Life Insurance Policy Provisions, Options, Riders Chapter 4

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

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

Cash Value

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

Absolute and collateral.

The two types of assignments are

Copy of the original application

According to the entire contract provision, what document must be made part of the insurance policy?

Automatic Premium Loan

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

term

Children's riders attached to whole life policies are usually issued as what type of insurance?

Cash Surrender

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Becomes terminally ill.

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

One-Year Term Option

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

lump sum

What is the other term for the cash payment settlement option?

Reinstatement Provision

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

The policyowner can specify the way proceeds are split in the policy.

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?

To purchase a smaller amount of the same type of insurance as the original policy.

The paid-up addition option uses the dividend

2 years

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?

Exclusions clause

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

Universal Life

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

Monthly premium waiver and monthly income

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?

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

Under which of the following circumstances would an insurer pay accelerated benefits?

Naming beneficiaries as a group.

Using a class designation for beneficiaries means

An executive officer of the insurer

Who can make changes to the policy once it is in effect?

The interest is not taxable since it remains inside the insurance policy.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

taxable

The interest earned on policy dividends is

Entire Contract

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

The original age is used for premium determination.

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

trust

What type of account will most likely be established for a minor?

Increasing Term

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

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

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

Until the beneficiary's death

How long will the beneficiary receive payments under the single life settlement option?

lump sum

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

Grace Period

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

Death due to plane crash for a fare-paying passenger

Which of the following is NOT typically excluded from life policies?

It permits the insured to return the policy for a full refund of premiums paid.

Which of the following applies to the 10-day free-look privilege?

Joint and survivor.

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

specified

All of the following are beneficiary designations EXCEPT

$9,800

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?

Reduction of premium

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?

The balance of the loan will be taken out of the death benefit.

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

Size of each installment

Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?

Fixed Period

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?

Paid-Up Additions

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

Pay a reduced death benefit

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?

Adjustment in the amount of the death benefit

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

Payor Benefit Rider

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

Family Term Rider

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

Single Life

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

Cash option

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

Pay to the beneficiary an interest penalty from the date of the insured's death.

An insurer that does not pay a death benefit in a timely manner as required by state law, will be required to

1 month

How long is the required grace period in life insurance policies in this state?

Return of Premium

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all of the premiums paid. Which rider is attached to the policy?

Outstanding loans and interest

When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value?

Owner's Rights

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

Pay the death benefit

An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do?

Equal to the original policy for as long as the cash values will purchase.

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

The same face amount as in the whole life policy

Under an extended term nonforfeiture option, the policy cash value is converted to

Incontestability Clause

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

Coverage ends and the policy cannot be reinstated.

What happens when a policy is surrendered for its cash value?

Grace period

What required provision protects against unintentional lapse of the policy?

It begins when the policy is delivered.

Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy?

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

Which of the following is true about the premium on the children's rider in a life insurance policy?

It provides income the beneficiary cannot outlive.

Which of the following is true regarding a single life settlement option?

a minor son of the insured

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?

annual

Which of the following premium payment modes will incur the lowest overall payment?

Automatic premium loan

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?

It transfers rights of ownership from the owner to another person.

Which of the following statements is TRUE about a policy assignment?

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

Which of the following statements is TRUE concerning irrevocable beneficiaries?

It will pay double or triple the face amount

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

If the father is disabled for more than 6 months

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

Cost of Living Rider

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?

Reduction of premium

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?

Class designation

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called

The beneficiary will only receive payments of the interest earned on the death benefit.

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?

War or Military Service

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military?

Transfer of all ownership rights in a policy

An absolute assignment is a

Revocable Beneficiary

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

fixed amount

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

Payor Benefit

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?

Beneficiaries are not identified by name.

Which of the following is TRUE about a class designation?

Funds exceeding the premium paid are taxable as ordinary income.

Which is TRUE about the cash surrender nonforfeiture option?

Collateral Assignment

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible?

$100,000

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?

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

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

This rider is available to all insureds with no additional premium.

All of the following are true regarding the guaranteed insurability rider EXCEPT

If the primary beneficiary predeceases the insured

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

30 days

If a policy is in danger of being terminated due to a nonpayment of premium, how many days before termination must an insurer send written notice to the policyowner?

The death benefit will be smaller.

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?

Policyowner

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

Contingent 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

February 28th, or 10 days after the time the policy is delivered.

J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid?

Interest Only Option

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?

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 is true of a children's rider added to an insured's permanent life insurance policy?

Policyowner

Who can request changes in premium payments, face value, loans, and policy plans?

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

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

Set premium rates

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Waiver of premium.

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

6 months

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

The rider is usually level term insurance.

Which is true about a spouse term rider?

It has the highest amount of insurance protection.

What is the benefit of choosing extended term as a nonforfeiture option?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

Long-term care

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?

Extended Term

Which nonforfeiture option has the highest amount of insurance protection?

Reduced paid-up

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

6 months

In order to reduce the premium, an insurer can backdate a life policy up to

Cost of Living Rider

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

Proof of insurability is not required.

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?

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

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?

Other-insured rider.

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

$50,000

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?

$200,000

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, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?

The policy will terminate when the cash value is reduced to nothing.

If an insured continually uses the automatic premium loan option to pay the policy premium,

Guaranteed Insurability Rider

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

6 years

What is the least amount of time a life policy can allow for insureds to take legal action against their insurer for a particular act?

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

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