Nonforfeiture and Settlement Options

Cash Surrender Value

the policy owner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable

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

To provide a guaranteed income for a certain amount of time

if the policy owner has neglected to select one of these non forfeiter options, the insurer will...

automatically implement the extended term option in the event of termination of the original policy

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium

Settlement Options

Methods used to pay the death benefits to a beneficiary upon the insured's death, or to pay the endowment benefit if the insured lives to the endowment date.

upon death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. what does this mean?

The beneficiary will only receive payments of the interest earned on the death benefit.

An insured has chosen joint 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.

all of the following are nonforfieture options except

interest only

what happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and survivor

Fixed-Amount Installments Option

also known as period certain. a specified period of years is selected and equal installments are paid to the receipt

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?

$50,000 . The face of the term policy would be the same as the face amount provided under the whole life policy

life income joint and survivor

option guarantees an income for two or more recipients for as long as they live. Most contracts provide that the surviving recipient will receive a reduced payment after the first recipient dies.

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Cash surrender: once cash surrender value is paid, the contract is over

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

Fixed amount settlement

Reduced Paid-Up Insurance

The policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy.

extended term

the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy

Life Income Option

installment payments are paid only while the beneficiary is alive and cease on the beneficiary's death

nonforfeiture option

certain guarantees are built into the policy that cannot be forfeited by the policy owners . required by law

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

Reduced paid-up. The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

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

which of the following determines the length of time that benefits will be received under the Fixed amount settlement option?

Size of each installment

Fixed Period Installments

known as period certain - a specified period of years is selected and equal installments are paid to the recipient

Under an extended term nonforfeiture option, the cash value is converted to

the same face amount as in the whole life policy Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy

When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount

Equal to the original policy for as long a period of time that the cash values will purchase.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount

surrender charge

a fee charged to the insured when a life policy or annuity is surrendered for its cash value

single life option

can provide a single beneficiary income for he rest of his/her life. Upon the death of the beneficiary, the payments stop.

interest-only option

the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals

which of the following is necessary condition for reinstatement of a lapsed policy?

the insured must provide proper evidence of their insurability