chapter 3 - policy riders, provisions, options, and exclusions

AThe policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. BPolicyowners can borrow up to the full amount of their whole life policy's cash value. CPolicy loans can be made on policies that do not accumulate cash value. DThe amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies.

Policy loans can be made on policies that do not accumulate cash value. DThe policy loan option is only found in policies that contain cash value.

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy? A$20,000 B$25,000 C$50,000 DThe face amount will be determined by the insurer.

$50,000 An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy? A$20,000 B$25,000 C$50,000 DThe face amount will be determined by the insurer.

For how long is an insurance company allowed to defer policy loan requests? A30 days B60 days C6 months D1 year

6 Months Insurers writing variable life insurance policies may defer loan requests for up to 6 months. This excludes loan requests used to pay policy premiums.

What is the waiting period on a Waiver of Premium rider in life insurance policies? A30 days B3 months C5 months D6 months

6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death? AA business partner of the insured BThe wife of the deceased insured CThe former wife of the deceased insured DA minor son of the insured

A Minor Son of the Insured Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

The two types of assignments are AAbsolute and partial. BComplete and partial. CComplete and proportionate. DAbsolute and collateral.

Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

Which of the following premium payment modes will incur the lowest overall payment? AAnnual BSemi-annual CQuarterly DMonthly

Annual Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

Which of the following is TRUE about a class designation? AIt is not allowed. BIt determines the succession of beneficiaries. CBeneficiaries are not identified by name. DBeneficiaries must be part of the insured's immediate family.

Beneficiaries are not identified by name. class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? ACash surrender BReduced paid-up CPaid-up options DExtended term

Cash surrender Once the cash surrender value is paid, the contract is over.

What limits the amount that a policyowner may borrow from a whole life insurance policy? ACash value BPremiums paid CAmount stated in the policy DFace amount

Cash value The amount available to the policyowner for a loan is the policy's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest.

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision? ASecond-to-Die BCommon Disaster CAccidental Death DSurvivor Life

Common Disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

All of the following statements concerning dividends are true EXCEPT AFavorable investment results generate higher dividends. BDividend amounts are guaranteed in the policy. CLower insurance company costs generate higher dividends. DThey stem from favorable underwriting experience.

Dividend amounts are guaranteed in the policy. Dividends cannot be guaranteed.

Which nonforfeiture option has the highest amount of insurance protection? ADecreasing Term BReduced Paid-up CExtended Term DConversion

Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a short period of time.

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member? AAdditional insured rider BFamily term rider CSpouse rider DChildren's rider

Family Term Rider A single rider that provides coverage on every family member is called a "family rider".

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? AExtended term BFixed amount CFixed period DLife income period certain

Fixed amount When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

All of the following are dividend options EXCEPT AReduction of premium. BPaid-up additions. CFixed-period installments. DAccumulated at interest

Fixed-period installments. Fixed-period installments is a settlement option, and not one of the dividend options.

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called AWaiver of cost of insurance. BAccelerated benefits. CCost of living. DGuaranteed insurability.

Guaranteed insurability. Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

What is the benefit of choosing extended term as a nonforfeiture option? AIt allows for coverage to continue beyond maturity date. BIt can be converted to a fixed annuity. CIt has the highest amount of insurance protection. DIt matures at age 100.

It has the highest amount of insurance protection Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Which of the following is true about the premium on the children's rider in a life insurance policy? AIt decreases when the oldest child reaches the age of 21. BIt increases when a newborn baby is added to the policy. CIt decreases when an adopted child is added to the policy. DIt remains the same no matter how many children are added to the policy.

It remains the same no matter how many children are added to the policy. The premium does not change on the inclusion of additional children; it is based on an average number of children.

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this? AGrace period BReinstatement provision CWaiver of premium provision DIncontestable clause

Reinstatement provision A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

Which of the following describes attachments made to policies that either add or modify coverage? ARestrictions BExclusions CRiders DConditions

Riders Riders are added to a policy to either add or modify coverage.

All of the following are beneficiary designations EXCEPT ASpecified. BTertiary. CContingent. DPrimary.

Specified Beneficiary designations determine the order in which benefits will be paid: primary or contingent, which includes secondary and tertiary.

The interest earned on policy dividends is A40% taxable, similar to a capital gain. BTaxable. CNontaxable. DTax deductible.

Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT AFace amount of the policy. BThe insured's age at death. CThe beneficiary's life expectancy. DProjected interest rates.

The insured's age at death

Which of the following is TRUE about nonforfeiture values? AThey are required by state law to be included in the policy. BThey are optional provisions. CA table showing nonforfeiture values for the next 10 years must be included in the policy. DPolicyowners do not have the authority to decide how to exercise nonforfeiture values.

They are required by state law to be included in the policy Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

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 AAccelerated benefit rider. BLiving need rider. CPayor rider. DCost of living rider.

Cost of living rider. A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium? AIf the daughter is disabled for more than 3 months BIf the daughter is disabled for any length of time CIf the father is disabled for more than 6 months DIf the father is disabled for at least a year

If the father is disabled for more than 6 months Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.

All of the following are Nonforfeiture options EXCEPT AReduced paid-up BInterest only CCash surrender DExtended term

Interest Only Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option.

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? AIt is permanent insurance. BThe policy covers only the natural children of the insured. CEach child covered must show evidence of insurability. DIt is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.

It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

Which settlement option provides a single beneficiary with income for the rest of his/her life? ALump Sum BRetained Assets CSingle Life DFixed Amount

Single Life The Single Life Option provides a single beneficiary with income for the rest of his/her life.

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy? A$0 B$200 C$9,800 D$10,000

$9,800 In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident? ASpendthrift Clause BSettlement Clause CNonforfeiture Clause DCommon Disaster Clause

Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called AConditions. BUtmost good faith. CAcceptance. DConsideration.

Consideration "Consideration" is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? ACost of Living Rider BValue Adjustment Rider CReturn of Premium Rider DInflation Rider

Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

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 AAccelerated benefit rider. BLiving need rider. CPayor rider. DCost of living rider. Incorrect! A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living. Review Content Next Question

Cost of living rider. A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.

What happens when a policy is surrendered for its cash value? AThe policy can be reinstated by paying back all policy loans and premiums. BThe policy can be converted to term coverage. CCoverage ends and the policy cannot be reinstated. DCoverage ends but the policy can be reinstated at any time.

Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

All of the following are true regarding insurance policy loans EXCEPT APolicy loans can be made on policies that do not accumulate cash value. BThe amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies. CThe policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. DPolicyowners can borrow up to the full amount of their whole life policy's cash value.

Policy loans can be made on policies that do not accumulate cash value. The policy loan option is only found in policies that contain cash value.

Children's riders attached to whole life policies are usually issued as what type of insurance? AAdjustable life BWhole life CTerm DVariable life

Term Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT AThe annual dividend is retained by the company. BThe interest is credited at a rate specified by the policy. CThe policyholder has the right to withdraw the DThe interest is not taxable since it remains inside the insurance policy.

The interest is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early? AAccumulation at Interest BPaid-up additions CDividend Accumulation option DPaid-up option

paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the AInsuring clause. BMisstatement of Age clause. CIncontestability clause. DReinstatement clause.

Incontestability clause. If an insurer wishes to contest any statements on an application, they must do so within the first two years.

Which is NOT true about beneficiary designations? AThe policy does not have to have a beneficiary named in order to be valid. BTrusts can be valid beneficiaries. CThe beneficiary must have insurable interest in the insured. DThe beneficiary may be a natural person.

The beneficiary must have insurable interest in the insured. A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? ATerm life BLimited pay CUniversal life DAdjustable life

Universal life ! Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

he dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the' AOne-year term option. BPaid-up option. CAccelerated endowment. DPaid-up additions.

one-year term option The dividend is utilized to purchase one-year term insurance.

Which nonforfeiture option has the highest amount of insurance protection? ADecreasing Term BReduced Paid-up CExtended Term DConversion

Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

How long will the beneficiary receive payments under the single life settlement option? AUntil the insured's age 100 BUntil the beneficiary's death CUntil the insured's death DFor a specified period of time

Until the beneficiary's death The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the AOther-insured rider. BChange of insured rider. CJuvenile rider. DPayor rider.

other-insured rider The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

An insured died by suicide one year after the life insurance policy was issued. The insurer will APay nothing. BRefund the premiums paid. CPay the policy's cash value. DPay the full death benefit to the beneficiary.

refund the premiums paid If the insured dies by suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium.

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? AAccidental death BGuaranteed insurability CPayor benefit DLong-term care

Long-Term Care Long-term care rider provides for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? APayor Benefit BJumping Juvenile CJuvenile Premium Provision DWaiver of Premium

Payor Benefit If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Under an extended term nonforfeiture option, the policy cash value is converted to AThe same face amount as in the whole life policy. BThe face amount equal to the cash value. CA lower face amount than the whole life policy. DA higher face amount than the whole life policy.

Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. the same face amount as in the whole life policy.

What is the other term for the cash payment settlement option? AProceeds BLump sum CPrincipal amount DFace amount

Lump-Sum Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? AReduction of premium BAccumulation at interest CPaid-up option DOne-year term

Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

What is the term for how frequently a policyowner is required to pay the policy premium? AConsideration BMode CSchedule DGrace period

Moder The premium mode is the manner or frequency that the policyowner pays the policy premium.

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights? AInsured BPolicyowner CThe insured and the policyowner DBeneficiary

Policyowner Only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary.

If an insured continually uses the automatic premium loan option to pay the policy premium, AThe insurer will increase the premium amount. BThe policy will terminate when the cash value is reduced to nothing. CThe face amount of the policy will be reduced by the automatic premium loan amount. DThe cash value will continue to increase.

The policy will terminate when the cash value is reduced to nothing. This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

What kind of policy allows withdrawals or partial surrenders? ATerm policy BVariable whole life CUniversal life D20-pay life

Universal life Universal Life products allow the partial withdrawal, or surrender, of the policy cash value.

The paid-up addition option uses the dividend ATo accumulate additional savings for retirement. BTo purchase a smaller amount of the same type of insurance as the original policy. CTo purchase a one-year term insurance in the amount of the cash value. DTo reduce the next year's premium.

To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

What is the benefit of choosing extended term as a nonforfeiture option? AIt allows for coverage to continue beyond maturity date. BIt can be converted to a fixed annuity. CIt has the highest amount of insurance protection. DIt matures at age 100.

It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? AWaiver of Premium BPayor Benefit CJumping Juvenile DJuvenile Premium Provision

Payor Benefit If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

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? AHer parents' federal income tax receipts BMedical exam and parents' medical history CProof of insurability is not required. DMedical exam

Proof of insurability is not required If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

An individual purchased a life insurance policy on his life naming his wife as primary beneficiary, and their daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? AIf the insured dies from an accident BIf the primary beneficiary predeceases the insured CThe primary and contingent beneficiaries share death benefits equally DWith the primary beneficiary's written consent

Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? AThe policy beneficiary takes over the loan payments. BThe policy is rendered null and void. CThe balance of the loan will be taken out of the death benefit. DThe policy beneficiary receives the full death benefit.

The balance of the loan will be taken out of the death benefit. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy? AThe death benefit will be forfeited. BThe death benefit will be the same as the original face amount. CThe death benefit will be larger. DThe death benefit will be smaller.

The death benefit will be smaller. If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

Which of the following is true regarding a single life settlement option? AIt provides income the beneficiary cannot outlive. BPayments continue until the entire principal is exhausted. CProceeds are paid out in a lump sum. DIt provides income for a specified period of time. Id

It provides income the beneficiary cannot outlive. The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? AJoint and survivor BSingle life CFixed-amount DLife income with period certain

Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? APaid-up option BOne-year term CReduction of premium DAccumulation at interest

Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

What provision in an insurance policy extends coverage beyond the premium due date? AFree look BAutomatic premium loan CWaiver of premium DGrace period

Grace period Grace period is a mandatory provision found in all life and health insurance policies that provides coverage for a period of time after the premium becomes past due.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called AWaiver of cost of insurance. BPayor benefit. CWaiver of premium. DGuaranteed insurability.

Waiver of Premium Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

Which of the following is true about the premium on the children's rider in a life insurance policy? AIt decreases when an adopted child is added to the policy. BIt remains the same no matter how many children are added to the policy. CIt decreases when the oldest child reaches the age of 21. DIt increases when a newborn baby is added to the policy. Id

It remains the same no matter how many children are added to the policy. the premium does not change on the inclusion of additional children; it is based on an average number of children.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? AIn lesser amounts for the remaining policy term of age 100. BEqual to the cash value surrendered from the policy CThe same as the original policy minus the cash value DEqual to the original policy for as long as the cash values will purchase.

Equal to the original policy for as long as the cash values will purchase. With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

Nonforfeiture values guarantee which of the following for the policyowner? AThat the death benefit will be paid in a lump sum BThat the policy premiums will never increase CThat the cash value will not be lost DThat the dividends will be paid annually

That the cash value will not be lost Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? AIf the insured died from accidental means BIf the primary beneficiary predeceased the insured CWhen the insured dies, the primary and contingent beneficiaries share death benefits equally. DWith the primary beneficiary's written consent

If the primary beneficiary predeceased the insured The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

The Ownership provision entitles the policyowner to do all of the following EXCEPT ASet premium rates. BReceive a policy loan. CAssign the policy. DDesignate a beneficiary.

Set premium rates. The insurer sets premium rates based upon underwriting considerations.

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? AInterest only option BLife income with period certain CJoint and survivor DFixed amount option

interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? AThe beneficiary will receive the lump sum, plus interest. BThe primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. CThe beneficiary will only receive payments of the interest earned on the death benefit. DThe beneficiary must pay interest to the insurer.

The beneficiary will only receive payments of the interest earned on the death benefit. With the Interest Only settlement option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually).

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? AThe insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. BThe insured's premiums will be waived until she is 21. CThe premiums will become tax deductible until the insured's 18th birthday. DSince it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected.

The insured's premiums will be waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early? AAccumulation at Interest BPaid-up additions CDividend Accumulation option DPaid-up option

Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

Which of the following statements about the reinstatement provision is true? AIt guarantees the reinstatement of a policy that has been surrendered for cash. BIt requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. CIt permits reinstatement within 10 years after a policy has lapsed. DIt provides for reinstatement of a policy regardless of the insured's health.

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? ABeneficiary clause BConsideration clause CInsuring clause DEntire contract clause

Insuring Clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? AThe beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. BOne of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. CThe surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. DThe beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. Id: [E899669]

The surviving beneficially will continue recieving 2/3 of the benefit paid when the insured dies When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? AIncontestability period BAssignment CAutomatic premium loan DWaiver of premium

Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident? ANonforfeiture Clause BCommon Disaster Clause CSpendthrift Clause DSettlement Clause

Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

The paid-up addition option uses the dividend ATo purchase a one-year term insurance in the amount of the cash value. BTo reduce the next year's premium. CTo accumulate additional savings for retirement. DTo purchase a smaller amount of the same type of insurance as the original policy.

To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

An absolute assignment is a AChange of beneficiary. BChange of insurer. CTransfer of all ownership rights in a policy. DTransfer of some ownership rights in a policy. Correct

Transfer of all ownership rights in a policy Absolute Assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

What is the advantage of reinstating a policy instead of applying for a new one? AThe face amount can be increased. BThe cash values have gained interest while the policy was lapsed. CThe original age is used for premium determination. DProof of insurability is not required.

The original age is sued for premium determination The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

What is the purpose of a fixed-period settlement option? ATo settle the insurance company's liability BTo provide a guaranteed income for life CTo provide a guaranteed amount of money each month DTo provide a guaranteed income for a certain amount of time

To provide a guaranteed income for a certain amount of time When the fixed-period installments option is selected, the insurer agrees to pay the proceeds in equal installments over a specified period of time.

Which is TRUE about the cash surrender nonforfeiture option? AFunds exceeding the premium paid are taxable as ordinary income. BAfter the cash surrender, the insured is covered for a grace period of one month. CThe policy remains active for some time after the policyholder opts for cash surrender. DThe policyholder receives the original cash value of the policy.

Funds exceeding the premium paid are taxable as ordinary income. Funds exceeding the premium paid are taxable as ordinary income.

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? AUniversal life BAdjustable life CTerm life DLimited pay

universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

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? AHer parents' federal income tax receipts BMedical exam and parents' medical history CProof of insurability is not required. DMedical exam

Proof of insurability is not required If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to APay back all premiums owed plus interest. BReceive payments for a fixed amount. CPurchase a single premium policy for a reduced face amount. DPurchase a term rider to attach to the policy.

Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe? AFlexible Premium BReduction of Premium CAccumulation at Interest DCash option

Reduction of Premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

All of the following are beneficiary designations EXCEPT AContingent. BPrimary. CSpecified. DTertiary.

Specified Beneficiary designations determine the order in which benefits will be paid: primary or contingent, which includes secondary and tertiary.

How long will the beneficiary receive payments under the single life settlement option? AFor a specified period of time BUntil the insured's age 100 CUntil the beneficiary's death DUntil the insured's death

Until the beneficiary's death The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.

f an insured under a variable life insurance policy dies, how will the insurer respond to outstanding policy loans? AThe policy is withheld until payments are met. BThe loan amount is charged to the beneficiaries. CThe loans are waived. DThe loan amounts are deducted from the death benefit.

The loan amounts are deducted from the death benefit. In the event an insured dies, any outstanding policy loans and accrued interest is deducted from the policy proceeds. Loans cannot exceed the cash value of the policy.

Which is true about a spouse term rider? ACoverage is allowed for an unlimited time. BThe rider is decreasing term insurance. CCoverage is allowed up to age 75. DThe rider is usually level term insurance.

The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

Which of the following best describes fixed-period settlement option? ABoth the principal and interest will be liquidated over a selected period of time. BOnly the principal amount will be paid out within a specified period of time. CThe death benefit must be paid out in a lump sum within a certain time period. DIncome is guaranteed for the life of the beneficiary.

Both the principle and interest will be liquidated over a selected period of time Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

in a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to AThe insurance company. BThe contingent beneficiary. CThe insured's spouse. DThe policyowner.

The contingent beneficiary. A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

All of the following are true regarding the guaranteed insurability rider EXCEPT AThis rider is available to all insureds with no additional premium. BThe insured may purchase additional coverage at the attained age. CThe insured may purchase additional insurance up to the amount specified in the base policy. DIt allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events.

This rider is available to all insureds with no additional premium. The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

All of the following are true regarding the guaranteed insurability rider EXCEPT AThe insured may purchase additional insurance up to the amount specified in the base policy. BIt allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. CThis rider is available to all insureds with no additional premium. DThe insured may purchase additional coverage at the attained age.

This rider is available to all insureds with no additional premium. The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.