Life Insurance ch. 4
Activities of daily living (ALD's)
A persons essential activities that include bathing, dressing, eating, transferring, toileting, contience
The accelerated benefits provision will provide for an early payment of the death benefit when the insured - becomes terminally ill - needs to borrow money - has earned enough credits - become disabled
becomes terminally ill - allow the owner to be advanced a significant portion of the death benefit when the insured is terminally ill
After a back injury, an insured is disabled or a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will be receive? - Percentage of medical costs paid by the insurer - Payments for life - Monthly premium waiver and monthly income - Yearly premium waiver and income
monthly premium waiver and monthly income - disability income benefit rider waives policy premiums, just like waiver of premium rider - unlike waiver of premium rider, it also allows the insured to receive a weekly or monthly income during the disability period
Collateral Assignment
transfer of partial rights to another person - usually done to secure a loan or other transaction - partial and temporary assignment of some of the policy rights - once debt or loan is repaid, the assigned rights are returned to the policyowner
Primary beneficiary
a beneficiary who has the first claim to the policy proceeds after the death of the insured
Principle amount
face value of the policy; the original amount invested before the earnings
Under which of the following circumstances would an insurer pay accelerated benefits? - a couple is nearing retirement and needs a steady stream of income - an insured is looking for a way to put her daughter through college - a couple wants to build a house and would like to make a larger down payment - an insured is diagnosed with cancer and needs help paying for her medical treatment
an insured is diagnosed with cancer and needs help paying for her medical treatment - accelerated benefits are paid when an insureds endure financial hardship due to severe illness - they may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer - benefits are not taxable
What happens when a policy is surrendered for its cash value? - the policy can be converted to term coverage - coverage ends and the policy cannot be reinstated - coverage ends but the policy can be reinstated at any time - the policy can be reinstated by paying back all policy loans and premiums
coverage ends and the policy cannot be reinstated - once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated
Which of the following is true regarding a single life settlement option? - It provides income the beneficiary cannot outlive - payments continue until the entire principle is exhausted - proceeds are paid out in a lump sum - it provides income for a specified period of time
it provides income the beneficiary cannot outlive - can provide a single beneficiary income for the rest of his/her life - upon the death of the beneficiary, the payments stop
Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled? - jumping juvenile - juvenile premium provision - waiver of premium - payor benefit
payor benefit - if the payor (usually parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21
An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this? - waiver of premium provision - incontestable clause - grace period - reinstatement provision
reinstatement provision - a lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability
The ownership provision entitles the policyowner to do all of the following EXCEPT - receive a policy loan - set premium rates - assign the policy - designate a beneficiary
set premium rates - the insurer sets the premium rates based upon underwriting considerations
When a life insurance policy was issued, the policyowner 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 estate - the primary beneficiary's estate - the insured's contingent beneficiary - the insurance company
the insured's contingent beneficiary - under the uniform simultaneous death law, the law will assume that the beneficiary dies first in a common disaster - this provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated
What provision in a life or health insurance policy extends coverage beyond the premium due date? - grace period - free look - automatic premium loan - waiver of premium
grace period - provides coverage for a period of time after the premium becomes past due
If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used? - fixed amount - lump sum - life income - fixed period
lump sum - the contract is designed to pay the proceeds in cash (lump sum) unless the recipient chooses an optional mode of settlement
If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights? - insured - policyowner - insured and the policyowner - beneficiary
policyowner
Which nonforfeiture option for the longest period of time? - accumulated at interest - reduced paid-up - extended term - paid up option
reduced paid-up - provides protection until the insured reaches 100 - the face amount is reduced to what the cash would buy
The rider is a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called... - Waiver of premium - Guaranteed insurability - Waiver of cost of insurance - Payor benefit
Waiver of premium - waives the premium if the insured owner has been totally disabled for a predetermined period - the payor benefit provides for an owner other than the insured and the waiter of cost of insurance is found in Universal Life
Which nonforfeiture option provides coverage for the longest period of time? - accumulated at interest - reduced paid-up - extended term - paid up option
reduced paid-up - provides protection until the insured reaches 100, but the face amount is reduced to what the cash would buy
The interest earned on policy dividends is - nontaxable - tax deductible - 40% taxable, similar to capital gain - taxable
taxable - dividends are a return of unused premiums on which the insured has already paid taxes - any interest earned is taxable as ordinary income
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? - her parents' federal income tax receipts - medical exam and parent's medical history - proof of insurability is not required - medical exam
proof of insurability is not required - children can be covered under the policy until they reach the maximum age stated in the policy - they can convert their coverage to a new policy without having to issue proof of insurability
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? - automatic premium loan - extended term - reinstatement - reduced paid up option
automatic premium loan - is it not required, but commonly added to contracts with a cash value at no additional charge - prevents the unintentional lapse of a policy due to nonpayment of the premium
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? - it decreases over the term of the policy - it remains the same as the original policy, regardless of any differences in value - it is reduced to the amount of what the cash value would buy as a single premium - it is increased when extra premiums are paid
it is reduced to the amount of what the cash value would buy as a single premium - the new policy accumulates in cash value until its maturity or the insured's death
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? - dividend accumulation option - paid-up option - accumulation at interest - paid up additions
paid up option - with this option, the insurer can accumulate dividends at interest and then use them in addition to interest and policy's cash value to pay the policy earlier than planned - this is different than paid up additions, which dividends are used to buy additional policies that increase the face amount of the original policy
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have? - term life - limited pay - universal life - adjustable life
universal life - universal life policies allow for policyholders to withdraw a limited portion of the policy's cash value - each withdrawal is usually charged, and the amount and frequency of withdrawals are usually limited
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a..... - cost of living provision - nonforfeiture option - guaranteed insurability rider - paid up additions option
guaranteed insurability rider - allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability - rates for the additions are based upon attained age
Which of the following statements is TRUE concerning the Accidental Death Rider? - it is also known as a triple indemnity rider - this rider is only available to insureds over the age of 65 - it is only available in group insurance - it will pay double or triple the face amount
it will pay double or triple the face amount - the accidental death rider pays 2 or 3 times the face amount if death if the result of an accident as defined in the policy and occurs within 90 days of such an accident
According to the entire contract provision, what document must be made part of the insurance policy? - buyer's guide - agent's report - outline of coverage - copy of the original application
copy of the original application
Trust
arrangement in which funds or property are held by a person or corporation for the benefits of another person (trust beneficiary)
When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value? - the face amount - mortality costs - the cash surrender amount - outstanding loans and interest
outstanding loans and interest - to calculate the loan value an insured may take out of the variable life insurance policy, any unpaid loans and interest must be subtracted from the policy's cash value
An insured receives an annual life insurance dividend check. What term best describes this arrangement? - accumulation at interest - cash option - reduction of premium - annual dividend provision
cash option - the cash option allows an insurer to send the policyholder an annual, nontaxable dividend check
Which of the following statements about a suicide clause in a life insurance policy is TRUE? - suicide is excluded for a specific period of years and covered thereafter - suicide is covered for a specific period of years and excluded thereafter - suicide is covered as long as the policy is in force - suicide is excluded as long as the policy is in force
suicide is excluded for a specific period of years and covered thereafter - in most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit
An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? - the insurer will increase the interest rate on the loan and charge a penalty - the insurer will not permit the policyowner to take out any more loans - the policy will be reduced to an extended term option - the policy will terminate when the loan amount with interest equals or exceeds the cash value
the policy will terminate when the loan amount with interest equals or exceeds the cash value - in most policies, failure to pay back a loan will result in termination of the policy if the total amount of the loan and accrued interest equals the cash value
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the... - juvenile rider - payor rider - other insured rider - change of insured rider
other insured rider - useful for providing insurance for more than one family member - the type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance
J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid? - Anytime, because the agent did not deliver the policy promptly - February 28th, or 10 days after the time the policy was delivered - The time varies from one policy to another - It was already too late when J received the policy because the 10 day free-look period had expired
February 28th, or 10 days after the time the policy was delivered - 10 day free-look period begins when the policy is delivered
An insured receives an annual life insurance dividend check. What term best describes this arrangement? - reduction of premium - annual dividend provision - accumulation at interest - cash option
cash option - allows an insurer to send the policyholder an annual, nontaxable dividend check
What is the waiting period on a Waiver of Premium rider in life insurance policies? - 30 days - 3 months - 5 months - 6 months
6 months
Which of the following applies to the 10-day free-look privilege? - it is granted only at the option of the agent - it permits the insured to return the policy for a full refund of premiums paid - it allows the insured 10 days to pay the initial premium - it can be waived only by the insurance company
it permits the insured to return the policy for a full refund of premiums paid - a policyowner may return a policy for any reason during the free-look period and receive a full refund
Which is TRUE about the cash surrender nonforfeiture option? - after the cash surrender, the insured is covered for a grace period of one month - the policy remains active for some time after the policyholder opts for cash surrender - the policyholder receives the original cash value of the policy - funds exceeding the premium paid are taxable as ordinary income
funds exceeding the premium paid are taxable as ordinary income - the insurers surrender the policy at its current cash value - only any excess of value is taxable as income - once the policyholder opts for cash surrender, the policy is immediately inactive
NAIC
National Association of Insurance Commissioners - an organization composed of insurance commissioners from all 50 states, the District of Columbia and the 5 U.S. territories - formed to resolve insurance regulatory issues
In Arizona, the grace period on a group life insurance policy applies to every premium payment EXCEPT - the first - the last of the year - the last before renewal - the first of the year
the first - 31 days for every payment except the first
Which of the following is NOT typically excluded from life policies? - death that occurs while a person is committing a felony - death due to war or military service - death due to plan crash for a fare-paying passenger - self-inflicted death
death due to plane crash for a fare-paying passenger - generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline
Which nonforfeiture option has the highest amount of insurance protection? - decreasing term - reduced paid up - extended term - conversion
extended term - has the same face amount as the original policy, but for a shorter period of time
Which is TRUE about the cash surrender nonforfeiture option? - funds exceeding the premium paid are taxable as ordinary income - after the cash surrender, the insured is covered for a grace period of one month - the policy remains active for some time after the policyholder opts for cash surrender - the policyholder receives the original cash value of the policy
funds exceeding the premium paid are taxable as ordinary income - the insurers surrender the policy at its current cash value - only any excess of value is taxable as income - once the policyholder opts for cash surrender, the policy is immediately inactive
The automatic premium loan provision is activated at the end of the... - grace period - free-look period - elimination period - policy period
grace period - provided there is sufficient cash value in the policy, the provision triggers a loan at the end of the grace period to keep a policy in force
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 - reinstatement clause - insuring clause - misstatement of age clause
incontestability clause - if an insurer wishes to contest any statements on an application, they must do so within the first 2 years
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? - fixed amount option - interest only option - life income with period certain - joint and survivor
interest only option - the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner. What dividend option could she use? - reduction of premium - accumulation at interest - paid up option - one year term
paid up option - the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned - different than paid up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy
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? - $20,000 - $25,000 - $50,000 - the face amount will be determined by the insurer
$50,000 - the face of the term policy would be the same as the face amount provided under the whole life policy
Which of the following is true regarding a single life settlement option? - it provides income the beneficiary cannot outlive - payments continue until the entire principal is exhausted - proceeds are paid out in lump sum - it provides income for a specified period of time
it provides income the beneficiary cannot outlive - the single life option can provide a single beneficiary income for the rest of his/her life - upon the death of the beneficiary, the payments stop
Which of the following is true about the premium on the children's rider in a life insurance policy? - it decreases when an adopted child is added to the policy - it remains the same no matter how many children are added to the policy - it decreases when the oldest child reaches the age of 21 - it increases when a newborn baby is added to the policy
it remains the same no matter how many children are added to the policy - it is based on the average number of children - the premium does not change on the inclusion of additional children
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 - total contract - entire contract - aleatory contract - complete contract
entire contract - this provision limits the use of evidence other than the contract and the attached application in a test of the contracts validity
Which is true about a spouse term rider? - the rider is usually level term insurance - coverage is allowed for an unlimited time - the rider is decreasing term insurance - coverage is allowed up to age 75
the rider is usually level term insurance - it is available for a limited amount of time - typically expiring at age 65 - spouse term rider allows a spouse to be added for coverage (just like any other insured rider is usually a level term insurance)
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? - cash surrender - reduced paid-up - paid up options - extended term
cash surrender - once the cash surrender value is paid, the contract is over
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... - Probate - The insured's estate - The state - The beneficiary's estate
The insured's estate - in the absence of a viable beneficiary, proceeds will be paid to the estate of the insured
Absolute Assignment
Transfer of all rights of policy ownership to another person or entity - permanent - the new policyowner does not need to have an insurable interest in the insured
Contingent beneficiary
a beneficiary who has second claim to the policy proceeds after the death of the insured (usually after the death of the primary beneficiary)
The two types of assignments are... - absolute and partial - complete and partial - complete and proportionate - absolute and collateral
absolute and collateral - absolute: entire policy - collateral: partial policy
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? - the same as the original policy minus the cash value - equal to the original policy for as long as the cash values will purchase - in lesser amounts for the remaining policy term of age 100 - equal to the cash value surrendered from the policy
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
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? - nonforfeiture options - guaranteed insurability option - dividend option - guaranteed renewable option
guaranteed insurability option - allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability
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? - cash option - reduction of premium - paid up addition - accumulation at interest
reduction of premium - allows the policyholder to apply policy dividends towards the next year's premium - the dividend - premium amount, yielding the new premium for the next year
Which of the following statements is TRUE concerning irrevocable beneficiaries? - They may be changed on the anniversary date of the policy - they can be changed only with the written consent of that beneficiary - They can be changed at any time - They can never be changed
they can be changed only with the written consent of that beneficiary
Children's riders attached to whole life policies are usually issued as what type of insurance? - variable life - adjustable life - whole life - term
term - children's term riders provide term insurance with coverage expiring when the minor reaches a certain age
The waiver of cost of insurance is found in what type of insurance? - whole life - joint and survivor - juvenile life - universal life
universal life - if the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash
An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe? - reduction of premium - accumulation at interest - cash option - flexible
reduction of premium - this option allows the policyholder to apply policy dividends towards the next year's premium - dividend subtracted from the premium amount, yielding the new premium due for the next year
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 the premiums paid. Which rider is attached to the policy? - Decreasing term - Accidental death - Return of premium - Cost of living
return of premium - the return of premium rider pays the beneficiary not only the face amount, but also the amount that had been paid in premiums - the rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned - the return of premium rider is funded by using increasing term insurance
All of the following are beneficiary designations EXCEPT - contingent - primary - specified - tertiary
specified - beneficiary designations determine the order in which benefits will be paid - primary or contingent, which includes secondary and tertiary
