D: Life Policy Provisions, Riders and Options

An absolute assignment is a

transfer of all ownership rights in a policy

According to the ENTIRE CONTRACT PROVISION, a policy must contain...

A copy of the original application for insurance

According to the entire contract provision, what document must be made part of the insurance policy?

Copy of the original application

Suicide Clause in a Life Insurance Policy

Suicide is excluded for a specific period of years and covered thereafter

Nonforfeiture values...

Are required by state law to be included in the policy

What limits the amount that a policyowner may borrow from a whole life insurance policy?

Cash Value The amount available to the policyowner for a loan is the policy's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest

What is NOT a dividend option?

Fixed-period installments

If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used?

Lump sum (Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement)

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit

If a life insurance policy has an irrevocable beneficiary designation...

the beneficiary can only be changed with written permission of the beneficiary

Under an extended term nonforfeiture option, the policy cash value is converted to...

the same face amount as in the whole life policy

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

Insuring Clause (The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.)

Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?

Owner's rights; policyowners can learn about their ownership rights by referring to the policy.

The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive?

$100,000 The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit

Upon death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?

The beneficiary will only receive payments of the interest earned on the death benefit

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?

The insured's estate

What is the purpose of a fixed-period settlement option?

To provide guaranteed income for a certain amount of time

What can you do during the 10-day-free-look privilege?

It permits the insured to return the policy for full refund of the premiums paid

TRUE OR FALSE: Interest only forfeiture is an option

FALSE

An insured committed suicide one year after his life insurance policy was issued. The insurer will

refund the premiums paid

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible?

Collateral assignment the business owner could make a collateral assignment of his life insurance policy to the bank

What provision in an insurance policy extends coverage beyond the premium due date?

Grace Period mandatory provision in all life/health policies that provides coverage for a period of time after the premium becomes past due

What type of insurance would be used for a Return of Premium rider?

Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husban named as the...

Revocable beneficiary (The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent)

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to

The contingent beneficiary

If an insured withdraws a portion of of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?

The death benefit will be smaller

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value

What kind of policy allows withdrawals or partial surrenders?

Universal Life