Life Insurance Policy Provisions, Options, and Riders
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
Collateral Assignment
involves a transfer of partial rights to another person. Partial and temporary transfer of rights
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
Reinstatement Provision
permits the owner to reinstate a lapsed policy
Principal amount
the face value of the policy; the original amount invested before the earnings
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
For how long is an insurance company allowed to defer policy loan requests?
6 months
What is the waiting period on a Waiver of Premium rider in life insurance policies?
6 months: most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.
Life insurance policies that have cash value must provide for a maximum policy loan interest rate of no more than
8% per annum
Life insurance policies that have cash value must provide for. Maximum policy loan interest rate of no more than
8% per annum
A policyowner has a $10,000 term life policy. He paid his annual premium on February 1. He fails to renew the policy and dies on February 28th of the following year. Accounting for the $200 of earned premium, how much will the beneficiary receive from the policyowner's insurance company?
9,800 death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.
Entire contract
= policy + copy of application + any riders or amendments
A provision in a life insurance policy that provides for the early payment of some Porto. Of the policy face amount should the insured suffer from a terminal illness or injury is called
Accelerated Benefit Provision
Right to Examine (Free Look)
Allows the insured, upon delivery of the policy, a specified number of days to look over the policy and if dissatisfied, return it for a full refund.
Trust
An arrangement in which funds or property are held by a person or corporation for the benefits of another person (trust beneficiary)
Exclusions
Are the type of risks the policy will not cover
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
Cash option
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.
Which nonforfeiture option has the highest amount of insurance protection?
Extended term
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
Family term rider
What is the advantage of reinstating a policy instead of applying for a new one?
The original age is used for premium determination
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.
Which is true about a spouse term rider?
The rider is usually level term insurance
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 e following is true about nonforfeiture values?
They are required by state law to be included in the policy
The paid-up addition option uses the dividend
To purchase a smaller amount of the same type of insurance as 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?
Universal Life
The Waiver of Cost of Insurance rider is found in what type of insurance?
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 value.
Contingent Beneficiary
a beneficiary who has second claim to the policy proceeds after the death of the insured (usually after death of the primary beneficiary)
Primary Beneficiary
a beneficiary who has the first claim to the policy proceeds after the death of insured.
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?
a fixed amount
activities of daily living (ADLs)
a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence
What limits the amount that a policyowner may borrow from a whole life insurance policy?
cash value
Which of the following components must a life insurance policy have to allow policy loans?
cash value
Life income joint and survivor settlement option guarantees
income for 2 or more recipients until they die
A long stretch of national economic hardship causes 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has raised 7% as a result. Which policy rider caused this change?
Cost of living rider
An Arizona resident has a life insurance policy that has a grace period of 31 days. What kind of life insurance policy is it?
Group life
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
Misstatement of age and gender
Insurer can adjust the amount of the benefit when a claim is made to the amount the premium would have purchased at the correct age or gender
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
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.
Which of the following statements best describes the effect the Accelerated Benefit provision would have on the benefits paid to the beneficiary?
It will decrease the benefits paid to the beneficiary
Which of the following statements is true concerning the Accidental Death Rider?
It will pay double or triple the face amount- the accidental death rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs writhing 90 days of such an accident
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called
Joint and survivor. A joint and survivor option pays while either beneficiary is still living.
What is the other term for the cash payment settlement option?
Lump sum. Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.
NAIC
National Association of Insurance Commissioners, an organization composed of insurance commissioners from all 50 states, the District of Columbia and the 4 U.S territories, formed to resolve insurance regulatory issues.
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. When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.
Which option is being utilized when the insurer accumulated 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
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?
Payor Benefit
Grace Period
Period of time after the premium due date during which premiums may still be paid, and the policy and its riders remain in force.
Incontestability Clause
Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been material misstatement of facts or concealment of a material fact
An insured pays $1200 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
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
If a life insurance policy has an irrevocable beneficiary designation,
The beneficiary can only be changed with written permission of the beneficiary
If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?
The death benefit will be smaller
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
All of the following are true statements regarding accumulation at interest option except
The interest is not taxable since it remains inside the insurance policy.
If an insured under a variable life insurance policy dies, how will the insurer respond to outstanding policy loans?
The loan amounts are deducted from the death benefit.
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.
Assignment
transfer of rights of policy ownership
