Life Policy Provisions and Options Chapter 4 Test

K has a $50,000 traditional whole life policy in force with $25,000 of cash values. Her outstanding loan and loan interest total $5,000. If K surrenders the policy, K will receive: A) $20,000 B) $45,000 C) $25,000 D) $30,000

A) $20,000 Any outstanding loans will be deducted from the face amount at the time of claim or from the cash values upon surrender along with any interest due. $25,000 - $5,000 = $20,000.

Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mind of being covered for the same $200,000 in death benefit although it may be for an abbreviated period of time. The Nonforfeiture Option Jamie should choose is: A) Extended Term B) Paid-Up Additions C) Reduced Paid-Up D) One-Year Term

A) Extended Term One-Year Term and Paid-Up Additions are dividend options, not nonforfeiture options. Since Jamie's concern is to sustain a like amount of death benefit, she should choose Extended Term.

The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force. A) Insuring B) Consideration C) Entire Contract D) Incontestability

A) Insuring The insuring clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.

A life Insurance policyowner receives an annual dividend. One option for this dividend is to use it to offset the annual obligation to the insurer. What is this option called? A) Premium Reduction B) Cash C) Paid up additions D) Cash Surrender

A) Premium Reduction The obligation the policyowner has to the insurer is the premium. Under the Premium Reduction Dividend Option, the dividend payable is used to reduce the current year's premium. Any excess could be used according to the other dividend options.

_________ Options allow for the distribution of the life insurance death benefit to the named beneficiary or contract owner, as the situation warrants. A) Settlement B) Nonforfeiture C) Dividend D) Accumulation

A) Settlement A Settlement Option dictates a mode of payment to a beneficiary (e.g. Fixed Amount, Fixed Period, Life Income, etc.) The owner may choose Settlement Option for a beneficiary that may not be changed by the beneficiary.

An insured forgets to pay his insurance premium. Instead of the policy lapsing, the premium is paid by the company. This would suggest that a __________ policy was purchased. A) Whole Life B) Decreasing Term C) Renewable Term D) Level Term

A) Whole Life Only cash value policies can provide for missed premium payments to be paid with the policy's cash value through an automatic premium loan.

_____________ is/are not considered material to the policy issuance. A) Recent major inpatient hospital surgeries B) Age and/or gender C) 12 driving under the influence tickets within 6 months prior to application D) Hazardous occupations and/or hobbies

B) Age and/or gender Age and/or gender are not considered material to the policy issuance.

No assignment of a policy will be binding on the insurer, unless: A) Sworn affidavits accompany the request B) It is in writing and received at the insurer's home office C) It is determined to be a valid by the insurer D) It is accompanied by supporting legal documentation

B) It is in writing and received at the insurer's home office No assignment of the policy will be binding on the insurer unless it is in writing and received at the insurer's home office. The insurer is not responsible for determining the validity of the assignment.

Which of the following two documents always constitutes part of the entire contract? A) Policy and Attending Physician's Statement B) The application and policy C) Application and Agent's Report D) Policy illustration and Agent's Report

B) The application and policy The entire contract is comprised of the policy itself, the application and any riders attached. The Agent's Report and APS are not included.

All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except: A) The insured was an experienced pilot who died in a plane crash but had a policy issued with an aviation rider for an additional premium B) The premiums have not been paid and have been overdue for 3 years C) The insurer discovers the gender of the insured was misstated D) An insured commits suicide 7 years after the policy was issued

B) The premiums have not been paid and have been overdue for 3 years The insuring clause states that the policy must be in force. A policy that has overdue premiums unpaid will cause the policy to lapse which means no coverage was in effect.

Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy, but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection? A) Paid up option B) reduced paid-up C) Extended Term D) Fixed Amount

C) Extended Term Extended Term would allow the present cash value of the policy to buy a single premium term policy of the same face amount for the time period stated in the policy's nonforfeiture table. Fixed Amount is a Settlement Option, and Paid-Up Option is a Dividend Option.

The ___________ decides which dividend option is in effect and can change their election at any time. A) Beneficiary B) Insurer C) Policyowner D) Board of Directors

C) Policyowner The policyowner has all rights in the policy including the naming and changing of dividend options.

In order to make sure that a creditor of the insured is not paid more than the outstanding loan at time of claim, the policyowner should: A) Indicate the percentage of the face amount the creditor will receive B) Name the creditor as a primary beneficiary C) Purchase a decreasing benefit policy that matches the loan repayment schedule D) Specify a dollar amount the creditor should receive at time of claim

C) Purchase a decreasing benefit policy that matches the loan repayment schedule Credit insurance or decreasing term insurance is the best way to accomplish this.

Assignment is _______________. A) What the producer is asked to do prior to submitting the application for underwriting B) What the insured is asked to do during the underwriting process C) The transfer of all or part of the ownership in a life insurance policy D) What the applicant is asked to do when completing the application

C) The transfer of all or part of the ownership in a life insurance policy Assignment is the transfer of ownership.

Lyle owns a $50,000 20-Pay Life Policy that he lets lapse at the end of the fourth year. The Nonforfeiture Option providing the longest period of coverage would be: A) Extended Term B) Paid-Up Additions C) Paid Up Option D) Reduced Paid-Up

D) Reduced Paid-Up Reduced Paid-Up provides the longest period of coverage. Extended Term would provide the most protection. The other two answers are not Nonforfeiture Options, rather they are dividend options.