Life and Health Insurance: Chapter 3

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.

Children's riders attached to whole life policies are usually issued as what type of insurance?

Term

Per Stripes means

"By the Bloodline"; Distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs.

Per capita means

"By the Head"; evenly distributing benefits among the living named beneficiaries.

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

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 ($10,000-$200) due to dying after grace period.

Settlement Paid-up option

(Cash) Policy Maturity

Nonforfeiture Paid-up Option

(Extended Term) Policy lapses

Dividend Paid-Up Option

(Paid-up Additions) Need for Premium is Lower

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 a t lest how many years?

2 Years

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months.

According to the Entire Contract provision, a policy must contain

A copy of the original application for insurance.

What are dividends?

A return of excess premiums; therefore, not taxable when paid to the policyowner.

The two types of assignments are...

Absolute and Collateral

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

Adjustment in the amount of death benefit.

Under which of the following circumstances would an insurer pay accelerated benefits?

An insured is diagnosed with cancer and needs help paying for her medical treatment.

Which of the following premium payment modes will incur the lowest overall payment?

Annual

The accelerated benefits provision will provide for an early payment of the death benefit when the insured

Becomes terminally ill

Which of the following is TRUE about a class designation?

Beneficiaries are not identified by name.

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

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

Settlement options are triggered...

By the insured's death or age 100.

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

Cash option

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

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

Copy of the original application.

Which of the following is NOT typically excluded from life policies?

Death due to plane crash for a fare-paying passenger

The provisions 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

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.

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause.

Payable Death Benefit=

Face Amount - Amount Withdrawn - Earnings lost by insurer in interest

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider.

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.

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

Fixed amount.

All of the following are dividend options EXCEPT

Fixed-period installments

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income.

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

Grace period

What required provision protects against unintentional policy lapse?

Grace period.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?

Guaranteed insurability option.

If a life policy allows the policy owner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a

Guaranteed insurability rider.

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the...

Incontestability clause.

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

Increasing Term

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

Insuring clause.

Which of the following is true about the mandatory free look in a Life Insurance Policy?

It commences when the policy is delivered.

Which of the following is true about the premium on the children's rider in a life insurance policy?

It remains the same no matter how many children are added to the policy.

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

It transfers rights of ownership from the owner to another person.

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

Life Income

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

Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home?

Long-term care

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

Lump sum

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

Lump sum

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

Paid-up option

What is the term for how frequently a policyowner is required to pay the policy premium?

Mode

After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive?

Monthly premium waiver and monthly income.

Regarding the free-look provision, the insurance company

Must allow the policy owner to return the policy for a full refund.

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.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the.

Other-insured rider.

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

Owner's Rights

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.

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use.

Paid-up option.

An insured purchased a life policy in 2010 and died in 2020. The insurance company discovers at that time that the insured had misstated information about her insurance history on the application. What will the insurer do?

Pay the death benefit.

Which of the following allows the insurer to relive a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit.

All of the following are true regarding insurance policy loans EXCEPT

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

Nonforfeiture options are triggered by...

Policy surrender or lapse

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

Policyowner

Who can request changes in premium payments, face value, loans, and policy plans?

Policyowner

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?

Proof of insurability is not required.

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

Refund the premiums paid.

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all of the premiums paid. Which rider is attached to the policy?

Return of Premium.

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 husband named as the

Revocable beneficiary

The Ownership provision entitles the policyowner to do all of the following EXCEPT

Set premium rates.

Which of the following riders is often used in business life insurance policies when the policyowner needs to change the insured under the policy?

Substitute insured rider.

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?

Term rider.

Nonforfeiture values guarantee which of the following for the policy owner?

That the cash value will not be lost.

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment.

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.

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 policy owner designated a primary and a 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.

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?

The insured's premiums will be waived until she is 21.

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.

What is the advantage of reinstating a policy instead of applying for a new one?

The original age is used for premium determination.

Collateral Assignments are..

The partial and temporary transfer of ownership rights.

All of the following are true regarding the guaranteed insurability rider EXCEPT

The rider is available to all insureds with no additional premium.

Which is true about a spouse term rider?

The rider is usually level term insurance.

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

The same face amount as in the whole life policy.

An insured has chosen join and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

Which of the following is TRUE about nonforfeiture values?

They are required by state law to be included in the 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 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.

The Extended term is...

the automatic nonforfeiture option: same face amount, shorter term of coverage.

Under life-income (straight life) settlement option

the recipient cannot outlive the benefit payments.

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receives as a settlement?

$200,000 ($100,000 x 2)

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called

Guaranteed insurability.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium?

If the father is disabled for more than 6 months.

The Accelerated benefit is..

The early payment of part of death benefit to the insured from the insurer for qualifying medical expenses.

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured.

Absolute assignments is

The complete and permanent transfer of ownership rights.