LIFE POLICY PROVISIONS OPTIONS AND RIDERS

Which of the following is true regarding the Automatic Premium Loan provision? a-It must be elected. b-It is only used in term insurance. c-It limits benefits if death occurs. d-It is automatically included in all life insurance policies.

a-It must be elected. For the automatic premium loan to be in the contract, it must be requested by the policyholder (owner).

The Payor Waiver is a rider on a juvenile policy which will waive the premiums if the __________.

payor becomes disabled or dies.

Should the insured commit suicide, the benefit payable by the insurer will be limited to the amount of the premiums paid, under which of the following circumstances?

Only if death occurs within two years after the effective date.

What is the term for a formal statement made by a policyowner to an insurer regarding a loss, which is intended to give information to the insurer to enable it to determine the extent of its liability.

Proof of Loss

The policyholder wants to change his beneficiary. The insurance producer explains that: a-A written notice to the insurance company is required, as well as written approval, known as an endorsement, from the insurance company. b-An irrevocable beneficiary may not ever be changed. c-A revocable beneficiary has ownership rights in the policy. d-The primary beneficiary may change the beneficiary, as long as the proper paperwork is completed.

a-A written notice to the insurance company is required, as well as written approval, known as an endorsement, from the insurance company.

Which of the following disabling acts are usually NOT excluded from accident policies? a-Breaking a leg while playing with children. b-Injury received in military service in time of war. c-Injury received during the commission of a crime. d-Self-inflicted injury.

a-Breaking a leg while playing with children.

Mr. Tolle is close to retiring and asks you about his benefits. You may not tell him that a-He will get full benefits if he is currently insured. b-Should he die, his spouse will be entitled to a percentage of his benefits. c-As long as he worked 40 quarters, he is entitled to all social security benefits. d-He is entitled to all social security benefits as long as he is fully insured.

a-He will get full benefits if he is currently insured. Fully insured generally means that the person has at least 40 quarters of coverage. All social security benefits are available if an individual is fully insured.

The automatic premium loan provision accomplishes all of the following, except: a-It is automatically built into life contracts which charge enough premium to cover the life benefits. b-It protects the consumer and may be added to whole life policies. c-It is to prevent unintentional lapse because of nonpayment of premium. d-It provides for premiums to be paid automatically by loan upon expiration of the grace period.

a-It is automatically built into life contracts which charge enough premium to cover the life benefits.

Sara has a $100,000 whole life insurance policy which she has had for over two years. She has two dependents and may have to borrow money for their college tuition using the assignment provision in her policy for securing her loan. All of the following are correct statements about a policy assignment, except: a-It permits the beneficiary to designate the person or lending institution who is to receive the assignment. b-It transfers the rights of the owner under the policy to the extent expressed in the assignment form. c-Transfers are not allowed without the written consent of the irrevocable beneficiary. d-It is valid during the insured's lifetime, therefore, can be called a living benefit.

a-It permits the beneficiary to designate the person or lending institution who is to receive the assignment. A beneficiary has no rights in policy assignment.

A company applies for life insurance on its key employee, Marcos. The company is the premium payor, the beneficiary, and controls all rights to the policy. Which of the following is true? a-Marcos is the proposed insured; his company is the owner-applicant. b-Marcos is the policyowner; his company is the applicant. c-Marcos is the policy owner; his company is the beneficiary. d-Marcos is the applicant; his company is the proposed insured.

a-Marcos is the proposed insured; his company is the owner-applicant. The company is the applicant, owner, payor and beneficiary. Marcos is the insured.

Hurley names his wife, Claire, as the primary beneficiary of a $100,000 whole life policy with a common disaster provision. Their daughter, Rose, is the contingent beneficiary. The policy carries a 10-day short-term survivorship clause. Hurley and Claire are involved in a serious car accident. Hurley is killed immediately. Claire lives for five days after the accident before she also dies. Select the correct statement below: a-Rose, the contingent beneficiary, receives the proceeds of the policy. b-The proceeds are paid directly to the estate of the insured. c-The proceeds of the policy are paid directly to Claire, the primary beneficiary. d-The proceeds of the policy are paid directly to Hurley.

a-Rose, the contingent beneficiary, receives the proceeds of the policy. Since Claire died within the 10-day short-term survivorship clause, she is to be assumed to have died BEFORE Hurley (the insured), and the death proceeds are paid directly to the contingent beneficiary. Had Claire died AFTER the 10-days, the proceeds of the policy would be paid directly to Claire.

Jack Shepard purchased a life policy five years ago naming his brother as the beneficiary. Two years ago Jack got married and immediately created a will leaving all of his assets to his new wife. If Jack never notified the insurance company that he wanted a change of beneficiary, who would get the death proceeds if he were to die today? a-The brother of Jack b-The new spouse c-His nephews d-Any heirs of Jack

a-The brother of Jack The Entire Contract provision states that the contract is made up of the policy itself, the attached application, and any riders or endorsements. The contract cannot be changed arbitrarily or unilaterally by either party after the contract has been issued. No changes are valid unless approved and endorsed by an executive officer of the insurer. A "last will and testament" does not supersede an insurance contract.

Penny names her husband as irrevocable beneficiary. Which statement is NOT correct regarding the irrevocable beneficiary? a-The husband has ownership rights in the policy, and may take a policy loan or cash dividend. b-The beneficiary may be changed with written consent from the beneficiary and the policyowner. c-No assignment or withdrawals are allowed without the written consent of the beneficiary. d-The beneficiary may continue to make the premium payments to keep the policy in force, and is entitled to a copy of the policy.

a-The husband has ownership rights in the policy, and may take a policy loan or cash dividend.

Which of the following is true regarding Nonforfeiture Options, NFO? a-They have been set by law and the states are uniform in applying the Nonforfeiture Law. b-They are optional in most states. c-They are required by most states. d-They are optional with some states while required by others.

a-They have been set by law and the states are uniform in applying the Nonforfeiture Law.

The __________ is a provision in a life insurance policy authorizing the insurer to pay, by means of a policy loan, any premium not paid by the end of the grace period. a-automatic premium loan b-automatic loan agreement c-accelerated death benefit d-delay clause

a-automatic premium loan

Mrs. Crabapple just received her issued insurance policy and wants to know what her rights are under the insurance contract. You may not tell her she has the right to __________. a-change an irrevocable beneficiary. b-cancel or renew the policy. c-the cash value of the policy, choosing the premium payment mode. d-determine the disposition of proceeds.

a-change an irrevocable beneficiary. An irrevocable beneficiary may only be changed with the permission of the policyowner and irrevocable beneficiary.

All of the following are ownership rights EXCEPT a-changing the policy from one insured to another person b-assigning all of the rights of the policy to another c-borrowing money for the cash value d-changing the beneficiary of the policy

a-changing the policy from one insured to another person

A revocable beneficiary a-has a mere expectancy in the policy proceeds. b-must give his consent for policy owner actions. c-has a guaranteed ownership in the policy proceeds if he survives the insured. d-has an absolute hold on the policy proceeds.

a-has a mere expectancy in the policy proceeds. A revocable beneficiary can expect to receive the policy proceeds when the insured dies. However, the beneficiary does not have ownership rights in the policy, and the beneficiary may be changed at anytime by the owner of the policy.

Nick Celestine just got a $500 dividend from his insurance company. You tell Nick that the $500 __________. a-is not taxed as income because it is considered a return of premium. b-is fully taxed as ordinary income. c-is fully tax deductible from his income. d-is a return on investment.

a-is not taxed as income because it is considered a return of premium.

An insured wants to change insurance companies. He cancels one life policy, and once he qualifies, a new life policy is issued. The cash value in the old policy a-may be moved from the cancelled policy to the new policy with no tax under the 1035 exchange. b-is fully taxable as earned income. c-must be left in the old policy for at least three years. d-must be surrendered.

a-may be moved from the cancelled policy to the new policy with no tax under the 1035 exchange.

Desmond is deciding on which type of policy he should purchase. If you, the producer, recommend a policy with a Mutual Insurance Company, the dividend projections a-must contain a clear statement that payment of future dividends is not guaranteed. b-are set based on the 2001 Mortality Tables. c-are set at a conservative estimation. d-are set by the insured.

a-must contain a clear statement that payment of future dividends is not guaranteed. Any non-guaranteed elements of a life insurance contract, such as dividends, must be explained and it must be stated that they are projections and not guaranteed.

The contingent beneficiary will receive the death proceeds of the life policy when the a-primary beneficiary dies before or at the same time as the insured. b-insured dies before the beneficiary only. c-primary beneficiary lives for over one year from the death of the insured. d-court rules in their favor.

a-primary beneficiary dies before or at the same time as the insured.

Contributions to a Traditional IRA are a-tax-deductible. b-not tax-deductible but liquidation of the funds are tax free. c-tax-deductible but earnings are taxable every year. d-not tax-deductible.

a-tax-deductible. The Traditional IRA allows a tax deduction for the amount of the contribution, tax-deferred build-up of interest, and is taxed as it is liquidated. The Roth IRA does not allow a tax-deduction of the contributions, however, there is no tax (tax-free) on any of the money upon liquidation (after age 59 1/2).

With the __________ rider, all or part of the face amount of the policy may be paid in advance on the diagnosis of certain dread diseases or in the event of circumstances significantly affecting the longevity and quality of life of the insured. a-Accelerated Cash Value b-Accelerated Death Benefit c-Guaranteed Insurability d-Cost of Living

b-Accelerated Death Benefit

The __________ states that after a policy has been in-force for over two years, the insurance company cannot void the policy except for fraud committed by the insured or nonpayment of premium. a-Grace Period b-Incontestability Clause c-Free Look Period d-Reinstatement Clause

b-Incontestability Clause

Charlie has had his policy for two years and has never let it lapse. Since the issuance of the policy, he has gotten married and now has one child. His spouse and child have no health problems. The policy has a guaranteed insurability rider on it and he can purchase more insurance: a-On the lives of his dependents at certain specified ages. b-On his own life at certain specified ages without proof of insurability. c-On his own life at certain specified ages provided he is insurable. d-At any time during his life, on his own life and the life of his family, without proof of insurability.

b-On his own life at certain specified ages without proof of insurability. The other answers are incorrect because the GIR gives the option to the insured, and no one else, and because NO insurability is required with this option.

All of the following statements regarding reinstatement are true, except: a-Reinstatement requires the payment of all premiums. b-Reinstatement is a guaranteed right of the policyowner and cannot be denied. c-Reinstatement allows the policyowner to place the policy back in force. d-Reinstatement applies to a lapsed policy.

b-Reinstatement is a guaranteed right of the policyowner and cannot be denied. The insured must qualify health-wise (show proof of insurability) for the insurance company to approve reinstating a policy.

Mr. Burns has just cashed in his life insurance policy. You explain to him that a-All cash value received after 59 1/2 is received income-tax free. b-The gain, money received in excess of the premiums paid into the policy, is taxed as ordinary income. c-All cash value received is fully taxable. d-None of the cash value is taxable upon surrender.

b-The gain, money received in excess of the premiums paid into the policy, is taxed as ordinary income.

Which of the following misrepresentations would allow the insurance company to cancel the policy? a-The applicant did not tell the insurer about a physical two years ago, which proved he was healthy. b-The applicant claims that he is a non-smoker but actually does smoke. c-The insured is 35 years old but tells the producer he is 30 years old when filling out the application. d-The applicant was treated for hypertension two years ago and did not acknowledge this fact to the producer when asked.

d-The applicant was treated for hypertension two years ago and did not acknowledge this fact to the producer when asked.

George Washington requested a cash withdrawal from his Universal Life policy on April 1st. George did so by contacting his insurance agent and is very satisfied with service his agent provided him. Which of the following is a correct statement? a-The insurer must send the money immediately, under the nonforfeiture provision. b-The insurance company must send the money no later than October 1st, under the delay clause. c-Withdrawals are not permitted on Universal Life policies. d-The insurer will charge interest on the amount of withdrawal, which must be sent by October 1st.

b-The insurance company must send the money no later than October 1st, under the delay clause. Under the delay clause, the insurance company has the right to defer paying loans, withdrawals and cash surrenders to the policyowner for up to six months.

Which of the following is true regarding the accumulation of Interest option when a dividend is received? a-The interest earned on the dividend is tax-deferred until withdrawn at retirement. b-The interest earned on the dividend is taxable. c-Withdrawal of the interest incurs a 10% penalty. d-The interest earned on the dividend is tax-free.

b-The interest earned on the dividend is taxable. Accumulation of Interest means the dividend (money) stays with the insurance company and earns competitive interest rates. The money is not put into the cash value account, so it can be withdrawn at any time without affecting the cash values. However, the interest earned on the dividend IS TAXABLE.

A waiver of premium with disability income rider a-is no longer sold. b-not only waives future premium payments should the insured become disabled, but will also send the insured a monthly income check. c-pays a monthly income benefit, but only while the insured is in a nursing home. d-waives future premiums when the insured dies.

b-not only waives future premium payments should the insured become disabled, but will also send the insured a monthly income check.

If Fitz were to die while in the grace period and with a $10,000 loan owed, how much of a death benefit will the beneficiary receive of a $100,000 face value policy? a-$90,000, which is the Face Value minus the $10,000 loan. b-$110,000, which is the Face Amount plus the loan of $10,000. c-$100,000, minus the outstanding loan and the one months premium. d-$100,000, minus the one months premium.

c-$100,000, minus the outstanding loan and the one months premium. The face amount is paid but the insurance company has the right to subtract any outstanding loans and subtract any past due premiums from the face value.

Which of the following is INCORRECT regarding a partial surrender somtimes called a partial withdrawal? a-Tax is charged on the amount of withdrawal that exceeds the amount of premiums paid. b-Universal Life is the most common type of policy which allows the partial withdrawal of the cash value. c-All policies allow partial surrenders (withdrawals). d-There is no interest charged to the owner on any withdrawals of cash from the policy.

c-All policies allow partial surrenders (withdrawals). Partial surrenders (withdrawals) are NOT allowed on all policies.

Under which of the following circumstances or provisions would the insurance company NOT refund any premiums? a-The insured returns her policy within three days of receipt (Free Look Provision). b-Cancellation during the Incontestability Period due to a material misrepresentation. c-Death due to a cause excluded in the policy. d-Death due to suicide during the first two years of the contract.

c-Death due to a cause excluded in the policy. The exclusion section spells out circumstances under which the policy proceeds would not be paid. Should a death claim be denied because the death of the insured was due to a cause or situation excluded in the policy, there will be NO refund of paid premiums.

Which of the following is true about a policy loan? a-It carries no interest, since it is the insured's own money which is being borrowed. b-It must be paid back before the death of the insured. c-It reduces the death benefit if unpaid. d-It is an optional benefit in some cash value policies.

c-It reduces the death benefit if unpaid.

The advance purchase date of a guaranteed insurability rider provides that the policy owner may purchase insurance on the a-Life of a child within 90 days after birth. b-Life of a child within 90 days after the next regular option date. c-Life of the insured in advance of the next option date, due to the birth of a child. d-Life of the insured and the life of his or her dependents after the birth of a child.

c-Life of the insured in advance of the next option date, due to the birth of a child. The GIR allows the purchase of additional insurance on the insured not the children or dependents.

The following are privileges allowed by law under terms of a life insurance contract after cash values have been created. It includes cash, reduced paid-up and extended term options. These are examples of __________. a-Dividend Provisions b-Settlement Options c-Nonforfeiture Options d-Change of Contract Provisions

c-Nonforfeiture Options Settlement Options deals with receiving money from the insurance company other than in a lump sum. Dividend Provisions deals with the options of how a policyowner can receive a dividend. The Change of Contract provision allows the policyowner to change policy types, (ex. a Whole Life to a Universal Life, or a Universal Life to a Variable Life policy).

You, the producer, fill out an application on a life prospect and do not receive the first premium payment. The insurer issues the policy and, when you visit the proposed insured to deliver the policy, you realize that the health of the applicant has deteriorated significantly since the application was taken. You should: a-Obtain the premium and send it to the insurance company. b-Rate the policy and obtain the additional premium required. c-Refuse to deliver the policy or to accept any premium. d-Obtain the premium and deliver the policy.

c-Refuse to deliver the policy or to accept any premium. The application will be turned down by the insurance company upon review of the Statement of Continued Good Health. The best thing to do is not prolong the situation, do not accept any premium and return the policy.

None of the following are examples of a premium mode EXCEPT a-payment by check b-auto deduction of premium c-annual premium payment d-$1000 amount per policy

c-annual premium payment

All of the following are correct statements regarding the beneficiary designation in a life policy, EXCEPT a-The tertiary beneficiary is the third person to whom the death proceeds are payable if the primary beneficiary and contingent beneficiary both die before the insured. b-The contingent beneficiary is the second person to whom the death proceeds are payable if the primary beneficiary dies before or at the same time as the insured. d-Each listed beneficiary is required to sign the application, along with the insured and policy owner. d-The primary beneficiary is the first person to whom the death proceeds are payable upon death of the insured.

d-Each listed beneficiary is required to sign the application, along with the insured and policy owner.

__________ __________ is loss that would be sustained upon the death of another person sufficient to warrant compensation, and must be present at the time of application. a-Insuring Clause b-Ownership Clause c-Consideration Clause d-Insurable Interest

d-Insurable Interest

The incontestability clause included in life insurance policies accomplishes all of the following, except: a-It provides the insurer with a limited amount of time to discover any concealments or misstatements. b-It prevents denial of a claim after two years on the basis of misstatements. c-It results in prompt payment of the proceeds once the contestable period is exhausted. d-It prevents the beneficiary from filing a lawsuit to contest the denial of a claim under a life insurance policy.

d-It prevents the beneficiary from filing a lawsuit to contest the denial of a claim under a life insurance policy. The beneficiary has no ownership rights in the contract, so has no rights to file any suit regarding a claim.

If Kate has a policy that lapses, she can put the policy back inforce under the reinstatement provision. Which of the following is correct about the reinstatement provision? a-No proof of insurability is required to reinstate a policy. b-Should the policy go 31-days past the due date, it will cancel. c-Back premiums must be repaid, and no more than five years may have lapsed. d-It requires the policyowner to pay, with interest, all past premiums.

d-It requires the policyowner to pay, with interest, all past premiums. Insurability is required for reinstatement, and back premiums PLUS interest must be repaid.

You sell insurance for a company which participates in their profits by giving the policy owner a dividend each year. You may a-pre pay those dividends out of your own pocket. b-sue the company is they do not pay a dividend every year. c-guarantee those dividends. d-NOT guarantee that the company will pay a dividend every year.

d-NOT guarantee that the company will pay a dividend every year. Dividends represent a profit which a company makes, so you CANNOT guarantee that your company will have a profit.

An insurance company which pays dividends are known as a-Nonparticipating companies. b-Term Life companies. c-Fraternal companies. d-Participating companies.

d-Participating companies.

Once a policy has lapsed, the insured usually can reinstate the policy, provided proof of insurability is shown, all back premiums due: a-Have been repaid and less than four years have elapsed. b-Have been repaid and less than three years have elapsed. c-Plus interest have been repaid and less than one year has elapsed. d-Plus interest have been repaid and less than three years have elapsed.

d-Plus interest have been repaid and less than three years have elapsed. Reinstatement allows a canceled policy to be put back in force. The owner must pay all back premiums plus interest. The insured must show proof of insurability and no more than three years may have passed from lapsed date. Reinstatement starts new incontestability and suicide clauses.

A policy must pass which test in order to not be qualified as a MEC? a-Enneagram test b-Life producer test c-Three pay test d-Seven pay test

d-Seven pay test When a policy fails the seven pay test, it achieves MEC status. It is now considered a Modified Endowment Contract, and not a Life Insurance Policy. The Death Benefit is the same. The difference is in the tax consequences if you withdraw money while still alive.

If, at the time of death, it is revealed that the insured misstated his age when applying for coverage, and is in fact, 10 years older than that stated: a-The policy will pay, but the beneficiary will have to pay the additional premium for the insureds older age. b-The amount of death proceeds will be increased. c-The claim will be denied and all premiums will be refunded. d-The death benefit amount will be adjusted to the benefit amount the premiums would have purchased at the correct age.

d-The death benefit amount will be adjusted to the benefit amount the premiums would have purchased at the correct age.

The Life policy on Barney Gumble renewed on May 5th. He received a cancellation notice on June 1st, stating that on June 11th his policy would cancel for nonpayment of premium. Which of the following is correct if Barney were to die of a heart attack on June 10th? a-The insurance company must return all of the premiums, but pay no death benefit. b-The insured should have known better than to not pay the premiums. It is his own fault. c-The company owes no death proceeds. d-The insurance company would pay the death claim, minus the past due premiums.

d-The insurance company would pay the death claim, minus the past due premiums. The law says that there must be at least a 10-day written notice given to the insured before the policy can be canceled. The insured is covered during that 10-day period.

The following is a reason for the insurance company to be required to refund all past paid premiums, EXCEPT a-The insured dies within two policy years of having a term life policy and the insurer finds a material misrepresentation. b-The insurer finds out about a material concealment on the application of a Universal Life policy purchased six months ago. c-The insured commits suicide within the first two contract years of his Whole Life policy. d-The insured has an AD and D policy and commits suicide.

d-The insured has an AD and D policy and commits suicide. Intentional acts such as suicide are excluded (never covered) under an ADand D policy. There is NO refund of premium if an insured dies from a situation which is EXCLUDED from the contract.

Which of the following statements regarding the Insuring Agreement (clause) is incorrect? a-The insuring agreement tells the policyowner that the insurer agrees to pay the death benefit to the beneficiary. b-The insuring agreement is on the first page of the policy. c-The insuring agreement is the promise to pay from the insurance company and is known as the heart of the contract. d-The insuring agreement lists the rights of the owner in the contract.

d-The insuring agreement lists the rights of the owner in the contract. The rights of the owner are listed in the Ownership Clause. The other answers are correct statements.

Mrs. M just received a dividend from her insurance company and wants to know all of her options. You are not allowed to tell Mrs. M that the dividend can be: a-Received in cash or applied to reduce premiums. b-Used to purchase additional paid-up coverage. c-Left to accumulate as interest. d-Used to purchase whole life equal to or greater than the original face amount of the policy.

d-Used to purchase whole life equal to or greater than the original face amount of the policy. The additional paid-up option will never get to the point that the amount of coverage will exceed the original amount of the policy.

John Locke is reading his issued policy when he sees the information of a Free Look. He asks you about it and you explain to him that the required Free Look gives the policy owner __________. a-a minimum of 10 days to examine the policy from the date it is received by the policyowner. b-a full refund of all premium paid. c-a minimum of 10 days to examine the policy. d-all of these answers are correct statements.

d-all of these answers are correct statements.

Richard allows his policy to lapse for non-payment. The insurance company, unless otherwise instructed, will a-send the cash value to the beneficiary. b-automatically send the cash value of the policy to the policyowner. c-use the cash value to purchase a reduced amount of permanent insurance. d-automatically institute the extended term option (Automatic Option Provision).

d-automatically institute the extended term option (Automatic Option Provision).

Mrs. Stamm can no longer afford to pay her life premiums but wants to maintain her insurance protection. The producer recommends the nonforfeiture options included in her policy as a solution. The option that provides the most life insurance protection is the __________ option. a-cash surrender value b-reduced paid-up c-interest only d-extended term (automatic option)

d-extended term (automatic option) Term insurance usually gives the maximum amount of coverage for the least amount of money. There is no interest only option. Reduced paid-up actually lowers the face amount of the policy.

Henry has a $100,000 whole life policy. He no longer wants to pay premiums because his two children are going to college and he could use the premiums to help pay tuition. When a reduced paid-up non-forfeiture option is selected, __________. a-the policyowner must bear a greater share of the operating expenses of the insurance company. b-the premium is computed at the original age of the insured. c-the future premiums will be smaller than the old premiums. d-the amount of protection will not vary during the life of the new policy (option amount).

d-the amount of protection will not vary during the life of the new policy (option amount).