Individual Life Insurance Contract - Provisions and Options

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 that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?

Interest only option (With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.)

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

It has the highest amount of insurance protection (Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new coverage lasts for as long a period as the amount of cash value will purchase.)

Which of the following settlement options in life insurance is known as straight life?

Life income (The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary's death.)

For how long is an insurance company allowed to defer policy loan requests?

6 months (Insurers writing variable life insurance policies may defer loan requests for up to 6 months. This excludes loan requests used to pay policy premiums.)

When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit w/o specifically naming the individuals, this is called:

Class designation (A designation such as the child of the insured, or all children of the insured, or all current members of a group, is called a "class designation." The individuals need not be specifically named, since each who meet the qualifications of being included in the class will share in the benefit.)

All of the following statements concerning dividends are true EXCEPT:

Dividend amounts are guaranteed in the policy. (Dividends cannot be guaranteed).

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. (With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.)

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die. (The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. Ther is no guarantee that all the life insurance proceeds will be paid out.)

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain (The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.)

All of the following are true regarding insurance policy loans EXCEPT:

Policy loans can be made on policies that do not accumulate cash value. (The policy loan option is only found in policies that contain cash value.)

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. (The interest credited under this option is TAXABLE, whether or not the policyowner receives it.)

Which of the following is TRUE about nonforfeiture values?

They are requred by state law to be included in the policy. (Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.)

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military?

War or military service (There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.)