Chapter 5- Options

Reduced paid-up or cash

Jenny has a rated whole life insurance policy. Which nonforfeiture option(s) may she select? Since Jenny has a rated policy, her insurer will not offer her the extended term nonforfeiture option. She may choose the reduced paid-up or cash options.

Paid-up additions

The automatic dividend option is: If the policyowner does not inform the insurer how they would like to receive the dividend, the insurer will automatically use the paid-up additions option.

Reduced paid-up insurance

Which of the following is not a dividend option? Reduced paid-up insurance is a nonforfeiture option.

Accumulate at interest

All of the following are nonforfeiture options, EXCEPT: Accumulate at interest is a dividend option.

Reduce premium payment

Charlotte decides to exercise a nonforfeiture option. Which option is not available to her? Reduction of premium payment is a dividend option.

Accumulation at interest

Eddie wants to use a nonforfeiture option. Which of the following may Eddie not use? Accumulation at interest is a dividend option.

Cash surrender value

If used, this nonforfeiture option does not allow the policyowner to reinstate the original policy: The extended term and reduced paid up nonforfeiture options allow the policyowner to reinstate the original policy because coverage is still in effect. However, the cash surrender option does not allow the policy to be reinstated because the policy has been surrendered for its cash value, and no coverage remains.

Rick could use the dividends to purchase paid-up additions.

Rick is planning on getting married next month. He currently has a $100,000 whole life participating policy. Because he is planning a family, he wants to increase his life insurance while keeping his costs down. Which of the following options would best suit his needs? Rick can use his dividends to purchase paid-up additions, without adding significantly to his costs. This option fulfills his need for increased coverage in the coming years as he starts his family.

Extended term

The automatic nonforfeiture option is: If the policyowner cannot be reached, premium payments have ceased, and the policy's cash value is eliminated, the insurer will automatically use the extended term option.

The cash value will continue to increase.

Mr. Johnson has decided to surrender his whole life policy, and has chosen the reduced paid-up nonforfeiture policy option. How will this decision affect the cash value of his new policy? Under the nonforfeiture reduced paid-up policy provision, Mr. Johnson's cash value will continue to increase. The face value of the policy, however, will be reduced.

Nonforfeiture provision

Life insurance policies that build cash value have certain guarantees, required by law, if the policyholders discontinue payment of premiums. The provision to access the cash value of the policy is called the: The nonforfeiture provision protects a policyowner from losing all of their investment in the event a policy is cancelled, surrendered or premiums are not paid.

Reduced paid-up insurance

What nonforfeiture option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the policy's existing cash value? Your answer is incorrect The reduced paid-up insurance option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the amount of the policy cash value.

The attained age of the insured when the additional insurance is purchased

Some policies offer the policyholder the opportunity to purchase additional insurance when they get married, or have children. What is the factor that determines the rate of the additional coverage? The attained age of the policyholder determines the rate when additional insurance is purchased. The date of the policy and existence of other riders is not relevant for determining the rate.

Cash surrender value

What nonforfeiture option allows the policyowner to receive the policy's cash value? The cash surrender value allows the policyowner to receive the policy's cash value.

Cash payment

Which life insurance dividend option does not increase a policy's cash value? With the cash payment dividend option, the policyholder is sent a check for the amount of the dividend, which does not increase the policy's cash value.

Equal to the original coverage

When the extended term option is used, the face amount is: The cash value acts as a single premium to purchase the extended term coverage, and the amount of the paid-up coverage is equivalent to the original policy's face value.

Paid-up additions

What nonforfeiture option permits the policyowner to use the cash values to purchase paid-up term life insurance coverage? The extended term option permits the policyowner to use the policy's cash values to buy paid-up term insurance.

Paid-up additions

Which dividend option allows the policyowner to use the dividend as a single premium to purchase additional face amounts of permanent coverage? The paid-up additions option allows the policyowner to use the dividend as a single premium to purchase an additional amount of whole life coverage.

Reduction of premium payments

Which dividend option allows the policyowner to use the dividend to offset the cost of a future premium payment? The reduction of premium payments option allows the policyowner to use the dividend to offset the cost of a future premium payment.

Cash surrender

Which of the following nonforfeiture options does not allow the insured to reinstate the policy: The extended term and reduced paid-up nonforfeiture options allow the policyowner to reinstate the original policy because coverage is still in effect. However, the cash surrender option does not allow the policy to be reinstated because the policy has been surrendered for its cash value, and no coverage remains.

He may apply the dividends to overdue premiums from past years.

Mr. George will soon receive a dividend payment on his life policy from the insurer. Which of the following is NOT an option available to Mr. George pertaining to receipt of his dividend? Dividends can be used to buy additional insurance, accumulate, and apply towards next year's premiums. They cannot be applied to overdue premiums from previous years.

Nonforfeiture option

Which of the following provisions allows a life insurance policy to continue beyond the grace period when a premium is overdue and not paid? When a life insurance policy premium is not paid and the grace period has lapsed, the extended term and reduced paid-up insurance nonforfeiture options allow coverage to continue.

Nonforfeiture option

Which of the following is a guarantee that is required by law to be a part of life insurance polices that build cash value? Nonforfeiture options/values are guarantees that are required by law to be part of life insurance policies that build cash value

Choose the one-year term option

Marie wants a year of extra term life insurance protection valued at $10,000. How should she use her dividend? The one-year term option will allow Marie to use her dividend as a single premium to purchase one year of term protection.

Dividends left to accumulate at interest are part of the policy's cash value.

Which of the following is not true about the accumulation of interest dividend option? Dividends left to accumulate at interest are NOT part of the policy's cash value. The other statements are true.

Paid-up additions

This dividend option provides additional permanent coverage: The paid-up additions dividend option uses the dividend as a single premium to purchase paid-up whole life coverage.

a. Dividends are not taxable. b. Dividends are usually paid on an annual basis. c. Dividends are actually a return of overcharged premiums.

Life insurance policies that pay dividends are referred to as "participating policies". Participating policies pay dividends to policyholders. Which of the following is a true statement about dividends? Dividends are not taxable, are usually paid once a year, and are really a return of overcharged premiums.

Extended term option

Which nonforfeiture option is the "automatic" option? If the policyowner cannot be reached, premium payments have ceased, and the policy's cash value is eliminated, the insurer will automatically use the extended term option.