Chpt 3 - Part 2 - Policy Provisions, Options and Riders

A policy loan is made possible by which of these life insurance policy features? Extended term provision Cash value provision Owner's rights provision Consideration clause

Cash value provision

Whose life is covered on a life insurance policy that contains a payor benefit clause Parent Beneficiary Child Spouse

Child

Which rider provides coverage for a child under a parent's life insurance policy? Spouse term rider Base insured rider Payor benefit rider Child term rider

Child term rider

N is covered by a Term Life policy and does not make the required premium payment which was due August 1st. N dies September 15th. What action with the insurer take? Claim will be denied Claim will be paid in full Claim will be partially paid Claim will be decided by an arbitrator

Claim will be denied There was a lapse in policy due to nonpayment.

How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period? Claims are denied under the Suicide clause of the policy Company pays twice the face amount under the double indemnity clause Claims are paid in full Premiums are returned under the consideration clause

Claims are denied under the Suicide clause of the policy

Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan? Revocable assignment Beneficiary change Irrevocable assignment Collateral assignment

Collateral assignment

Which statement regarding Misstatement of Age provision is considered to be true? Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered Requires that a new policy must be applied for if a misstatement of age is found on the current policy Misstatement of Age provision is valid only during the contestable period Insurer may void the policy if a misstatement of age is discovered

Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered

How are surrender charges deducted in a life policy with a rear-end loaded provision? Deducted from the death benefit Deducted when the policy is discontinued Deducted from the policy's cash value Deducted when assigned to another policyowner

Deducted when the policy is discontinued

Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself? Policy Exclusion Incontestable Entire Contract Provision Assignment

Entire Contract Provision

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE? Coverage can be added at specific events such as marriage or having a child. Evidence of insurability is not required when the option is exercised. Evidence of insurability is required when the option is exercised. Coverage can be added at specific ages.

Evidence of insurability is not required when the option is exercised.

Which of these are NOT an example of a Nonforfeiture option? Extended Term Reduced Paid-Up Cash Surrender Life Income

Life Income

The Accelerated Death Benefit provision in a life insurance policy is also known as a(n): 1035 exchange Inter vivos gift Non-forfeiture option Living Benefit

Living Benefit

An insured's inability to perform two or more activities of daily living may trigger which type of policy rider? Waiver of premium Long Term care Accelerated death benefit Accidental

Long Term care

Which of these is NOT considered to be a right given to a policyowner? Surrendering the policy's cash value Modify a provision in the insurance contract Assignment of ownership Change the beneficiary, if revocable

Modify a provision in the insurance contract

Which of the following statements is CORRECT about accelerated death benefits? The full face amount is available as an accelerated benefit Those on Social Security disability automatically qualify for this benefit This provision is usually provided with an increase in premium Must have a terminal illness to qualify

Must have a terminal illness to qualify

In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of an financial benefits from the policy? Nonforfeiture Entire Contract Insuring Clause Owner's Rights

Owner's Rights

P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability? P cannot borrow against the policy's cash value while diabled P will have to pay income taxes on the amount of premiums waived P will still receive declared dividends P cannot assign ownership of the policy while premiums are being waived

P will still receive declared dividends

K pay's on a $20,000 20-Year Endowment policy for 10 years and died from an automobile accident. How much will the insurance company pay the beneficiary? Return of the premiums paid Cash value plus interest $20,000 death benefit Face amount plus interest

$20,000 death benefit

S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary? $100,000 $50,000 Refund of premiums paid plus interest No claim will be paid because cause of death was from natural causes

$50,000

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay? The total premiums paid minus any policy loans Nothing $50,000 $100,000

$50,000 Suicide clause periods are usually 1-2 years into the policy

P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary? Premiums paid plus interest Nothing. Claim will be denied $50,000 minus any outstanding policy loans $100,000 because the cause of death was accidental

$50,000 minus any outstanding policy loans

A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. which of these statements made by the producer would be correct? Straight life accumulated faster than Limited-pay life 20-pay life accumulates cash value faster than straight life cash value accumulation on both 20-pay life and straight life depend on the insurer's financial rating 20-pay-life and straight life accumulate cash values at the same time

20-pay life accumulates cash value faster than straight life

An insurer may normally delay the payment of a cash value loan or surrender value for up to 2 months 4 months 6 months 8 months

6 months

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n): term rider Accidental Death and Dismemberment rider Family Rider Annuity

Accidental Death and Dismemberment rider

A policyowner may generate taxable income from which of the following Dividend Options? Nonforfeiture Cash Accumulation at Interest Reduced Premium

Accumulation at Interest

A cost of living rider gives the insured Tax incentives monthly income decreasing premiums additional death benefits

Additional death benefits

What does the insuring agreement in a Life insurance contract establish? An insurer's basic promise the insurance policy's grace period an insurer's required reserve amount the obligations of the beneficiary

An insurer's basic promise

What action can a policyowner take if an application for a bank loan requires collateral? Utilize accelerated benefits provision Borrow against the policy cash value and use a down payment Assign policy ownership to the bank Name bank as beneficiary

Assign policy ownership to the bank

When does a Guaranteed Insurability rider allow the insured to buy additional coverage? 10 year increments At future dates specified in the contract with proof of insurability required At future dates specified in the contract with no evidence of insurability required At any time while policy is active

At future dates specified in the contract with no evidence of insurability required.

S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made? Automatic Policy Loan Assignment Grace Period Waiver of Premium

Automatic Policy Loan

What is the Suicide provision designed to do? A - decline an applicant who is contemplating suicide. B - safeguard the insurer from an applicant who is contemplating suicide. C - protect the insurer from ever paying a claim that results from suicide. D - allows the insurer the option to pay a death benefit in the event of suicide.

B - safeguard the insurer from an applicant who is contemplating suicide.

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take? Beneficiary will be denied the claim Beneficiary will be denied the claim and refunded all paid premiums Beneficiary will be paid the Death Benefit Beneficiary will be paid a partial Death Benefit

Beneficiary will be paid the Death Benefit

Variable Whole Life Insurance can be described as: Both an insurance and securities product an insurance product only a securities product only the insurance company assumes the investment risk

Both an insurance and securities product

D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to? Ex-wife Current wife Estate Split equally between the ex-wife and current wife

Ex-wife He never changed who the beneficiary even though he changed ownership of the policy.

In a life insurance policy, which feature states that the policy will not cover certain risks? Exception Exclusion Ejection Expulsion

Exclusion

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot? Misrepresentation Exclusion Collateral assignment Concealment

Exclusion Exclusions are specific hazards listed in a policy for which benefits won't be paid.

D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture option will the insurer likely proceed with? Extended term Loan provision Reduced paid-up cash surrender

Extended term

Which of the following Nonforfeiture options offers the highest death benefit? Cash surrender Reduced Paid-up Extended term Dividend

Extended term

An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period? Refund of all premiums paid, plus interest Refund of all premiums paid Full face amount minus any past due premiums full face amount

Full face amount minus any past due premiums

The purpose of the _____ period clause is to avoid an unintentional lapse of a life insurance policy. Grace Incontestable Conversion Reinstatement

Grace

A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following? Critical illness Terminal illness Inability of the insured to perform more than 2 Activities of Daily Living (ADL's) Inability of the insured to maintain insurance premiums due to unemployment

Inability of the insured to perform more than 2 Activities of Daily Living (ADL's)

All of these statements about the Waiver of Premium provision are correct, EXCEPT: A waiting period must pass before becoming eligible for benefits Waiver of Premium is available on both permanent and term insurance policies Insured must be eligible for Social Security disability for claim to be accepted Insured must be totally disabled to qualify

Insured must be eligible for Social Security disability for claim to be accepted

The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon the insured's death is called a(n) Entire Contract provision Consideration Clause Insuring agreement Assignment agreement

Insuring Agreement

In a Life Insurance contract, an insurance company's promise to pay stated benefits is called the: Insuring clause Consideration clause Entire Contract Owner's Rights

Insuring Clause

How are policyowner dividends treated in regard to income tax? Dividends are not taxable Interest on accumulation is taxed Taxed as ordinary income Taxed as capital gains

Interest on accumulation is taxed

K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT K must reinstate within a stated period K must pay back interest and premiums K will forfeit the right to use the automatic provision upon reinstatement K must provide evidence of insurability

K will forfeit the right to use the automatic provision upon reinstatement

K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose? Paid-up additional insurance cash options reduced premiums accumulate with interest

Paid-up additional insurance

Which Statement is TRUE in regards to a policy loan? Past due interest payments not paid after 3 months will void the policy. Past due interest on a policy loan is added to the total debt Insurance companies can send delinquent interest accounts to a collection agency Insurance companies can charge interest rate based on the policyowner's credit report

Past due interest on a policy loan is added to the total debt

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take? Collect premium from M's estate Deny the claim Pay face amount minus the past due premium Subtract past due premium from cash value

Pay face amount minus the past due premium

Which life insurance rider typically appears on a Juvenile life insurance policy? Decreasing term rider Inflation rider Payor benefit rider Waiver of premium rider

Payor benefit rider

Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled? Family Maintenance clause Payor clause Assignment provision Automatic premium loan provision

Payor clause

A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the: Policy Loan provision automatic premium loan provision accelerated benefits provision consideration clause

Policy Loan provision

What benefit does the Payor clause on a Juvenile Life Policy provide? Allows payor to assign ownership in the event payor becomes disabled Allows payor to increase face amount without providing evidence of insurability Premiums are waived if juvenile becomes disabled Premiums are waived if payor becomes disabled

Premiums are waived if payor becomes disabled

Which of these Nonforfeiture Options continue a build-up of cash value? Waiver of Premium Extended Term Reduced Paid-up Cash surrender

Reduced Paid-up

Which of the following is an example of a nonforfeiture option? Conversion option Reduced paid up option inflation option guaranteed insurability option?

Reduced paid up option

Which of these provisions require proof of insurability after a policy has lapsed? Insuring Conversion Reinstatement Consideration

Reinstatement

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions? Payor clause Automatic Premium Loan provision Reinstatement provision Waiver of Premium

Reinstatement provision

S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy? Accelerated death benefit rider Return of premium rider Family income rider term rider

Return of premium rider

Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE? Partially taxable Tax deductible Nontaxable Taxed as ordinary income

Taxed as ordinary income

A(n) ___ rider may be used to include coverage for children under their parent's life insurance policy. Payor Term Conversion Parent

Term

A Life insurance policyowner would like to take out a policy loan against the cash value in his Whole Life policy. The interest rate applied to this loan may vary over time. This is referred to as a(n) ____ rate loan. Fluctuating Fixed Variable Increasing

Variable

Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? Modified Whole Life Variable Life Universal Life Adjustable Life

Variable Life

When is the face amount of a Whole Life policy paid? At the policy's maturity date only When the insured dies or at the policy's maturity date, whichever happens first Only when the insured died When the policy is surrendered

When the insured dies or at the policy's maturity date, whichever happens first

What does the ownership clause in a life insurance policy state? Who the policyowner is and what rights the policyowner is entitled to. Who the beneficiary is and what rights the beneficiary is entitled to. Ownership cannot be assigned after the incontestable period. Allows the policyowner to adjust the death benefit and premium amount at anytime.

Who the policyowner is and what rights the policyowner is entitled to.

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount? accelerated benefits provision entire contract accidental death and dismemberment clause consideration clause

accidental death and dismemberment clause

B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of additional Term Life coverage at any time additional Term Life coverage at specific intervals additional Whole Life coverage at any time additional Whole Life coverage at specified times

additional Whole Life coverage at specified times

A term life rider offers the insured: additional life coverage cash value long-term care coverage disability protection

additional life coverage

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will: pay the death benefit in full adjust the death benefit to an increased amount adjust the death benefit to a reduced amount deny the claim

adjust the death benefit to a reduced amount

The Consideration clause in a life insurance contract contains what pertinent information? summary of benefits offer and acceptance entire contract amount of premium payments and when they are due

amount of premium payments and when they are due

Which action will an insurer take if an interest payment on a policy loan is not made on time? cancel the policy if not paid within the grace period automatically add the amount of interest due to the loan balance subtract from any dividends owed disallow any further loans

automatically add the amount of interest due to the loan balance

S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT type of life insurance S's attained age dividend amount used toward purchase beneficiary's age

beneficiary's age

A Whole life insurance policyowner does NOT have the right to designate a beneficiary take out a policy loan change the grace period assign the policy

change the grace period

The incontestable clause allows an insurer to: disallow a change of ownership throughout the Contestable period disallow a change of beneficiary during the contestable period contest a claim at anytime if the cause of death was accidental contest a claim during the contestable period

contest a claim during the contestable period

Which of these types of policies may NOT have the Automatic premium loan provision attached to it? modified whole life 20-pay life decreasing term endowment

decreasing term

Additional coverage can be added to a Whole Life policy by adding a(n): payor rider accelerated benefit rider decreasing term rider automatic premium loan rider

decreasing term rider

What provision in a life insurance policy states that the application is considered part of the contract? Application provision policy exclusions provision entire contract provision incontestability provision

entire contract provision

When an insurer issues a policy that refuses to cover certain risks, that is referred to as a(n): elimination exclusion limitation exception

exclusion

A nonforfeiture clause gives the policyowner lifetime income guaranteed values even if the policy has lapsed unemployment benefits cost of living allowances

guaranteed values even if the policy has lapsed

All of these settlement options would satisfy the conditions of a spread thrift clause EXCEPT a fixed period interest only fixed amount life income

interest only

B received yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes? interest and dividends interest only dividends only neither interest nor dividends are taxable

interest only Dividends are generally not taxed as income to the policyowner however interest is taxable income for federal purposes

The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured: dies of natural causes becomes critically ill becomes chronically ill is blinded in an accident

is blinded in an accident

Dividends paid from a life insurance policy are guaranteed taxable issued by the insurer issued by the Department of Insurance

issued by the insurer

All of these statements concerning Settlement Options are true, EXCEPT: increased proceeds can be provided through accumulation of interest rapid depletion of proceeds can be avoided proceeds can be administered by the insurance company only the beneficiary may select

only the beneficiary may select

All of the following statements are true regarding a policy's grace period, EXCEPT: past due premiums are waived policy loans may still be made full coverage continued grace period terms are stated in the policy

past due premiums are waived

B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will pay the amount of premiums paid plus interest pay the amount that the premium would have purchased at the correct age pay half of the face amount pay the full face amount

pay the amount that the premium would have purchased at the correct age

M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the: cash value estate of the insured policy proceeds nonforfeiture value

policy proceeds

The ___ is authorized to assign a Life Insurance policy as collateral for a loan beneficiary insured policyowner lender

policyowner

The ____ has the right to change a life insurance policy's beneficiary. insurer insured policyowner beneficiary

policyowner

The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called: reinstatement grace period automatic premium loan wavier of premium

reinstatement

Typically a life insurance death benefit is paid by a lump-sum payment. A(n) ____ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment. settlement dividend conversion aleatory

settlement

Which of these life insurance riders allows the applicant to have excess coverage? Automatic premium loan rider waiver of premium rider guarantee insurability rider term rider

term rider

D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive? refund of premiums paid plus interest nothing, due to actively serving in the armed forces double the face amount because cause of death was accidental the full face amount

the full face amount

The consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and the initial premium agreeing to a physical exam delivery of policy disclosure of any medical conditions

the initial premium

The advantage of reinstating an original life policy is the premiums are based on the current age of the insured the premiums are based on a younger age the interest charged on policy loans will be lowered a new incontestable period will begin

the premiums are based on a younger age

The free-look provision begins upon the date of the sales presentation upon receipt of the policy by the producer upon receipt of the policy by the policyowner upon the completion of the application

upon receipt of the policy by the policyowner

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? joint life adjustable life variable universal life universal life

variable universal life

When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take? Void the policy if found during the contestable period void the policy, no matter when it is discovered void the policy at any time only if it is found to be material void the policy only if it discovered during the contestable period and proven to be material

void the policy only if it discovered during the contestable period and proven to be material

A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what king of rider attached? Accelerated benefits waiver of premium cost of living return of premium

waiver of premium

A Return of Premium life insurance policy is: a nonforfeiture option whole life and increasing term interest-sensitive variable life

whole life and increasing term