Chapter 4 - Life Policy Provisions and Options

The nonforfeiture option that provides coverage for the longest period of time is:

Reduced Paid-Up

Beth owns a 20-Pay Life participating policy. She has decided that the dividends should be applied toward future premiums. Which Dividend Option did she choose?

premium reduction

An insured forgets to pay his insurance premium. Instead of the policy lapsing, the premium is paid by the company. This would suggest that a __________ policy was purchased.

whole life

Paul is the insured and policyowner. Paul named Danny and Kayla as co-primary beneficiaries of Paul's $100,000 policy. Danny is to receive 70% and Kayla is to receive 30%, therefore Danny gets $________ and Kayla gets $______ when Paul dies.

$70,000/$30,000

Generally, an insurer may defer the granting of a policy loan for up to ______ months.

6

The nonforfeiture option that provides protection to age 100 is:

Reduced Paid-Up

An insured, whose policy is in force, intentionally kills herself 7 months after purchasing the policy. How much will the insurer pay?

Refund of premiums paid only

A policyowner who wishes to maintain all rights in the policy should designate a(n):

Revocable beneficiary

Interest only, life income with period certain, lump sum, and life income only are all forms of which of these life insurance policy options?

Settlement options

K needs funds and needs to maintain the life insurance she has at the same time. Which of the following should K do with her traditional whole life policy?

Take out a policy loan

If the beneficiary is concerned about a payout for a particular period of time, the _______ settlement option should be selected.

Fixed Period

All of the following are TRUE of Policy Loan Rate provisions, except: A - Policies with fixed interest loan rates have a maximum interest rate of 10% B - Interest, if not paid when due, is added to the total debt C - The policy loan amount cannot exceed the available cash value D - Policies with adjustable loan interest rates have a maximum interest rate based upon Moody's corporate bond yield average

A - Policies with fixed interest loan rates have a maximum interest rate of 10%

A policyowner has chosen the Fixed Amount Settlement Option. Which of the following best describes this option? A - The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds plus interest are depleted B - The death benefit is paid in lump sum fashion C - Only the death benefit with no interest is paid D - The insurer determines the number of periods that payments are made

A - The owner specifies the amount of each periodic payment and the insurer pays that amount until the funds plus interest are depleted

In ________ ________, the original owner, the assignor, will name a new owner, the assignee, of the policy.

Absolute Assignment

When can a policyowner make a change in the policy's coverage or other benefits if an irrevocable beneficiary has been named?

After the irrevocable beneficiary dies

When is the earliest a beneficiary designation can be made?

At the time of policy application

Some traditional whole life policies offer a(n) __________ feature to keep the policy in force if there are sufficient cash values to do so.

Automatic premium loan

Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy? A - Cash surrender B - Policy loan C - Partial surrender D - Endowment

C - Partial surrender

All of the following regarding revocable beneficiaries is true, except: A - They have no vested interest in the policy B - The policyowner can change a revocable beneficiary at any time C - They have rights in the policy just like any other party to the contract D - Most beneficiaries are designated as revocable

C - They have rights in the policy just like any other party to the contract

The cash received by the policyowner when he/she terminates a policy is known as what?

Cash Surrender Value

The bank may require its borrowers to have a life insurance policy to secure a loan in the event of the borrower's death. Which provision gives the bank proportional protection but not control of the policy?

Collateral Assignment

_______ _______ does not cause a permanent change in ownership.

Collateral Assignment

Concerning the Paid-Up Additions Dividend Option, all of the following are true, except: A - These single premium additions do not change the face value of the original policy B - Paid-up additions increase the amount of future dividends credited C - Paid-up additions have their own increasing cash values D - Eventually, no more premiums will be due on the policy

D - Eventually, no more premiums will be due on the policy

The owner's rights include all of the following, except: A - Name and change beneficiaries B - Borrowing the cash values C - Select dividend paying options on a participating policy D - Selection of mortality table to use

D - Selection of mortality table to use

Which of the following policies allow for a partial withdrawal or partial surrender? A - Traditional Whole Life B - Current Assumption Life C - Variable Whole Life D - Universal Life

D - Universal Life

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

Failure to repay a loan or loan interest will void a life insurance policy:

If the total amount due equals or exceeds the policy's cash values

The _________ clause identifies the parties to the contract and the perils it covers.

Insuring

No assignment of a policy will be binding on the insurer, unless:

It is in writing and received at the insurer's home office

A married couple is interested in an annuity settlement option that will guarantee them both an income for as long as they live, an amount which reduces to 2/3 of that initial amount after one of them dies. What should they select?

Life Income Joint and Survivor

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?

Life Income Only

Tom is the beneficiary and is concerned about both running out of money during his lifetime and at the same time leaving funds behind to the insurer. Looking for some time period guarantee, Tom should consider the _________ settlement option.

Life with Period Certain

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?

Liz the beneficiary determines which option she would like to have

If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit?

The insured's estate

After a life insurance policy has been in force for 5 years the insured dies. During the claims process, the insurer discovers that the insured did not disclose material health information that had it known, would have caused the application to be rejected. What can the insurer do at this point in time?

The insurer must pay out the death benefit of the policy to the named beneficiary

What is the primary advantage to the policyowner in the reinstatement of a life insurance policy?

The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium

What is one of the main reasons for a Universal Life policy to have a surrender charge?

This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy

A partial withdrawal is permitted on which of the following policies?

Universal Life

What is the purpose of nonforfeiture values?

Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium

Frank purchases a life insurance policy and names his wife Jean as his beneficiary. They divorce several years later. If Frank dies before making any changes to his policy, can Jean still collect as his beneficiary?

Yes

An _________ assignment is considered permanent.

absolute

Once issued, if the application is attached to the policy itself, it then becomes part of the ___________.

entire contract

______________ are conditions stipulated in the contract for which the insurer will not provide coverage.

exclusions

Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy, but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection?

extended term

The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.

insuring

Which of the following death benefit settlement options pays out a benefit that is 100% income tax-free to the recipient?

lump sum

Which of the following is the most expensive premium mode overall?

monthly

What is the additional premium cost to have the automatic premium loan provision included in a permanent policy?

nothing

The __________ provision specifies what an insured must do, if a policy has lapsed, in order to put it back in force.

reinstatement

_________ Options allow for the distribution of the life insurance death benefit, to the named beneficiary or contract owner, as the situation warrants.

settlement

Most often, life policies pay death claims in a single lump sum. The options that allow benefits to be paid other than lump sum are called _____________.

settlement options

What provision describes the parts of the life insurance contract?

the entire contract

What happens if a premium due is not paid before the end of the grace period?

the policy lapses

On a variable universal life policy what is the difference between the cash value and the cash surrender values?

the surrender charge

A client purchases a life insurance policy and receives the policy from the insurer 45 days after application. Upon receipt of the policy, the client typically has ______days to review and return the policy to receive a full refund for any reason.

10

A policy is applied for on September 2, accepted as an insurable risk on September 20, mailed to the producer on September 22, and delivered by the producer in-person to the policyowner on September 25. The free look begins September ___.

25

How long, typically, is the reinstatement period from policy lapse?

3 years

Typically, how many days can elapse before an overdue premium will cause a policy to lapse?

30

The incontestability clause states that after 2 years the: A - Insurer will only pay for suicide if the insured was insane at the time B - Insurer will not refuse to pay a death claim based on misinformation in the original application for insurance C -Insurer will not argue about which beneficiary is primary or contingent D - Policyowner cannot sue the insurer for misstatements made by the producer in the sale of the policy

B - Insurer will not refuse to pay a death claim based on misinformation in the original application for insurance

Dividend options do not include which of the following choices? A - Paid-up additional insurance B - Lifetime income C - -Refund in cash D - Reduce premiums due

B - Lifetime income

Policy loan provisions include all of the following, EXCEPT: A - Outstanding loans will be deducted from the face amount at time of claim B - The death benefit of a policy is automatically reduced when a loan is requested C - Unpaid interest is added to the value of the loan D - Interest is charged annually

B - The death benefit of a policy is automatically reduced when a loan is requested

Provisions and clauses, unlike riders, are included in the contract for:

No additional charge

A misstatement of an insured's age was not discovered until after the insured died. The policy had been in effect for 3 years. What will the insurer do to address this situation?

Pay benefits based on what past premiums would have purchased at the correct age

The grace period in a life insurance policy is typically 31 days and provides for the:

Payment of the premium to be received after its due date without a penalty or lapse in coverage

Which Settlement Option pays a specified dollar amount until benefits are exhausted?

fixed amount