Policy provisions, riders, options, and exclusions
What is the purpose of a free-look period in insurance policies? A. It allows the insurer to temporarily suspend coverage after an insured's disability. B. It allows the insurer to cancel coverage if a misrepresentation is discovered. C. It allows the insured to reject the policy with a full refund. D. It allows the insured 10 days to pay the initial premium.
C.
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the A. Other-insured rider. B. Change of insured rider. C. Juvenile rider. D. Payor rider.
A.
According to the Entire Contract provision, a policy must contain A. Buyer's guide to life insurance. B. Listing of the insured's former insurer(s) for incontestability provisions. C. A copy of the original application for insurance. D. A declarations page with a summary of insureds.
C.
An absolute assignment is a A. Change of beneficiary. B. Change of insurer. C. Transfer of all ownership rights in a policy. D. Transfer of some ownership rights in a policy.
C.
What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy? A. It requires that someone who is not the primary beneficiary handles the estate. B. It determines who receives policy benefits if the primary beneficiary is deceased. C. It allows creditors to receive payment out of the proceeds. D. It ensures the policy proceeds will be split between the primary and contingent beneficiaries.
B.
Which of the following is true of a children's rider added to an insured's permanent life insurance policy? A. Each child covered must show evidence of insurability. B. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. C. It is permanent insurance. D. The policy covers only the natural children of the insured.
B.
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability? A. Her parents' federal income tax receipts B. Medical exam and parents' medical history C. Proof of insurability is not required. D. Medical exam
C.
Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members? A. Guaranteed insurability rider B. Change of insured rider C. Term rider D. Accidental death and dismemberment rider
C.
An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? A. When the insured dies, the primary and contingent beneficiaries share death benefits equally. B. With the primary beneficiary's written consent C. If the insured died from accidental means D. If the primary beneficiary predeceased the insured
D.
What is the benefit of choosing extended term as a nonforfeiture option? A. It matures at age 100. B. It allows for coverage to continue beyond maturity date. C. It can be converted to a fixed annuity. D. It has the highest amount of insurance protection.
D.
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? A. One-year term B. Reduction of premium C. Accumulation at interest D. Paid-up option
D. *With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.
When may an insurance company use suicide as a defense against paying a death claim? A. Only when there was a witness to the event B. At any time suicide can be proven C. At no time D. When death occurs within a specified period of time after the policy was issued
D.
Which of the following is TRUE about a class designation? A. Beneficiaries must be part of the insured's immediate family. B. It is not allowed. C. It determines the succession of beneficiaries. D. Beneficiaries are not identified by name.
D.
What is the waiting period on a Waiver of Premium rider in life insurance policies? A. 30 days B. 3 months C. 5 months D. 6 months
D.
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 A. Paid-up additions. B. One-year term purchase. C. Accumulation at interest. D. Reduction of premiums.
A.
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A. The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. B. One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. C. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. D. The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time.
C
A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? A. Incontestability period B. Assignment C. Automatic premium loan D. Waiver of premium
C.
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 A. Projected interest rates. B. Face amount of the policy. C. The insured's age at death. D. The beneficiary's life expectancy.
C.
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A. Equal to the original policy for as long as the cash values will purchase. B. In lesser amounts for the remaining policy term of age 100. C. Equal to the cash value surrendered from the policy D. The same as the original policy minus the cash value
A
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? A. Fixed period B. Life with period certain C. Fixed amount D. Interest only
A.
If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used? A. Fixed amount B. Lump sum C. Life income D. Fixed period
B.
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. The face amount will be determined by the insurer.
C
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? A. Reduction of premium B. Paid-up addition C. Accumulation at interest D. Cash option
A. *The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.
Which of the following is true about the premium on the children's rider in a life insurance policy? A. It decreases when an adopted child is added to the policy. B. It remains the same no matter how many children are added to the policy. C. It decreases when the oldest child reaches the age of 21. D. It increases when a newborn baby is added to the policy.
B.
Children's riders attached to whole life policies are usually issued as what type of insurance? A. Variable life B. Adjustable life C. Whole life D. Term
D.
An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called A. Consideration. B. Conditions. C. Utmost good faith. D. Acceptance.
A. *"Consideration" is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.
The Ownership provision entitles the policyowner to do all of the following EXCEPT A. Set premium rates. B. Receive a policy loan. C. Assign the policy. D. Designate a beneficiary.
A. *The insurer sets premium rates based upon underwriting considerations.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A. The policyholder has the right to withdraw the accumulations at any time. B. The interest is not taxable since it remains inside the insurance policy. C. The annual dividend is retained by the company. D. The interest is credited at a rate specified by the policy.
B.
The interest earned on policy dividends is A. 40% taxable, similar to a capital gain. B. Taxable. C. Nontaxable. D. Tax deductible.
B.
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? A. 1 year B. 2 years C. 5 years D. 7 years
B.
When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all of the premiums paid. Which rider is attached to the policy? A. Accidental death B. Return of premium C. Cost of living D. Decreasing term
B.
Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members? A. Accidental death and dismemberment rider B. Guaranteed insurability rider C. Change of insured rider D. Term rider
D
Which of the following components must a life insurance policy have to allow policy loans? A. Dividends B. Flexible premiums C. Face amount D. Cash value
D.
Which of the following is NOT typically excluded from life policies? A. Self-inflicted death B. Death that occurs while a person is committing a felony C. Death due to war or military service D. Death due to plane crash for a fare-paying passenger
D.
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? A. Extended term B. Reinstatement C. Reduced paid-up option D. Automatic premium loan
D.
Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home? A. Accidental death B. Guaranteed insurability C. Payor benefit D. Long-term care
D.
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 up to age 75. D. The rider is usually level term insurance.
D.
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 severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement? A. $0 B. $100,000 C. $200,000 D. $100,000 plus the total of paid premiums
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 the policy value) C. $100,000 D. $300,000 (triple the amount of policy value)
C.
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 A. Waiver of cost of insurance. B. Accelerated benefits. C. Cost of living. D. Guaranteed insurability.
D.
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? A. The Consideration Clause B. Assignment Rights C. Owner's Rights D. The Entire Contract Provision
C.
Which of the following is TRUE about nonforfeiture values? A. A table showing nonforfeiture values for the next 10 years must be included in the policy. B. Policyowners do not have the authority to decide how to exercise nonforfeiture values. C. They are required by state law to be included in the policy. D. They are optional provisions.
C.
Under which of the following circumstances would an insurer pay accelerated benefits? A. An insured is looking for a way to put her daughter through college. B. A couple wants to build a house and would like to make a larger down payment. C. An insured is diagnosed with cancer and needs help paying for her medical treatment. D. A couple is nearing retirement and needs a steady stream of income.
C. *Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.
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? A. If the father is disabled for at least a year B. If the daughter is disabled for more than 3 months C. If the daughter is disabled for any length of time D. If the father is disabled for more than 6 months
D
What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military? A. Limited benefit B. Aviation C. Hazardous occupation D. War or military service
D.
Which of the following is TRUE about nonforfeiture values? A. They are required by state law to be included in the policy. B. They are optional provisions. C. A table showing nonforfeiture values for the next 10 years must be included in the policy. D. Policyowners do not have the authority to decide how to exercise nonforfeiture values.
A.
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. Nonforfeiture Clause B. Common Disaster Clause C. Spendthrift Clause D. Settlement Clause
B.
Nonforfeiture values guarantee which of the following for the policyowner? A. That the death benefit will be paid in a lump sum B. That the policy premiums will never increase C. That the cash value will not be lost D. That the dividends will be paid annually
C
All of the following are Nonforfeiture options EXCEPT A. Extended term B. Reduced paid-up C. Interest only D. Cash surrender
C.
Using a class designation for beneficiaries means A. Naming an estate as the beneficiary. B. Naming each beneficiary by his or her name. C. Naming beneficiaries as a group. D. Not naming beneficiaries.
C.
What is the purpose of a fixed-period settlement option? A. To provide a guaranteed income for life B. To provide a guaranteed amount of money each month C. To provide a guaranteed income for a certain amount of time D. To settle the insurance company's liability
C.
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? A. The death benefit will be smaller. B. The death benefit will be forfeited. C. The death benefit will be the same as the original face amount. D. The death benefit will be larger.
A
What type of insurance would be used for a Return of Premium rider? A. Decreasing Term B. Annually Renewable Term C. Increasing Term D. Level Term
C. *The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.
A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called A. Accelerated benefit rider. B. Living need rider. C. Payor rider. D. Cost of living rider.
D.
According to the entire contract provision, what document must be made part of the insurance policy? A. Buyer's Guide B. Agent's report C. Outline of coverage D. Copy of the original application
D.
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 A. Revocable designation. B. Irrevocable designation. C. Stirpes designation. D. Class designation.
D.
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A. It is increased when extra premiums are paid. B. It decreases over the term of the policy. C. It remains the same as the original policy, regardless of any differences in value. D. It is reduced to the amount of what the cash value would buy as a single premium.
D.
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? A. Fixed period B. Life income period certain C. Extended term D. Fixed amount
D.
If an insured under a variable life insurance policy dies, how will the insurer respond to outstanding policy loans? A. The policy is withheld until payments are met. B. The loan amount is charged to the beneficiaries. C. The loans are waived. D. The loan amounts are deducted from the death benefit.
D.