Chapter 3: Policy, Provision, Options and Riders
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
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
20,000$ death benefit
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
50,000
which statement regarding the misstatement of age provision is considered to be true
Coverage will be adjusted to reflect the insureds true age if a misstatement of age is discovered
the option that provides an additional death benefit for a limited amount of time at the lowest possible cost
AD&D
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
The automatic premium loan provision is designed to
avoid a policy lapse
which provision prevents an insurer from changing the terms of the contract with the policy-owner by referring to documents not found within the policy itself
Entire contrac tporvision
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 and past due premiums
All of these statements about the Waiver of Premium provision are correct EXCEPT
Insured must be eligible for SS disability claim to be accepted
the AD&D provision in a life insurance policy would pay additional benefits if the insured:
Is blinded in an accident
the accelerate death benefit provision in a life policy is also known as
Living benefit
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 a terminal illness
which of these nonforfeiture options continue a build up of cash value
Reduced Paid up
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called
Reinstatement
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 a premium rider
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
Variable universal life
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?
Void the policy only if it is discovered during the contesable period and proven to be material
what does the insuring agreement in a life insurance contract establish
an insurers basic promise
what action can a policy owner take if an application for a bank requires collateral
assign policy ownership to the bank
what provision in a life insurance policy states that the application is considered part of the contract
entire contract provision
in a life insurance contract, an insurance company promise to pay stated benefits is called the
insuring clause
All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT
interest only
How are policyowner dividends treated in regards to income tax?
interests on accumulations is taxed
Dividends paid from a life insurance policy are
issued by the insurance company
the consideration clause in a life insurance policy indicates that a policyowers consideration consists of a completed application and
the initial premium
the advantage of reinstating an original life policy is
the premiums are based on a younger age
a policy owner may generate taxable income from which of the following dividend options
accumulation at interest
a cost of living rider gives the insured
additional death benefits
variable whole life insurance can be described as
both an insurance and securities product
P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?
AD&D
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 paid the death benefit
a policy loan is made possible by which of these life insurance policy features
Cash Value provision
which of these actions is taken when a policy owner uses a life insurance policy as collateral for a bank loan
Collateral Assignment
which of these types of policies may NOT have the automatic premium loan provision attached
Decreasing term
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued
D is the policy owner and insured for a 50,000 life insurance policy. the beneficiary is Ds wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any changes to whom will the policy proceeds be paid to
Ex-wife
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
Longterm Care
which statement is true in regards to a policy loan
Past due interest on a policy loan is added to the total debt
a life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached
Waiver of premium
a term life rider offers the insured
additional life coverage
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
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
Whose life is covered on a life insurance policy that contains a payor benefit clause?
child
Which rider provides coverage for a child under a parent's life insurance policy?
child term rider
the incontestable clause allows an insurer to
contest a claim during the contestable period
a nonforfeiture clause gives the policy owner
gaurenteed values even if the policy has lapsed
a long term care rider in a life insurance policy pays a daily death benefit in the event of which of the following
inability of the insured to perform more than 2 activities of daily living (ADLS)
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)
insurance agreement
which of the following provisions guarantee that premiums will be waived if a juvenile life policy owner becomes disabled
payor clause
M has insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding Lon balance from
policy proceeds
which of these provisions require proof of insurability after a policy has lapsed
reinstatement
A life insurance policy owner would like to take out a policy loan against the cash Value in his whole life policy. the interest rate applied may vary over time. this is referred to as ______ rate loan
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
a ________rider may be used to include coverage for children under their parents life insurance policy
Term
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 exclusions clause, How much will D's beneficiary receiver
The full face amount
B owns a whole life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional whole life coverage at specified times
A whole life insurance policy owner does not have the right to
change the grace period
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
Which of these statements about a guaranteed insurability option rider is not true
evidence of insurability is required when the option is exercized
In a life insurance policy, which feature states that the policy will not cover certain risks
exclusion
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
which of the following statements about accumulated interest earned on dividends from an insurance policy is true
taxed as ordinary income
a provision in a life insurance policy that pays the policy owner an amount that does not surpass the guaranteed cash value is called
Policy Loan Provision
all of these statements are true concerning settlement options 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
owners rights
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 grace period except
past due premiums are waived
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 life insurance rider typically appears on a juvenile life insurance policy
payor benefit rider
Which of these life insurance riders allows the applicant to have excess coverage?
term rider
What does the ownership clause in a life insurance policy estate
who the policy owner is and what rights the policy owner is entitled to
T looks out a 50,000 life insurance policy with and AD&D rider. 5 years later, T commits suicide. How much will the insurer pay?
50,000
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 Ps beneficary
50,000 minus any outstanding policy loans
An insurer may normally delay the payment of a cash value loan or surrender value for up to
6 months
S would like to use dividends from her life insurance policy to purchase paid up additions. all of these would be factors to determine how much coverage can be purchase except
Beneficiary age
which of these is not an example of a nonforfeiture option
Life Income
A return of a 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
when does a guaranteed insurability rider allow the insured to buy additional coverage
at future dates specified in the contract with no evidence of insurability required
S has a Whole Life policy with a premium payment due soon. 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
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?
exclusion
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n)
exclusion
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
Which of the following Nonforfeiture options offers the highest death benefit
extended term
the purpose of the _______ period clause is to avoid an unintentional lapse of life insurance policy
Grace
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
the ________ is authorized to assign a life insurance policy as collateral for a loan
policy holder
the _____ has the right to change a life insurance policy beneficiary
policyholder
What is the suicide provision designed to do
safeguard the insurer from an applicant who is contemplating suicide
what benefit does the payor clause on juvenile life policy provide
Premiums are waived if the payor becomes disabled
Typically a life insurance death benefit is paid by a lump-sum payment. An ________ option is a method of distributing a life insurance policy death benefit other than by a lump sum payment
settlement
