Chapter 4

Dividend options include which of the following choices?

Refund in cash Reduce premiums due Paid-up additional insurance

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

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

John is the insured. His wife Mary is the primary beneficiary. Their three children are the contingent beneficiaries. John and Mary are killed in a common accident. The proceeds of John's policy would be paid to:

The children

What is the primary purpose of the reinstatement provision?

To put a policy back in force as if it had never lapsed

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

Universal Life

K has a $100,000 traditional whole life policy with $30,000 of cash values and a $10,000 loan outstanding. What is the maximum additional amount she could borrow from the policy at this time?

$20,000

A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy's named beneficiary receive?

$90,000

Nonforfeiture Options

-Cash Surrender -Extended Term -Reduce Paid-up

Dividend Options

-One-Year Term -Paid-up Option -Premium Reduction -Cash -Paid-up Additions -Accumulate with Interest

After a life insurance policy has been in force for more than _____ years the policy is considered incontestable.

2

Suicide Clause

2 -year time limit from policy issue before death due to suicide is covered

Tom elects the Life Income with 10-year Period Certain settlement option. Tom dies in year 6. The beneficiary receives payments for _______.

4 years

What will cause the time period of the fixed amount settlement option to be extended?

An increase in interest credited

For which of the following reasons may an insured return the policy for a full refund within the Free Look Period?

Any reason

An insured with a participating life insurance policy receives an annual dividend check in the mail. He must have selected which Dividend Option:

Cash

What provision describes the parts of the life insurance contract?

Entire Contract

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

Revocable beneficiary

Assignment

Transfer of ownership rights

Settlement Options

-Life Income Joint and Survivor -Joint Life -Life Income Only -Fixed Amount -Interest only -Fixed Period -Life Income Period Certain

Policy loan provisions include all of the following

-Unpaid interest is added to the value of the loan -Interest is charged annually -Outstanding loans will be deducted from the face amount at time of claim

A partial withdrawal is considered

A partial surrender of the policy

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Claire dies, then Alice dies, so who receives the policy proceeds?

Alice's estate

Reinstatement

Allows the owner to bring the policy up to date if it has lapsed due to nonpayment

What provision establishes that if both the insured and the primary beneficiary die in the same accident, and it cannot be determined who died first, the insured will be presumed to have survived the beneficiary and proceeds will be paid to a named contingent beneficiary of the insured, or to the insured's estate?

Common Disaster Clause

When there is enough cash value within a life policy to pay the premium, the Automatic Premium Loan provision prevents the policy from:

Lapsing

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

If an insured dies during the policy's grace period, the insurer will:

Pay the death benefit, less the amount of premium due

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

Consideration Clause

Payment that is made in exchange for the contract; something of value

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

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.

What are the two types of life insurance assignments?

Absolute and collateral

Misstatement of Age

Benefits will be adjusted according to what premiums paid would have purchased at correct age or sex

The nonforfeiture option that provides protection equal to the policy's face amount for a specified number of years and days is:

Extended Term

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 would allow the present cash value of the policy to buy a single premium term policy of the same face amount for the time period stated in the policy's nonforfeiture table. Fixed Amount is a Settlement Option, and Paid-Up Option is a Dividend Option.

The incontestability clause states that after 2 years the:

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

Mode of Premium Payment

The frequency of premium payments

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

All of the following are situations in which a life insurance company can legally get out of paying a death claim after the insured has died, except:

Five years after the policy was issued, the insurer discovered that the insured was actually older than was stated on the application

Free Look

Insured may return policy for a full refund typically within 10 days of receipt of policy

If the policyowner specifies the time over which all settlement option installments are to be paid, he/she has chosen which Settlement Option?

Fixed Period -The key word is time. Any time the policyowner specifies payments to be guaranteed for a specific period regardless of who may receive the payments, the Fixed Period Settlement Option has been chosen.

A contingent beneficiary has the right to:

Receive the policy proceeds if the primary beneficiary predeceases the insured

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

All of the following can determine the death benefit settlement option, except:

The insurer

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

The surrender charge

Which of the following beneficiary designations prevents a policyowner from assigning the policy, taking a policy loan, or surrendering the policy without the beneficiaries consent?

Irrevocable

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

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

An insured goes to the bank for a business start-up loan. Asking for more security, the bank agrees to accept a(n) __________ on a permanent life insurance policy owned by the customer.

Collateral Assignment -A Collateral Assignment is a partial transfer of the death benefit. In this case, the policyowner is collateralizing the loan by providing the bank a priority interest in a portion of the policy's death benefit without naming it a beneficiary.

Which of the following is TRUE concerning reinstatement of a life insurance policy?

Companies have the right to require medical examinations

The provision that limits the amount of time an insurer has to challenge a claim and void the contract upon proof of a material misstatement is called the ____________ clause.

Incontestability

The insuring agreement in a life insurance policy states the:

Insurance company is obligated to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force

Incontestability

Insurer cannot contest statements (errors, misstatements, fraud) in application after 2 years

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

Cranston wants a Settlement Option for his beneficiary that will guarantee the beneficiary an income as long as the beneficiary lives. Cranston should choose:

Life Income Only

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

Lump Sum

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

Nothing

A Whole Life policyowner elects to use his dividends to pay off the policy sooner than originally planned. Which option allows this to occur?

Paid-Up Option

Lucy uses her dividends to purchase single premium additional permanent benefits at her attained age. Which Dividend Option is Lucy exercising?

Paid-up Additions

Ownership Provision

Party who has all rights to cash, loan values, dividends and other benefits

Entire Contract

Policy, riders, copy of application must be in writing and attached

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

An insured has paid premiums annually on her life insurance policy. She would now like to change to a monthly premium payment. What must occur to effect this change?

The policyowner needs to contact the insurance company and request a change in premium mode

Insuring Clause

This provision identifies the parties, perils, and promises of the contract

Grace Period

Time period after the premium due date before the policy lapses