A.D. Banker and Company Chapter 4 Life Policy Provisions and Options
Revocable Beneficiary
The policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary; this beneficiary does not have a vested interest in the policy
An insured has a $175,000 permanent life insurance policy and is having difficulty keeping up with the premium payments. Which Nonforfeiture Option would allow him to forego the premiums and retain the same face amount until the cash surrender value is exhausted? a) Premium Reduction b) Extended Term c) Reduced Paid-Up d) Cash Surrender
b) Extended Term: Cash Surrender is a Nonforfeiture Option that terminates the policy. Extended Term continues the same coverage until the cash value from which the premium is paid is exhausted.
Angela bought a policy from her friend, an insurance producer. After looking it over thoroughly, Angela only has one question. Will she receive dividends? She will if the policy is which of the following? a) Participating b) Nonparticipating c) Accumulating d) Cash Value Policy
a) Participating: Dividends are declared under participating policies, are paid as declared, and are not guaranteed. The dividends are a return of excess premiums paid.
K has a $100,000 traditional whole life policy with $30,000 of cash values and a $10,000 loan outstanding. What is the maximum additional amount she could borrow from the policy at this time? a) $40,000 b) $30,000 c) $20,000 d) $60,000
c) $20,000 She can borrow up to the policy's cash value. She already has a loan of $10,000, so she could borrow another $20,000 at this time.
When is the earliest a beneficiary designation can be made? a) At time of claim b) Upon policy renewal c) At the time of policy application d) Upon policy delivery
c) At the time of policy application: Beneficiaries are indicated for the first time when the application for life insurance is completed for submission to the home office of the insurer.
Some traditional whole life policies offer a(n) __________ feature to keep the policy in force if there are sufficient cash values to do so. a) Bank loan b) Collateral c) Automatic premium loan d) Cash surrender
c) Automatic premium loan: Some policies offer an automatic premium loan feature to keep the policy in force if there are sufficient cash values to do so.
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 insurer discovers the gender of the insured was misstated b) An insured commits suicide 7 years after the policy was issued c) 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 d) The premiums have not been paid and have been overdue for 3 years
d) 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.
Interest only, life income, fixed amount and fixed premium are all forms of which of these life insurance policy options? a) Dividend options b) Nonforfeiture options c) Beneficiary options d) Settlement options
d) Settlement Options These are all forms of settlement options (how the beneficiary will receive the policy proceeds). Nonforfeiture options are concerned with cash value.
A contingent beneficiary has the right to which of the following? a) The policy proceeds if the primary beneficiary is a minor child b) Prevent the policyowner from taking a loan against the cash value c) Share in the death benefit with the primary beneficiary d) The policy proceeds only when there is no primary beneficiary
d) The policy proceeds only when there is no primary beneficiary. A contingent beneficiary has no interest in the policy proceeds if there is a surviving primary beneficiary. Contingent and primary beneficiaries do not share the death benefit. Only an irrevocable primary beneficiary has the right to interfere with certain of the owner's rights in a life insurance policy.
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:
$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.
Q has a traditional whole life policy with a $10,000 face amount, a $5,000 cash value, and a $4,999 policy loan and loan interest outstanding. Q will forfeit the policy when the policy loan reaches ________ for failing to pay loan interest on a timely basis.
$5,000: It is prohibited for forfeiture of the policy for failure to repay any loan on the policy or to pay interest on the loan while the total indebtedness on the policy is less than the loan value of the policy.
A client purchases a life insurance policy and receives the policy from the insurer 45 days after application. Upon receipt of the policy, the client typically has ______days to review and return the policy to receive a full refund for any reason.
10 days The standard Free Look, or Right to Examine provision allows the insured to return the policy for any reason within 10 days after policy delivery.
If a policyowner returns a variable life insurance contract during the free look period, he/she is entitled to a refund of account value and policy fee paid for the policy within how many days from the date the insurer is notified of cancellation?
30 days: The return of variable life insurance contracts and modified guaranteed contracts during the free look period entitles the owner to a refund of account value and policy fee paid for the policy within 30 days from the date the insurer is notified of cancellation.
Spendthrift Trust Clause
The Spendthrift Clause denies the beneficiary the right to assign his/her interest in the policy proceeds. The purpose is to prevent creditors of the insured and/or the beneficiary from claiming any benefits payable to the beneficiary before they are actually received. This clause does not protect the beneficiary if the benefits are payable in a lump sum, only when the proceeds are held by the insurance company under a settlement option.
The Uniform Simultaneous Death Act
The Uniform Simultaneous Death Act has been adopted by all states and provides that when the insured and primary beneficiary die as the result of the same event and the order of death cannot be determined, it is assumed the insured died last, protecting their secondary beneficiary or heirs.
Irrevocable Beneficiary
The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change.If an irrevocable beneficiary is named, the owner may not make changes to the policy that affect the coverage or benefits without consent of the beneficiary. These changes include assigning the policy, canceling or surrendering the policy, or taking a policy loan. An irrevocable beneficiary has a vested interest in the policy benefits.
No assignment of a life insurance policy will be binding on the insurer unless: a) It is in writing and received at the insurer's home office b) The creditor files the assignment with the Insurance Commissioner c) The insurer is provided a 30 day time period in which to approve of the assignment d) The insurer receives all of the documents relating to the assignment to verify its legitimacy
a) It is in writing and received at the insurer's home office: No assignment of a life insurance policy will be binding on the insurer unless it is in writing and received at the insurer's home office.
Which of the following is TRUE concerning reinstatement of a life insurance policy? a) Reinstatement may be completed at any time after the policy has lapsed b) Companies have the right to require medical examinations c) Back premiums need not be paid prior to granting reinstatement d) Proof of insurability is not required
b) Companies have the right to require medical examinations: To reinstate a lapsed policy, back premiums plus interest need be paid and proof of insurability is required. The right to request reinstatement has a time limit, typically 3 to 5 years from policy lapse.
Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose: a) Fixed Amount b) Life Income c) Fixed Period d) Interest
b) Life Income: The option that will guarantee the beneficiary an income as long as she/he lives is Life Income Only.
What is the name of the clause which is the insurer'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 insured died while the policy was in force? a) The consideration clause b) the insuring clause c) the waiver and estoppel clause d) The entire contract clause
b) 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 insured died while the policy was in force.
Which of the following is a reason why "class" designations of beneficiaries may be a problem? a) They specify the exact persons who may claim policy proceeds b) They prevent contingent beneficiaries from being named c) They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds d) They are intended to allow unnamed persons to share policy proceeds
c) They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds. Class designations of beneficiaries are intended to provide benefits to a number of unnamed persons but can be problematic when there is insufficient understanding about who is being named as a beneficiary. "All of my children" does not clearly identify which children are included (the children of a former marriage, the current marriage, or both). Likewise, "My minor children" disregards the fact that children will eventually become adults, and can unintentionally exclude a child as a result.
What is the intent of the suicide clause? a) To be able to pay out claims to beneficiaries whenever such a tragic event occurs b) To distinguish between sane and insane actions c) To discourage individuals from purchasing an insurance policy while contemplating suicide d) To pay out claims only if and when suicides are committed while sane
c) To discourage individuals from purchasing an insurance policy while contemplating suicide The intent of the suicide clause is to discourage individuals from purchasing an insurance policy while contemplating suicide.
