Chapter 4

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Alice dies, so who receives the policy proceeds? A Bill B Alice's estate C The treasury of the state where Alice lives D Claire

Bill

Which one of the following regarding collateral assignments is false? A It is typically used when an insurance policy is used as collateral for a loan B The insurer is not responsible for determining the validity of the assignment C It causes a permanent change in ownership D It takes precedence over any beneficiary designation

It causes a permanent change in ownership

How long, typically, is the reinstatement period from policy lapse? A Indefinitely B 2 years C 3 years D 1 year

3 years

A senior citizen is defined as an individual who is how many years of age or older on the date of purchase of a life insurance policy or an annuity? A 59 1/2 B 50 C 60 D 55

60

Albert owned a $100,000 policy that had accumulated a cash value of $20,000, against which he had borrowed $10,000. If he dies with this loan outstanding, his beneficiary will receive which of the following amounts? A $110,000 B $90,000 C $80,000 D $120,000

90k

Which provision allows an insurer to borrow from the cash value of a policy in order to pay premiums due and prevent a lapse in coverage? A Reinstatement B Automatic Premium Loan C Spendthrift D Partial Withdrawal

Automatic Premium Loan

When a policy lapses due to nonpayment of premium, which nonforfeiture option is the automatic option? A Extended term B Reduced paid-up C Cash surrender value D Automatic premium loan

Extended Term

Life insurance benefits are usually paid ____________, unless another mode of settlement has been selected. A In installments over a specified period of time B Until the beneficiary dies C In a lump sum D In specified amounts over time

In a lump sum

The interest earned on dividends is: A Tax-deductible B Nontaxable C Taxable D Tax-deferred

Taxable

If the premiums are not paid on a Traditional Whole Life policy that has been in force for decades with no loan outstanding, what happens? A The policy becomes a reduced paid-up policy B The insurer mails a check to the policyowner in the amount of the policy's cash value C The policy lapses and is of no value to the policyowner D Unless specified otherwise, the cash values buy extended term

Unless specified otherwise, the cash values buy extended term

The insuring clause is found: A On the first page of the policy B On the last page of the policy C Right before the copy of the application D In front of a copy of the paramedical exam results

On the first page of the policy

Lyle owns a $50,000 20-Pay Life Policy that he lets lapse at the end of the fourth year. The Nonforfeiture Option providing the longest period of coverage would be: A Paid-Up Additions B Extended Term C Reduced Paid-Up D Paid-Up Option

Reduced Paid-Up Reduced Paid-Up provides the longest period of coverage. Extended Term would provide the most protection. The other two answers are not Nonforfeiture Options, rather they are dividend options.

Generally, an insurer may defer the granting of a policy loan for up to ______ months. A 3 B 9 C 6 D 12

6

Sylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will: A Accept the beneficiary change B Require Sylvia to prove insurability C Require Sylvia to prove that her best friend is financially dependent on her D Decline the change due to lack of insurable interest

Accept the beneficiary change

When is the earliest a beneficiary designation can be made? A Upon policy renewal B Upon policy delivery C At the time of policy application D At time of claim

At the time of policy application

Mona let her permanent policy lapse. She discovered there was $2,498 in cash remaining in the policy and decided to pay off some of her credit card debt. She exercised which Nonforfeiture Option? A Fixed Amount B Extended Term C Cash Surrender D Reduced Paid-Up

Cash Surrender

If a beneficiary is designated as irrevocable, then all of the following require the irrevocable beneficiary's approval, except: A Taking a policy loan B Policy assignment C Reducing the coverage D Changing the mode of premium

Changing the mode of premium

A partial withdrawal is permitted on which of the following policies? A Current Assumption Whole Life B Whole Life C Universal Life D Variable Whole Life

Universal Life

If a senior citizen returns a life insurance policy or annuity within the free look period after receipt of the policy, they are entitled to: A A refund of any premiums paid in excess of the cost of underwriting the issued policy B Any cash value less any applicable surrender charge C A letter of apology and explanation from the agent and insurer D A full refund of any premiums paid

A full refund of any premiums paid

Which of the following death benefit settlement options pays out a benefit that is 100% income tax-free to the recipient? A Lump Sum B Life Income Only C Fixed Amount D Fixed Period

Lump Sum

All of the following can determine the death benefit settlement option, except: A The beneficiary if no option was designated B The beneficiary if the policyowner directs the insurer to permit him or her to choose C The insurer D The policyowner prior to death

The insurer

Burt named Liz as his beneficiary; however, he did not choose a Settlement Option. At the time of his death, who determines the option to be used to receive the benefits? A Lump sum is the automatic option when no option was preselected prior to death of the insured B Burt's estate, since no Settlement Option was chosen C The insurer decides when the election is not made by the policyowner prior to death D Liz the beneficiary determines which option she would like to have

Liz the beneficiary determines which option she would like to have

Which Settlement Option pays a specified dollar amount until benefits are exhausted? A Life Income with Period Certain B Life Income C Fixed Amount D Paid-Up Option

Fixed Amount

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, except: A It can be cancelled at any time by the policyowner B It must be elected by the policyowner C It becomes effective, if elected, at the end of the grace period D It is available on any type of life insurance policy

It is available on any type of life insurance policy

Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option? A Extended Term B Life Income Only C Fixed Period D Joint Life

Life Income Only

A _______ Option protects the policyowner against total loss of benefits in the event of a lapsed policy. A Nonforfeiture B Settlement C Spendthrift D Dividend

Nonforfeiture

Which statement is FALSE regarding Nonforfeiture Options? A They are used when the insured lives to the endowment date of the policy or at the insured's death B They add flexibility to a cash value policy C They protect the policyowner against total loss of benefits if the policy should lapse or be cancelled D The 3 nonforfeiture options are Cash Surrender, Reduced Paid-Up, and Extended Term

They are used when the insured lives to the endowment date of the policy or at the insured's death

If a policyowner returns a variable life insurance contract during the free look period, he/she is entitled to a refund of account value and policy fee paid for the policy within how many days from the date the insurer is notified of cancellation? A 45 B 90 C 60 D 30

30

Which of the following is FALSE about the Automatic Premium Loan Provision (APL)? A For it to be included in the policy, there is an additional premium charge B The APL is treated like any other policy loan C It is designed to prevent unintentional policy lapse D It is only available on cash value policies

For it to be included in the policy, there is an additional premium charge The Automatic Premium Loan provision automatically becomes effective at the end of the grace period to prevent the policy from lapsing. There is no charge for having this provision in a cash value policy.

In California, which of the following is true concerning the right of cancellation period for an individual life insurance policy or individual annuity contract purchased by a senior citizen (60 years of age or older): A Not less than 10 days, nor more than 30 days B Not less than 30 days C Not less than 60 days D Not less than 30 days, nor more than 60 days

Not less than 30 days

The free look period provisions apply to which one of the following situations? A Policies issued in connection with a credit transaction B Policies issued in connection with a new purchase or a replacement purchase C Policies issued in connection with a contractual policy change D Policies issued in connection with a conversion privilege

Policies issued in connection with a new purchase or a replacement purchase