Policy Provisions, Options and Riders
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
$20,000 death benefit
T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?
$50,000
P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?
$50,000 minus any outstanding policy loans
A potential client age 40 would like to purchase a whole life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?
20-Pay Life accumulates cash value faster than Straight Life
Which of these types of policies may not have the automatic premium loan provision attached to it
Decreasing term
Which provision prevents an insurer from changing the terms of the contract with the policy owner by referring to documents not found within the policy itself
Entire contract provision
Which of these statements about a guaranteed insurability option rider is not true?
Evidence of insurability is required when the option is exercised
D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?
Ex-wife
Ina life insurance policy, which feature states that the policy will not cover certain risks?
Exclusion
N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?
Exclusion
Which of the following nonforfeiture options offers the highest death benefit?
Extended term
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period
Full face amount minus any past due premiums
A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following
Inability of the insured to perform more than 2 Activities of Daily Living (ADL's)
All of these statements about the Waiver of Premium provision are correct EXCEPT
Insured must be eligible for Social Security disability for claim to be accepted
B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes?
Interest only
Dividends paid from a life insurance policy are
Issued by the insurer
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policies reinstatement except
K will forfeit the right to use the automatic loan provision upon reinstatement
Which of these are NOT an example of a Nonforfeiture option?
Life income
The Accelerated Death Benefit provision in a life insurance policy is also known as a(n)
Living benefit
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
Long term care
Which of these is NOT considered to be a right given to a policyowner?
Modify a provision in the insurance contract
Which of the following statements is CORRECT about accelerated death benefits?
Must have a terminal illness to qualify
In a life insurance policy, which provision states who may select policy options, designate a name a beneficiary, and be the recipient of any financial benefits from the policy?
Owner's Rights
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?
P will still receive declared dividends
K owns a Whole Life policy. If K wants an increasing death benefit to protect against inflation, which dividend option should she choose?
Paid up additional insurance
All of the following statements are true regarding a policy's Grace period, EXCEPT:
Past due premiums are waived
Which statement is true in regards to a policy loan?
Past-due interest on a policy loan is added to the total debt
Which of the following provisions guarantees that premiums will be waived if a juvenile life policy owner becomes disabled?
Payor clause
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the
Policy Loan Provision
What benefit does the Payor clause on a Juvenile Life policy provide?
Premiums are waived if payor becomes disabled
Which of these Nonforfeiture Options continue a build-up of cash value?
Reduced Paid-Up
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called
Reinstatement
Which of these provisions require proof of insurability after a policy has lapsed?
Reinstatement
J let her life insurance policy lapse eight months ago due to nonpayment. She can reestablish coverage under which of the following provisions?
Reinstatement provision
S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?
Return of premium rider
Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?
Taxed as ordinary income
Which of these life insurance riders allows the applicant to have excess coverage?
Term rider
D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole Life policy contains a War Exclusion clause. How much will D's beneficiary receive?
The full face amount
What does the ownership clause in a life insurance policy state?
Who the policyowner is and what rights the policyowner is entitled to
A Return of Premium life insurance policy is:
Whole life and increasing term
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional Whole Life coverage at specified times
A cost of living rider gives the insured
additional death benefits
Additional coverage can be added to a Whole Life policy by adding a(n)
decreasing term rider
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n)
exclusion
A Nonforfeiture clause gives the policy owner
guaranteed values even if the policy has lapsed
in a life insurance contract, an insurance company's promise to pay stated benefits is called the:
insuring clause
The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured
is blinded in an accident
Which life insurance rider typically appears on a juvenile life insurance policy?
payor benefit rider
M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the
policy proceeds
What is the Suicide provision designed to do?
safeguard the insurer from an applicant who is contemplating suicide
The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and
the initial premium
P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?
Accidental Death and Dismemberment Clause
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n)
Accidental Death and Dismemberment rider
A policy owner may generate taxable income from which of the following dividend options?
Accumulation at interest
The Consideration clause in a life insurance contract contains what pertinent information?
Amount of premium payments and when they re due
What does the insuring agreement in a Life insurance contract establish?
An insurer's basic promise
What action can a policyowner take if an application for a bank loan requires collateral?
Assign policy ownership to the bank
S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?
Automatic Policy Loan
A whole life insurance policyowner does not have the right to
Change the grace period
Whose life is covered on a life insurance policy that contains a payor benefit clause?
Child
Which rider provides coverage for a child under a parent's life insurance policy?
Child term rider
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
Claim will be denied
How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?
Claims are denied under the Suicide clause of the policy
Which of these actions is taken when a policy owner uses a Life Insurance policy as collateral for a bank loan?
Collateral assignment
Which statement regarding the Misstatement of Age provision is considered to be true?
Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered
The advantage of reinstating an original life policy is?
The premiums are based on a younger age
A Life insurance policyowner would like to take out a policy loan against the cash value in his Whole Life policy. The interest rate applied to this loan may vary over time. This is referred to as a ______ rate loan.
Variable -- vary over time
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
Variable Life
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?
Void the policy only if it is discovered during the Contestable period and proven to be material
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
Waiver of Premium
When is the face amount of a Whole Life policy paid?
When the insured dies or at the policy's maturity date, whichever happens first
A Term Life rider offers the insured
additional life coverage
L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will
adjust the death benefit to a reduced amount
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
at future dates specified in the contract with no evidence of insurability required
What action will an insurer take if an interest payment on a policy loan is not made on time?
automatically add the amount of interest due to the loan balance
The automatic premium loan provision is designed to
avoid a policy lapse
Variable Whole Life Insurance can be described as
both an insurance and securities product
The incontestable clause allows an insurer to
contest a claim during the contestable period
