Chapter 4- Life policy provisions and options - A.D Banker
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. A 10 B 45 C 35 D 20
A 10 The standard Free Look, or Right to Examine provision allows the insured to return the policy for any reason within 10 days after policy delivery
How does a policyowner exercise the free look? A By delivering the policy to the agent or mailing the policy back to the agent or insurer B By calling the agent or the home office of the issuing insurer C By mailing the policy to the Insurance Commissioner D By not paying any further premiums
A By delivering the policy to the agent or mailing the policy back to the agent or insurer A policyowner exercise his/her free look by delivering or mailing the policy during the free look period, by voiding the policy from the beginning, the parties will be in the same position as if no policy had been issued.
If an applicant for life insurance misstates his age on the application, what would be the consequence if/when it is discovered? A Death benefit will be what the premium paid would have purchased at issuance at the correct age B The policy will be voided C Premiums refunded with interest, no death benefit paid D Real age divided by actual age, multiplied by death benefit
A Death benefit will be what the premium paid would have purchased at issuance at the correct age The Misstatement of Age or Sex Provision prevents the policy from automatically being voided, but protects the insurer's right to protect its interests by adjusting the death benefit based on what the actual premiums paid would have purchased had the correct age been known.
If an insured dies during the policy's grace period, the insurer will: A Pay the death benefit and waive the premium due B Pay the death benefit, less the amount of premium due C Pay the death benefit after the beneficiary has paid the premium due D Deny the claim
B Pay the death benefit, less the amount of premium due The policy is in force during the grace period and if death occurs during the grace period, the insurer pays the death benefit, minus any premiums or loans due.
The ________ decides which dividend option is in effect and can change his/her election at any time. A Insurer B Policyowner C Insured D Beneficiary
B Policyowner
What is the purpose of nonforfeiture values? A Federal insurance law requires them B Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium C The NAIC mandates nonforfeiture values D It is a way for the insurance company to charge extra for this optional benefit
B Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium Nonforfeiture Options (Guaranteed Values) are found in policies that accumulate cash values and protect the policyowner against total loss of benefits if the policy should lapse due to nonpayment of premium.
P has a traditional participating whole life insurance policy with a death benefit of $100,000, $5,000 in dividend additions, and a $4,000 policy loan and loan interest. P reaches age 100. What is the amount the insurance company owes P? A $91,000 B $100,000 C $101,000 D $95,000
C $101,000 It is prohibited for an insurance company to offer any settlement at maturity of less value than the amount insured by the policy, plus dividend additions, less any outstanding policy loans and loan interest and less any unpaid premium. $100,000 + $5,000 - $4,000 = $101,000.
If the beneficiary is concerned about a payout for a particular period of time, the _______ settlement option should be selected. A Fixed Amount B Life with Period Certain C Fixed Period D Joint and Survivor
C Fixed Period Fixed Period Payments are guaranteed for a specified period of time, such as 10 or 20 years, after which time payments will cease. The proceeds and interest are used to make the payments.
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. A Entire Contract B Incontestability C Insuring D Consideration
C Insuring
___________ in a policy allow the owner to name the beneficiary, choose a dividend option or settlement option, or borrow against the contract. A Incontestable Clause B Consideration Clause C Ownership Provision D Insuring Clause
C Ownership Provision The rights of ownership are a standard contract provision and allows the policyowner to do all of these things and more.
If no money is involved when the ownership of a policy changes, this is referred to specifically as a(n) __________. A Transfer for value B Life settlement C Viatical settlement D Absolute assignment
D Absolute assignment When a change of ownership takes place and NO MONEY is INVOLVED , this is known as an absolute assignment.
When a policy lapses due to nonpayment of premium, which nonforfeiture option is the automatic option? A Automatic premium loan B Reduced paid-up C Cash surrender value D Extended term
D Extended term The automatic nonforfeiture option is extended term. Automatic premium loan is a policy provision which must be elected by the policyowner in advance of the policy lapsing.
When there is enough cash value within a life policy to pay the premium, the Automatic Premium Loan provision prevents the policy from: A Surrendering B Converting C Renewing D Lapsing
D Lapsing The owner always has a right to borrow from the cash value. The APL provision gives the insurer the right to invade the policy cash value to prevent a lapse.
What happens if a premium due is not paid before the end of the grace period? A The policy is converted to one that is more affordable for the client B The policy is automatically renewed C The coverage continues until the home office and the policyowner can work out a payment plan D The policy lapses
D The policy lapses Coverage continues during the grace period, but if the premium is not paid, the policy lapses at the end of the grace period.
What is the primary purpose of the free look period? A It is a way to offer a legal rebate, 10-30 days of 'free' insurance B It is a marketing strategy of major insurers to get applicants to sign up for a policy C It forces producers to deliver policies in person to resell the policy to reduce returns and early policy lapses D To allow the applicant time to reconsider their purchase decision and to see if the policy was issued as applied for
D To allow the applicant time to reconsider their purchase decision and to see if the policy was issued as applied for The free look allows the policyowner a specified number of days following receipt of the policy to look it over. If dissatisfied for any reason, the owner has the right to return it for a full refund of any premiums paid.
The insuring agreement in a life insurance policy states which of the following? a. The obligation of the insurance company to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force b. The insurance company will not pay death claims in the event of suicide or other exclusion named in the policy unless all premiums are paid in advance c. The insurance company may refuse to pay a death claim in the event a mistake is found in the original application for insurance at the time of the insured's death d. The policyowner will indemnify the insurance company the policy proceeds if the beneficiary is not named in the application
a The obligation of the insurance company to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force
The spendthrift laws of each state protect life insurance proceeds against the claims of which of the following? a. Creditors of the insured and/or the beneficiary b. Primary beneficiaries only c. Contingent beneficiaries only d. Creditors of the insured only
a Creditors of the insured and/or the beneficiary Spendthrift laws and policy provisions protect the death benefit from the claims of creditors of the deceased insured, the policyowner, and those creditors of any named beneficiary to whom the death benefit becomes payable. When death benefit principal is left with the insurance company, spendthrift laws prevent creditors from attacking that money, too.
Interest only, life income with period certain, lump sum, and life income only are all forms of which of these life insurance policy options? a. Nonforfeiture options b. Settlement options c. Dividend options d. Beneficiary options
b Settlement options These are all forms of settlement options (how the beneficiary will receive the policy proceeds). Nonforfeiture options are concerned with cash value.
The grace period in a life insurance policy is 60 days, which allows: a. The insurance company to delay payment of the death benefit while it determines the validity of the proof of death b. The payment of the premium after the due date without a penalty or lapse in coverage c. The payment of the premium after the due date with a maximum 5% penalty d. The policyowner to reinstate the policy before it lapses
b The payment of the premium after the due date without a penalty or lapse in coverage
What is meant when a life insurance policy becomes incontestable? a. After 2 years, the insurer will not argue about which beneficiary is primary or contingent b. After 2 years, the insurer will only pay for suicide if the insured was insane at the time c. After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original application for insurance d. After 2 years, the policyowner cannot sue the insurer for misstatements made by the producer in the sale of the policy
c After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original
A contingent beneficiary has the right to which of the following? a. Share in the death benefit with the primary beneficiary b. Prevent the policyowner from taking a loan against the cash value c. The policy proceeds only when there is no primary beneficiary d. The policy proceeds if the primary beneficiary is a minor child
c The policy proceeds only when there is no primary beneficiary
Dividend options do not include which of the following choices? a. Refund in cash b. Reduce premiums due c. Lifetime income d. Paid-up additional insurance
c Lifetime income Income for life is an annuity form of death benefit settlement option.
Policy loan provisions include all of the following, EXCEPT: a. Interest is charged annually b. Unpaid interest is added to the value of the loan c. The death benefit of a policy is automatically reduced when a loan is requested d. Outstanding loans will be deducted from the face amount at time of claim
c The death benefit of a policy is automatically reduced when a loan is requested
What is the primary advantage to the policyowner in the reinstatement of a life insurance policy? a. The insurance company cannot start a new period of contestability b. The insured is not required to prove insurability if under age 40 c. All policy loans that were outstanding at the time of lapse are forgiven and full cash value is restored d. The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium
d The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium
Which of the following is a reason why "class" designations of beneficiaries may be a problem? a. They are intended to allow unnamed persons to share policy proceeds b. They specify the exact persons who may claim policy proceeds c. They prevent contingent beneficiaries from being named d. They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds
d They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds