Life Insurance Policy Provisions, Riders, and Options

Which riders increase the amount of the death benefit?

-accidental death -guaranteed insurability -cost of living -return of premium -accelerated benefit and LT care

What settlement options are available in life insurance policies?

-lump-sum payment -life income -interest only -fixed-period installments -fixed-amount installments -retained assets account

What are the 3 nonforfeiture options in life insurance policies?

1. cash surrender option: surrender policy for current cash value at time when coverage isn't needed or affordable. 2. extended term option: insurer uses cash value to convert to term insurance for same face amount as former permanent policy. 3. reduced paid-up insurance option: cash value used by insurer as single premium to purchase completely paid-up permanent policy with reduced face amount

Which of the following statements is TRUE about a policy assignment? A. it transfers rights of ownership form the owner to another person. B. it is the same as a beneficiary designation. C. it permits the beneficiary to designate the person to receive the benefits. D. it authorizes an agent to modify the policy.

A

Which of the following would be deducted from the death benefit paid to a beneficiary, if a partial accelerated death benefit had been paid while the insured was still alive? A. amount paid with the accelerated benefit, plus earnings lost by the insurance company in interest income from the accelerated benefit B. no deductions taken from death benefits C. penalty imposed for early withdrawal of the death benefit, plus amount of earnings lost by insurance company in interest income D. 10% federal death benefit income tax, plus amount of the accelerated benefit

A

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A. it is reduced to amount of what cash value would buy as a single premium B. increased when extra premiums are paid C. decreases over term of policy D. remains same as the original policy, regardless of any differences in value

A - original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. New policy accumulates in cash value until maturity or insured's death

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? A. payor benefit B. jumping juvenile C. juvenile premium provision D. waiver of premium

A - payor benefit.

What type of beneficiary designation allows the benefit to pass from a deceased primary beneficiary to the beneficiary's heirs, instead of splitting the benefit among surviving primary beneficiaries? A. per stirpes B. by class C. by the head D. per capita

A - per stirpes class designation provides distribution by family line or branch in the event a beneficiary predeceases the insured

Which of the following best describes fixed-period settlement option? A. both the principal and interest will be liquidated over a select period of time. B. only the principal amount will be paid out within a specified period of time C. the death benefit must be paid out in a lump sum within a certain time period D. income is guaranteed for the life of the beneficiary

A - specified period of years is selected and equal installments are paid. Both the principal and interest are liquidated.

What is the difference between absolute and collateral assignment?

Absolute assignment means you transfer all rights, permanently. Collateral assignment means you transfer partial rights, temporarily.

During partial withdrawal from a universal life policy, which portion will be taxed? a. Loan B. Interest C. Cash value D. Principal

B - interest

All of the following a beneficiary designations EXCEPT A. primary B. specified C. tertiary D. contingent

B - specified.

What is the benefit of choosing extended term as a nonforfeiture option? A. allows for coverage to continue beyond maturity date B. can be converted to a fixed annuity C. has the highest amount of insurance protection D. matures at age 100

C

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident? A. settlement clause B. nonforfeiture clause C. common disaster clause D. spendthrift clause

C

When the policyowner specifies a dollar amount in which installments are to be paid, he has chosen which settlement option? A. life income period certain B. extended term C. fixed amount D.U fixed period

C

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? A. $0 B. $50,000 (50% of policy value) C. $100,000 D. $300,000 (triple the amount of policy value)

C - $100,000 you only receive 3x the face amount if the insured dies as a result of an accident.

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? A. $20,000 B. $25,000 C. $50,000 D. face amount will be determined by insurer

C - $50,000

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? A. $0 B. $200 C. $9,800 D. $10,000

C - $9800 because the death occurred within the 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

The paid-up addition option uses the dividend A. to reduce the next year's premium B. to accumulate additional savings for retirement C. to purchase a smaller amount of the same type of insurance as the original policy D. to purchase a one-year term insurance in the amount of the cash value

C - to purchase a smaller amount of the same type of insurance as the original policy

What kind of policy allows withdrawals or partial surrenders? A. 20-pay life B. term policy C. variable whole life D. universal life

D - universal life

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called A. guaranteed insurability B. waiver of cost of insurance C. payor benefit D. waiver of premium

D - waiver of premium

Define disability income benefit.

In event of disability, the insurer will waive premiums and pay monthly income to the insured.

Distinguish between policyowners, insurance companies and beneficiaries.

Policyowners pay the premiums to the insurance company, they are the only ones with ownership rights. The insurance company issues the policy and pays benefits. Beneficiaries are the ones who receive benefits.

Distinguish between primary beneficiary and contingent beneficiary.

Primary beneficiaries are the first claim to policy proceeds following death of insured. Contingent beneficiaries are the second claim in event that primary beneficiary dies before the insured.

What is the free look period, and when does it begin?

The free look period (or right to examine) is a period of 10 days to look over the policy and return for full refund if dissatisfied. The free look period starts on the policy delivery date.

What happens to an unpaid policy loan at insured's death?

any outstanding loans upon death will be deducted from death benefit

Explain the common disaster clause/Uniform Simultaneous Death Law.

assumes the beneficiary died first so proceeds go to contingent beneficiary or estate.

Define cost of living.

auto increase amount of insurance without evident of insurability.

Define one-year term dividend option.

choose to use dividend as single premium for as much as it can buy or purchase term insurance = policy's cash value. if the insured dies within 1-year term, the beneficiary gets the death benefit of both policies.

What is the purpose of the Automatic Premium Loan provision?

prevents unintentional lapse of policy due to nonpayment of premium

Define payor benefit life.

primarily used with juvenile policies and functions like waiver of premium rider.

Which of the following statements about a suicide clause in a life insurance policy is true? A. suicide is excluded for a specific period of years and covered thereafter B. suicide is covered for a specific period of years and excluded thereafter C. suicide is covered as long as the policy is in force D. suicide is excluded as long as the policy is in force

A

Which of the following statements about the reinstatement provision is true? A. it requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. B. it permits reinstatement within 10 years after a policy has lapsed. C. it provides for reinstatement of a policy regardless of the insured's health D. it guarantees the reinstatement of a policy that has been surrendered for cash

A

According to the Entire Contract provision, a policy must contain A. declaration page with summary of insured B. buyers guide to LIF C. listing of insured's former insurers for incontestability provisions D. copy of original application

D

All of the following are true regarding the guaranteed insurability rider EXCEPT A. the insured may purchased additional coverage at the attained age B. insured may purchase additional insurance up to amount specified in base policy C. it allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events D. this rider is available to all insureds with no additional premium

D

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? A. policy beneficiary receives full death benefit B. policy beneficiary takes over loan payments C. policy is rendered null and void D. balance of loan will be taken out of death benefit

D

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to A. purchase a term rider to attach to the policy B. pay back all premiums owed plus interest C. receive payments for a fixed amount D. purchase a single premium policy for a reduced face amount

D

Which of the following applies to the 10-day free-look privilege? A. allows insured 10 days to pay the initial premium B. can be waived only by the insurance company C. granted only at the option of the agent D. permits the insured to reject the policy with a full refund

D

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A. annual dividend is retained by the company B. interest is credited at rate specified by policy C. policyholder has right to withdraw the accumulations at any time D. interest isn't taxable since it remains inside insurance policy

D - interest IS taxable

All of the following are true EXCEPT A. the amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies. B. the policy will terminate if the loan plus interest equals or exceeds the cash value of the policy C. policyowners can borrow up to the full amount of their whole life policy's cash value D. policy loans can be made on policies that do not accumulate cash value

D - policy loan option is only found in policies that contain cash value

Which is true about a spouse term rider? A. coverage is allowed for an unlimited time B. the rider is decreasing term insurance C. coverage is allowed till age 75 D. the rider is usually level term insurance

D - the rider is usually level term insurance.

Define accelerate (living) benefit and LT care.

early payment of part of death benefit to cover costs associated with terminal illness.

Explain life income as a settlement option.

guaranteed payments as long as recipient lives amount is based on life expectancy and principal

When does the policy loan option exist?

in any policy that contains cash value; it allows the owner to borrow an amount equal to available cash value

Explain interest only as a settlement option.

insurer proceeds and pays interest on proceeds to recipient at regular intervals commonly used as a temporary option to give more time for decide

Explain retained assets account as a settlement option.

interest-bearing money market established for beneficiary.

Explain reinstatement.

it allows a lapsed policy to be put back in force. the owner is required to pay back all premiums plus interest and may be required to repay outstanding loans and interest. advantage to reinstating rather than buying new is it will be restored to original status and retain all values.

What is the purpose of the grace period?

it is the period after premium due date that policyowner has to pay the premium before lapsing. the purpose is to protect against unintentional lapse.

How is the loan value determined in a policy loan?

loan value = cash value - (unpaid loans + interest)

Which dividend option increases the death benefit?

paid-up additions increase the death benefit of original policy by whatever amount the dividend will buy

Define return of premium

pay original face amount plus amount equal to all premiums paid

Define accidental death.

pays some multiple of face amount if death is a result of an accident.

Explain the 2 classifications for "group" beneficiaries.

per capita, or "by the head", evenly distribute benefits among living beneficiaries. per stirpes, or "by the bloodline", distributes benefits of beneficiary who died before the insured to that of beneficiary's heirs.

Explain the Spendthrift Clause.

prevents beneficiary from choosing different settlement options and borrow or assign proceeds

Define guaranteed insurability.

purchase additional coverage at specified future dates without evidence of insurability, for additional premium

What is the difference between a revocable and irrevocable beneficiary?

revocable = can change a revocable designation at any time and without consent or knowledge of beneficiary irrevocable = designation can't be changed without written consent because the beneficiary has a vested interest in the policy

Define riders.

riders are written modification attached to a policy that provide benefits not in original policy

Explain fixed-period installments as a settlement option.

specified period of years in which equal installments are paid. the amount is determined by amount of principal, guaranteed interest, and length or period.

What constitutes the entire contract?

the policy, a copy of the application plus any riders and ammendments

Define waiver of premium.

waives premium if insured becomes totally disables - until able to return to work.

Which nonforfeiture option is automatically selected if the policyowner has not made a selection?

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