Life Insurance Policy Provisions, Options and Riders

-lower insurance company cost generate higher dividends -they stem from favorable underwriting experience -favorable investment results generate higher dividends -dividends CANNOT be guaranteed

All of the following statements concerning dividends are true

-cost of living rider

A rider that can be attached to a life insurance policy that will adjust the face amount based upon specific index, such as the Consumer Price Index, is called what?

-An insured is diagnosed with cancer and needs help pay for her medical treatment

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

-Trust

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

-payor benefit

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

-Benefeciaries are not identified by name. example "my children"

Which of the following is TRUE about a class designation?

-They are required by state law to be listed in the policy

Which of the following is TRUE about nonforfeiture values?

--the seller must be terminally ill

Which of the following is not true of life settlements?

-they are required by state law to be included in the policy

Which of the following is true regarding nonforfeiture values?

-cost of living rider -accidental death rider -guaranteed insurability rider -payor benefit rider does NOT

Which of the following riders would cause the death benefit to increase?

-It will pay double or triple the face amount

Which of the following statements is TRUE concerning the Accidental Death Rider?

-universal life

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 probably have?

-$50,000 (the face of the term policy would be the same as face amount provided under the whole life policy)

An insured owns $50,000 Whole Life Policy. At age 47, he 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?

-receive a policy loan -assign the policy -designate a beneficiary

The Ownership provision entitles the policy owner to do all of the following

-Cash Option

The ______ _________ allows an insurer to send the policyholder an annual, nontaxable dividend check

-become terminally ill

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

-spendthrift provision

When a life insurance policy contains a ________ __________ the beneficiary cannot change time of payment, installments, surrender for cash, borrow against or withdrawals, and parts of the policy that states they may is voided

-Class Designation

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

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

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

-Funds exceeding the premium paid are taxable as ordinary income

Which is TRUE about the cash surrender nonforfeiture option?

-Paid up option

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

-Paid Up Additions

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

-the surviving beneficiary will keep receiving 2/3 of the benefit paid when both beneficiaries were alive

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

-Pay a reduced death benefit

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated in application. What will the company do?

-Viatical Statement

An insured under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will even worsen more with upcoming medical expenses. What option should the insured utilize?

-interest only option

The policy owner 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 policy owner choose?

-the original age is used for premium determination

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

-Viator

What is the name of the insured who enter the viatical settlement?

-return of premium

When an insured under a life insurance policy died, the designation 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?

-it is a term coverage that is convertible to permanent insurance at or prior to the children reaching the maximum coverage age

Which of the following is true of a children's rider added to an insured's permanent life insurance policy?

-it remains the same no matter how many children are added to the policy

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

-It can protect the policy proceeds from creditors of the beneficiary

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

-life income

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

-Automatic premium Loan

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

-Revocable Beneficiary

A policy owner who is also the insured wants to name her husband as the benficiary of her life policy. She also wishes to retain all of the following rights of ownerhip. The policyowner should have her husband named as the

-Reduction of premium

An insured pays $1200 annually for her life insurance premium. The insured applies this years $300 worth of accumulated dividends to the next years premium, thus reducing it to $900. What option does this describe?

-$200,000 -had the double indemnity benefit and she died within a 90 day period

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 severly injured in an auto accident, and after 10 weeks of hospitalization, died from injuries. What amount would his beneficiary receive as settlement?

-Cash Option

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

-Interest

During Partial Withdrawal from a Universal Life Policy, which portion will be taxed?

-interest may be subject to taxation

During partial withdrawal from a universal life policy, which portion will be taxed?

-could be used for key person coverage -could be sold for an amount greater than current cash value -involve insurance policies with large face amounts

Factors of Life Settlement

-That the cash value will not be lost

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

-extended term

Which nonforfeiture option has the highest amount of insurance protection?

-Reduced-Paid Up (provides protection until the insured reaches 100)

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

-lump sum

if a settlement option is not chosen by a policy owner or beneficiary, which option shall be used?

-Naming beneficiaries as a group

Using a class designation for beneficiaries means

-The insured's premium will be waived until the age of 21

A father owns a life insurance policy on his 15 year old daughter. The polciy contains the optional payor benfit rider. If the father becomes disabled, what will happen to the life insurance premium?

-If the father is disabled for more than 6 months

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?

-Other-insured rider

A rider attached to a life insurance policy that provides coverage on the insurds family members is called the

-Fixed period

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

-exclusions clause

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

-copy of original application

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

--Monthly Premium Waiver and Monthly Income

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?

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

All of the following are true regarding insurance policy loans EXCEPT

-Transfer of all ownership rights in a policy

An absolute assignment is a

-Taxable

The interest earned on policy dividends is

-the policy owner can specify the way proceeds are split in the policy

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

-Waiver of Premium

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called

-Adjustment in the amount of death benefit

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

-Exclusions clause

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

-Grace Period

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

-One-Year Term Option

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

-Guaranteed Insurability Rider

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

-increasing term

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

-Collateral Assignment

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 to use his $250,000 life insurance policy to secure the loan. Which provision makes this possible?

-The insured may purchase additional coverage at attained age -insured may purchase additional insurance up to the amount specified in base policy -allows insured to purchase additional amounts of insurance w/o proving insurability only at specified dates or events

All of the following are TRUE regarding the guaranteed insurability rider

-Dividend amounts are guaranteed in the policy

All of the following statements concerning dividends are true EXCEPT

-Guaranteed Insurability Option

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

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

An insured stopped 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

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

-$100,000

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 matter. In this case, what will the policy beneficiary receive?

-Lump Sum

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

-To provide gauranteed income for a certain amount of time

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

-To protect the insurer from persons who purchase life insurance with the intention of committing suicide

What is the purpose of suicide provision within a life insurance policy?

-6 months

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

-Universal Life

What kind of policy allows withdrawals or partial surrenders?

-Family term rider

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