Ch 3.2 Exam Review 2

A policyowner may generate taxable income from which of the following Dividend Options? - Cash - Reduced Premium - Accumulation at interest

Accumulation at interest

Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made? - Automatic Policy Loan - Assignment - Grace Period - Waiver of Premium

Automatic policy loan

N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take? - Claim will be denied - Claim will be partially paid

Claim will be denied

Which of these is NOT an example of a nonforfeiture option? - Extended term - Reduced paid up - cash surrender - Life income

Life income

Which of these provisions require proof on insurability after a policy has lapsed? - Conversion - Reinstatement

Reinstatement

The automatic premium loan provision is designed to - avoid a policy lapse - allow a policyowner to request a policy loan

avoid a policy lapse

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n) - term rider - accidental death and dismemberment rider

accidental death and dismemberment rider

All of these statements concerning settlement options are true EXCEPT - increased proceeds can be provided through accumulation of interest - rapid depletion of proceeds can be avoided - proceeds can be administered by the insurance company - only the beneficiary may select

only the beneficiary may select

M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the - cash value - policy proceeds

policy proceeds

Which of the following is an example of a nonforfeiture option? - reduced paid up option - inflation option

reduced paid up option

How are policyowner dividends treated in regards to income tax? - Dividends are not taxable - Interest on accumulations is taxed

Interest on accumulations is taxed

A cost of living rider gives the insured - tax incentives - additional death benefits

additional death benefits

What does the insuring agreement in a Life insurance contract establish? - an insurers basic promise - the insurer's required reserve amount

an insurers basic promise

Variable whole life insurance can be described as - both an insurance and securities product - an insurance product only - a securities product only

both an insurance and securities product

The _____ has the right to change the life insurance policy's beneficiary. - insured - policyowner

policy owner

Which of these life insurance riders allows the applicant to have excess coverage? - Waiver of premium rider - Term rider

Term rider

The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and - the initial premium - agreeing to physical examination - disclosure of any medical conditions

the initial premium

An insurer may normally delay the payment of a cash value loan or surrender value for up to: - 2 months - 4 months - 6 months - 8 months

6 months

Which statement regarding the misstatement of age provision is considered to be true? - Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered - insurer may void the policy if a misstatement of age is discovered

Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered

How are surrender charges deducted in a life policy with a rear-end loaded provision? - Deducted when the policy is discontinued - Deducted form the policy's cash value

Deducted when the policy is discontinued

Additional coverage can be added to a Whole Life policy by adding a(n) - payor rider - decreasing term rider

decreasing term rider

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay? - Nothing - $50,000

$50,000 because it was outside of the suicide clause period

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take? - Deny the claim - Pay face amount minus the past due premium

Pay face amount minus the past due premium

The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n) - entire contract provision - insuring agreement

insuring agreement

Dividends paid from a life insurance policy are: - guaranteed - taxable - issued by the insurer - issued by the department of insurance

issued by the insurer

K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT - K must provide evidence of insurability - K will forfeit the right to use the automatic loan provision upon reinstatement

K will forfeit the right to use the automatic loan provision upon reinstatement

Which of the following statements is CORRECT about accelerated death benefits? - The provision is usually provided with an increase in premium - Must have a terminal illness to qualify

Must have a terminal illness to qualify

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will - adjust the death benefit to a reduced amount - deny the claim

adjust the death benefit to a reduced amount

When does a Guaranteed Insurability Rider allow the insured to buy additional coverage? - 10 year increments - at future dates specified in the contract with no evidence of insurability required

at future dates specified in the contract with no evidence of insurability required

D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with? - Loan provision - Extended term

extended term

Which of the following nonforfeiture options offers the highest death benefit? - cash surrender - reduced paid up - extended term - dividend

extended term

In a life insurance contract, an insurance company's promise to pay stated benefits is called the - insuring clause - entire contract

insuring clause

The Accelerated Death Benefit provision in a life insurance policy is also known as a(n) - nonforfeiture option - living benefit

living benefit

Typically a life insurance death benefit is paid by a lump-sum payment. A(n) __________ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment. - settlement - dividend - conversion - aleatory

settlement

P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary? - Nothing. Claim will be denied - $50,000 minus any outstanding policy loans

$50,000 minus any outstanding policy loans

A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? - Straight life accumulates faster than limited pay life - 20 pay life accumulates cash value faster than straight life

20 pay life accumulates cash value faster than straight life

The Consideration clause in a life insurance contract contains what pertinent information? - Offer and acceptance - Amount of premium payments and when they are due

Amount of premium payments and when they are due

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take? - Beneficiary will be denied the claim - Beneficiary will be paid the death benefit

Beneficiary will be paid the death benefit (thanks to the incontestable clause)

A policy loan is made possible by which of these life insurance policy features? - Extended term provision - Cash value provision - Owner's rights provision

Cash value provision

How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period? - Claims are denied under the suicide clause of the policy - premiums are returned under the consideration clause

Claims are denied under the suicide clause of the policy

Which of these statements about a guaranteed insurability option rider is NOT TRUE? - Coverage can be added at specific events such as marriage or having a child - Evidence of insurability is required when the option is exercised

Evidence of insurability is required when the option is exercised

In a life insurance policy, which feature states that the policy will not cover certain risks? - Exception - Exclusion - Expulsion

Exclusion

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot? - Misrepresentation - Exclusion

Exclusion

An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period? - Refund of all the premiums paid, plus interest - Full face amount minus any past due premiums

Full face amount minus any past due premiums

An insured's inability to perform two or more activities of daily living may trigger which type of policy rider? - Long term care - accelerated death benefit - waiver of premium

Long term care

Which of these is NOT considered to be a right given to a policyowner? - Surrendering the policies cash value - Modify a provision in the insurance contract

Modify a provision in the insurance contract

In a life insurance policy, which provision states who may select policy options, designate and name beneficiary, and be the recipient of any financial benefits from the policy? - Entire contract - Insuring clause - Owner's rights

Owner's rights

P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability? - P will have to pay income taxes on the amount of premium waived - P will still receive declared dividends

P will still receive declared dividends

Which statement is true in regards to a policy loan? - Past due interest payments not paid after 3 months will void the policy - Past due interest on a policy loan is added to the total debt

Past due interest on a policy loan is added to the total debt

A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the - Policy loan provision - automatic premium loan provision

Policy loan provision

What benefit does the Payor clause on a Juvenile Life policy provide? - Premiums are waived if juvenile becomes disabled - Premiums are waived if payor becomes disabled

Premiums are waived if payor becomes disabled

Which of these Nonforfeiture Options continue a build-up of cash value? - Extended term - Reduced Paid- up - Cash surrender

Reduced paid up

S buys a $10,000 whole life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy? - Accelerated death benefit - Return of premium rider - Family income rider

Return of premium rider

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? - Joint life - Variable universal life - Universal life

Variable universal life

A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached? - Accelerated benefits - Waiver of Premium

Waiver of premium

A term life rider offers the insured: - additional life coverage - cash value - long-term care coverage

additional life coverage

What action can a policyowner take if an application for a bank loan requires collateral? - borrow against policy cash value and use it as a down payment - assign policy ownership to the bank

assign policy ownership to the bank

What action will an insurer take if an interest payment on a policy loan is not made on time? - cancel the policy if not paid within the grace period - automatically add the amount of interest due to the loan balance

automatically add the amount of interest due to the loan balance

S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT - type of life insurance - S's attained age - dividend amount used toward purchase - beneficiary's age

beneficiary's age

Which life insurance rider typically appears on a Juvenile life insurance policy? - waiver of premium rider - payor benefit rider

payor benefit rider

The _______ is authorized to assign a life insurance policy as collateral for a loan. - insured - policyowner - lender

policyowner

The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called: - reinstatement - automatic premium loan

reinstatement

A life insurance policyowner would like to take out a policy loan against the cash value in his whole life policy. The interest rate applied to this loan may vary over time. This is referred to as a(n) _______ rate loan. - fluctuating - variable

variable

Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? - Variable life - Universal life

variable life

A(n) ___ rider may be used to include coverage for children under their parents' life insurance policy. - payor - term

term

K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? - Face amount plus interest - $20,000 death benefit

$20,000 death benefit

All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT - fixed period - interest only - fixed amount - life income

interest only

Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan? - Revocable assignment - Collateral assignment

Collateral assignment

D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?

Ex- wife

A long term care rider in a life insurance policy pays a daily benefit in the event of which of the following? - Critical illness - Terminal illness - Inability of the insured to perform more than 2 Activities of Daily Living

Inability of the insured to perform more than 2 Activities of Daily Living

The purpose of the ___ period clause is to avoid an unintentional lapse of a life insurance policy. - Grace - Reinstatement

Grace

All of these statements about the Waiver of Premium provision are correct EXCEPT: - A waiting period must pass before becoming eligible for benefits - A waiver of premium is available on both permanent and term insurance - Insured must be eligible for social security disability for claim to be accepted - Insured must be totally disabled to qualify

Insured must be eligible for social security for claim to be accepted

B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes? - Interest and dividends - Interest only - Dividends only - Neither interest nor dividends are taxable

Interest only

When is the face amount of a Whole Life policy paid? - at the policy's maturity date only - When the insured dies or at the policy's maturity date, whichever happens first

When the insured dies or at the policy's maturity date, whichever happens first

B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of - additional term life coverage at any time - additional whole life coverage at specified times

additional whole life coverage at specified times

A whole life insurance policyowner does NOT have the right to: - take out a policy loan - change the grace period - assign the policy

change the grace period

Whose life is covered on a life insurance policy that contains a payor benefit clause? - parent - child - spouse

child

Which rider provides coverage for a child under a parent's life insurance policy? - payor benefit rider - child term rider

child term rider

The incontestable clause allows an insurer to - contest a claim at any time if the cause of death was accidental - contest a claim during the contestable period

contest a claim during the contestable period

Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it? - Modified whole life - 20 pay life - decreasing term - endowment

decreasing term

Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself? - Incontestable - Entire contract provision

entire contract provision

A Nonforfeiture clause gives the policyowner - lifetime income - guaranteed values even if the policy has lapsed

guaranteed values even if the policy has lapsed

K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose? - Paid up additional insurance - cash option - reduced premiums

paid up additional insurance

All of the following statements are true regarding a policy's Grace period EXCEPT - past due premiums are waived - policy loans may still be made - full coverage continues - grace period terms are stated in the policy

past due premiums are waived

B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will - pay the full face amount - pay the amount that the premium would have purchased at the correct age

pay the amount that the premium would have purchased at the correct age

Which of the following provisions guarantees that premiums will be waived if a juvenile life policyowner becomes disabled? - Family maintenance clause - Payor clause

payor clause

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions? - Automatic premium loan provision - reinstatement provision

reinstatement provision

What is the Suicide provision designed to do? - protect the insurer from ever paying a claim that results from suicide - safeguard the insurer from an applicant who is contemplating suicide

safeguard the insurer from an applicant who is contemplating suicide

Which of the following statements about accumulated interest earned on dividends from an insurance policy is true? - Partially taxable - Taxed as ordinary income

taxed as ordinary income

The advantage of reinstating an original life policy is - the premiums are based on the current age of the insured - the premiums are based on a younger age

the premiums are based on a younger age

The free-look provision begins - upon the date of the sales presentation - upon the receipt of the policy to the producer - upon the receipt of the policy by the policyowner - upon completion of application

upon the receipt of the policy by the policyowner

When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take? - Void the policy no matter when it is discovered - Void the policy if found during the contestable period - void the policy only if it is discovered during the contestable period and proven to be material

void the policy only if it is discovered during the contestable period and proven to be material

What does the ownership clause in a life insurance policy state? - who the policyowner is and what rights the policyowner is entitled to - who the beneficiary is and what rights the beneficiary is entitled to

who the policyowner is and what rights the policyowner is entitled to

A return of premium life insurance policy is - whole life and increasing term - interest- sensitive

whole life and increasing term

S buys a $50,000 whole life policy with a $50,000 AD&D rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary? - $100,000 - $50,000

$50,000

D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive? - Nothing, due to actively serving in the armed forces - the full face amount

the full face amount