Chapter 3: Exam #2 - Life Provisions
What action can a policyowner take if an application for a bank loan requires collateral?
Assign policy ownership to the bank
Which of the following Nonforfeiture options offers the highest death benefit?
Extended term
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued
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?
Pay face amount minus the past due premium
Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?
Taxed as ordinary income
A(n) ________ rider may be used to include coverage for children under their parents' life insurance policy.
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?
Entire Contract Provision
What does the ownership clause in a life insurance policy state?
Who the policyowner is and what rights they policyowner is entitled to
A Return of Premium life insurance policy is:
Whole life and increasing term
The Consideration clause in a life insurance contract contains what pertinent information?
Amount of premium payments and when they are due
What does the insuring agreement in a Life insurance contract establish?
An insurer's basic promise
Which rider provides coverage for a child under a parent's life insurance policy?
Child term rider
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
All of these statements about the Waiver of Premium provision are correct, EXCEPT:
Insured must be eligible for Social Security disability for claim to be accepted
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?
Full face amount minus any past due premiums
The purpose of the _______ Period clause is to avoid an unintentional lapse of a life insurance policy.
Grace
All of these statements concerning Settlement Options are true, EXCEPT:
Only the beneficiary may select
In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy?
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 still receive declared dividends
When if the face amount of a Whole Life policy paid?
When the insured dies or at the policy's maturity date, whichever happens first
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?
20-Pay Life accumulates cash value faster than Straight Life
An insurer may normally delay the payment of a cash value loan or surrender value for up to
6 months
P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?
Accidental Death and Dismemberment clause
A policyowner may generate taxable income from which of the following Dividend Options?
Accumulation at Interest
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
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
Decreasing term
All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death, EXCEPT:
Interest Only
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 only
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 will forfeit the right to use the automatic loan provision upon reinstatement
Which of these are NOT an example of a Nonforfeiture option?
Life Income
Which of these is NOT considered to be a right given to a policyowner?
Modify a provision in the insurance contract
Which of the following statements is CORRECT about accelerated death benefits?
Must have terminal illness to qualify
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?
Return of premium rider
Which of these types of life insurance allows the policy owner to have level premiums and to also choose from a selection of investment options?
Variable Life
The Automatic Premium Loan provision is designed to:
avoid a policy lapse
A Whole Life insurance policyowner does NOT have the right to
change the grace period
The incontestable clause allows an insurer to:
contest a claim during the Contestable Period
Additional coverage can be added to a Whole Life policy by adding a(n):
decreasing term rider
A Nonforfeiture clause gives the policyowner
guaranteed values even if the policy has lapsed
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 amount that the premium would have purchased at the correct age
The ________ is authorized to assign a Life Insurance policy as collateral for a loan.
policyowner
What is the Suicide provision designed to do?
safeguard the insurer from an applicant who is contemplating suicide
The advantage of reinstating an original life policy is
the premiums are based on a younger age
The free-look provision begins
upon receipt of the policy by the policyowner
K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she choose?
Paid-Up Additional Insurance
All of the following statements are true regarding a policy's Grade period, EXCEPT:
Past due premiums are waived
A Cost of Living rider gives the insured
additional death benefits
A Term Life rider offers the insured
additional life coverage
The Accelerated Death Benefit provision in a life insurance policy is also known as a(n):
Living Benefit
Which statement is TRUE in regards to a policy loan?
Past-due interest on a policy loan is added to the total debt
What benefit does the Payor clause on a Juvenile Life policy provide?
Premiums are waived if the payor becomes disabled
Which of the following is an example of a nonforfeiture option?
Reduced Paid-Up option
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called:
Reinstatement
Which provision in a life insurance policy states that the application is considered part of the contract?
Entire Contract provision
Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?
Evidence of insurability is required when the option is exercised
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?
Extended term
A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following?
Inability of the insured to perform more than 2 Activities of Daily Living (ADL's)
Which of these provisions require proof of insurability after a policy has lapsed?
Reinstatement
J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?
Reinstatement provision
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
When does a Guaranteed Insurability Rider allow the insured to by additional coverage?
at future dates specified in the contract with no evidence of insurability required
What action will an insurer take if an interest payment on a policy loan is not made on time?
automatically add the amount of interest due to the loan balance
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n):
exclusion
