxable 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.- allows the policyowner to apply policy dividends toward their next year's premium.

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value.

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?

$50,000

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?

2 years

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the?

Revocable beneficiary

Which statements is TRUE concerning irrevocable beneficiaries?

They can be changed only with the written consent of that beneficiary

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called?

Waiver of Premium

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

6 months

If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?

Lump-sum payment

After a back injury, an insured is disabled for a year . His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive?

Monthly premium waiver and monthly income

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the

Other-insured rider

If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy.

The death benefit will be smaller

An insured purchased a 15 year level term life Insurance policy with a face amount of 100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident. After 10 weeks of hospitalization, died of injuries. What amount would his beneficiary receive as a settlement?

200,000

Which of the following provisions would not be allowed as a part of a life insurance policy issued in Michigan?

A Provision that allows the effective date of the policy to be backdated up to 8 months in order to effect a lower premium rate for the insured.

The policyowner wants to make sure that 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?

Interest only option

A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife does 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to?

The insureds estate

What is true about a spouse term rider?

The rider is usually level term insurance

What required provision protects against unintentional policy lapse?

grace period

What is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstance could the daughter collect the death benefit?

If the primary beneficiary predeceased the insured

What is the term for how frequently a policy owner is required to pay the policy premium?

Mode

An absolute assignment is a?

Transfer of all ownership rights in a policy

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

Universal Life

The interest earned on policy dividends is?

taxable

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium

Which allows the insurer to relieve a minor insured from premium payments if the minors parents have died or become disabled?

Payor benefit

Which nonforfeiture option provides coverage for the longest period of time?

Reduced Paid-Up

Michigan insurance policies can specify a time limit during which legal action against the insurer can be taken. This time limit, however has to be at least?

6 years

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions

Which of the following is true of a children's rider added to an insureds permanent life insurance policy ?

It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age

Which of the following statements about the reinstatement provision is true?

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

What limits the amount that a policy owner may borrow from a whole life insurance policy?

cash value

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

single life

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?

the insured's premiums will be waived until she is 21.

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?

$100,000

According to the Entire Contract provision, a policy must contain

A copy of the original application for insurance

Which of the following is TRUE about a class designation?

Beneficiaries are not identified by name

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?

Paid up additions