Ch.3 Life Policy Provisions, Riders, and Options
what type of assignment is used to secure the payment of a debt with an existing life insurance policy
collateral assignment
which of the following statements about a suicide clause in a life insurance policy is TRUE
excluded for a specific period of years and covered thereafter
What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
extended term
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
family term rider
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
primary beneficiary
what is the purpose of the automatic premium loan provision
to prevent the unintentional lapse of policy because of nonpayment of the premium
An absolute assignment is a
transfer of all ownership rights in a policy
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
waiver of premium
what are the most common exclusions in life insurance policies
war and military service, hazardous occupation, aviation
When will a contingent beneficiary receive death benefit from a life insurance policy?
when the primary beneficiary dies before insured
What type of beneficiary is next in line after the primary beneficiary?
contingent beneficiary
what is the name for a life insurance policy rider that provides coverage on the insured's family members
other-insured rider
What dividend option can increase the death benefit of the existing life policy?
paid up addition
What dividend option is automatically selected by the company if not chosen by the policyowner?
paid up additions
What type of beneficiary can be changed at any point by the policyowner?
revocable
what happens to the proceeds of a life insurance policy if there is no named beneficiary
the proceeds are paid to the insured's estate
What are policy dividends?
Return of unused premiums
what does the term double indemnity mean
The insurer will pay a benefit of twice the face amount
If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?
lump sum (cash)
in the fixed period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments
the longer the period selected the smaller each installments will be
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
guaranteed insurability rider
What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
incontestability
what would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy
it determines who receives policy benefits if the primary beneficiary is deceased
Who controls changes in premium payments, face values, and loans in a life insurance policy?
policyowner
Is the beneficiary required to have insurable interest in the insured?
no, beneficiaries do not have insurable interest in the insured
With the reduction of premium dividend option, how is the dividend used?
the dividend is applied to the next year's premium (it reduced the next year's premium)
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
a copy of the original insurance application
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
absolute assignment
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
cash option
Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?
cash surrender
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
cash surrender
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?
it will be paid to the insured's estate
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
long term care
If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?
lump-sum payment
What settlement options are available in life insurance policies?
lump-sum/cash fixed amount life income interest only
An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?
pay a reduced 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
pay the death benefit
what is the advantage of reinstating of life insurance policy as opposed to applying for a new one
policy premium in a reinstated policy will be set according to the insured's original age
With the interest only settlement option, what happens to the policy's death benefit?
policy proceeds are retained by the insurance company, only the interest paid to the beneficiary
What nonforfeiture option provides coverage for the longest period of time?
reduced paid up
A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?
the amount of the loan will be subtracted from the death benefit
what happens to a policy's cash value under an extended term nonforfeiture option
the cash value is converted to the same face amount as in the whole life policy
all of the following are TRUE statements regarding the accumulation at interest option except
the interest is not taxable since it remains inside the insurance policy
When can an insurance company use suicide as a defense against paying a death claim?
when a suicide is committed within a specified period of time after the policy is purchased (usually 2)
What are the 3 nonforfeiture options in life insurance policies?
cash surrender reduced paid-up extended term
What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?
entire contract
What are the dividend options in life insurance policies?
cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment
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
cost of living rider
What provision in a life insurance policy extends coverage beyond the premium due date?
grace period
What required provision protects against unintentional policy lapse?
grace period
Who has the right to the cash value of a life insurance policy?
policyowner
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?
proof of insurability is not required
An insured committed suicide one year after his life insurance policy was issued. The insurer will
refund premiums paid
what provision allows the policy owner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability
reinstatement
A policy owner who is also the insured wants to name her husband as the beneficiary of her policy. She also wishes to retain all of the rights of ownership. The policy owner should have have her husband named as.
revocable beneficiary
what term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death
settlement options
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
the death benefit will be adjusted to the amount that the insured could obtain for her correct age
what is the purpose of a free look period
to allow the insured to return the policy with a full refund
what is the purpose of settlement options in life insurance policies
to determine how the death benefit will be paid to the beneficiary