Individual Life Insurance Contract- Provisions and Options

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?

Policyowner

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount

Which of the following statements about suicide clause in a life insurance policy is true?

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

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?

$50,000

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?

$9,800

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years?

2 years

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

Adjustment in the amount of death benefit

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?

Automatic premium loan

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

Equal to the original policy for as long as the cash values will purchase

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed amount

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

Fixed period

Which of the following policy components contains the company's promise to pay?

Insuring Clause

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to

The insured's estate

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT

The interest is not taxable since it remains inside the insurance policy

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

The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?

The policyowner can specify the way proceeds are split in the policy

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

The same face amount as in the whole life policy

Which of the following statements is TRUE concerning irrevocable beneficiaries?

They can be changed only with the written consent of that beneficiary

What is the purpose of a fixed period settlement option?

To provide a guaranteed income for a certain amount of time

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy

An absolute assignment is a

Transfer of all ownership rights in a policy

What type of account will most likely be established for a minor?

Trust

How long will the beneficiary receive payments under the single life settlement option?

Until the beneficiary's death

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option

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

Copy of the original application

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the

Entire contract

The automatic premium loan provision is activated at the end of the

Grace period

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?

If the primary beneficiary predeceases the insured

Which of the following is true regarding the spendthrift clause in life insurance policies?

It can protect the policy proceeds from creditors of the beneficiary

What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy?

It determines who receives policy benefits if the primary beneficiary is deceased

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection

Which of the following applies to the 10 day free look privilege?

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

Which of the following statements about the reinstatement provision is true?

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated

Which of the following statements is TRUE about a policy assignment?

It transfers right of ownership from the owner to another person

Which two terms are associated directly with the premium?

Level or flexible

The two types of assignments are

absolute and collateral

All of the following statements concerning dividends are true EXCEPT

Dividends amounts are guaranteed in the policy

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

cash surrender

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

Reduction of premium

When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from planned installments?

Spendthrift provision

The interest earned on policy dividends is

Taxable

An insured and his wife are both involved in a head on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common Disaster

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 policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but

Interest only option

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

Automatic premium loan

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time

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

Cash value

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called

Class designation

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

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

Common disaster clause

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

Lump sum

What is the other term for the cash payment settlement option?

Lump sum

Using a class designation for beneficiaries means

Naming beneficiaries as a group

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

One-year term option

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. the dividend option that the insured has chosen is called

Paid up additions

All of the following are true regarding insurance policy loans EXCEPT

Policy loans can be made on policies that do not accumulate cash value

If a life policy has an irrevocable beneficiary designation,

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

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured.

An insured wants to change from an annual premium mode to a monthly premium mode. Which of the following is true?

The change can only be made on the policy's anniversary

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

The insured had his wife named as the beneficiary of his life insurance policy. to ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT

The insured's age at death

When a life insurance policy was issued, the policyowner designated a primary and contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit?

The insured's contingent beneficiary

A 40 year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown up children. Assuming he never changed the beneficiary, the policy proceeds will go to

The insured's estate