Standard Provisions-Individual Policies Only

Beneficiary Succession

- primary beneficiary - contingent or secondary beneficiary - tertiary beneficiary

1 year term dividend option

Purchases a single premium, 1-year term benefit. Premiums are calculated at the insured's attained age; also referred to as the fifth dividend option.

Entire Contract Clause

states that the life insurance policy and attached application constitute the entire contract between the parties

Paid-Up Additions

the dividend is used to purchase a small amount of paid-up whole life insurance

Beneficiary provisions

the policy owner may name and change beneficiaries' unless an irrevocable beneficiary has been named

Free Look Provision / Right to Examine Provision

upon delivery of the policy, the policy owner has 10 days to review the contract and a full refund on payment would occur

A policy is applied for on September 2, accepted as an insurable risk on September 20, mailed to the producer on September 22, and delivered by the producer in-person to the policyowner on September 25. The free look begins September ___. A 25 B 20 C 2 D 22

A 25

The policy loan amount cannot exceed the ____________. A Available cash surrender value B The loan balance C The face amount of the policy D The cumulative premiums paid

A Available cash surrender value

Cash Dividend Option

A payment option where the insurer sends the policy owner a check in the amount of the policy dividend, retaining the face value of the policy in the account.

Suicide Clause

A provision stating that if the insured dies by suicide during the first two years the policy is in force, the death benefit will equal the amount of the premium paid.

Assignment

Assignment is the transfer of ownership. There are two types of assignments: absolute and collateral.

Interest only, life income with period certain, lump sum, and life income only are all forms of which of these life insurance policy options? A Dividend options B Beneficiary options C Settlement options D Nonforfeiture options

C Settlement options

Which of the following death benefit settlement options pays out a benefit that is 100% income tax-free to the recipient? A Fixed Period B Fixed Amount C Lump Sum D Life Income Only

C Lump Sum

Beneficiary Designations

Individual/Named Class or Classification Minors

Interest Only

Insurance company holds death benefit for a period of time and pays only the interest earned to beneficiaries

Paid-up Option (Dividend Option)

Pays off the policy more quickly than scheduled. If the company's overall performance declines, premiums may have to be resumed.

Absolute Assignment

Policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.

Policy Loan Rate Provisions

Policy loans with fixed rates can have a maximum fixed interest rate of 8% or less as stated in the policy. For policy loans with an adjustable (variable) interest rate, the maximum rate is based upon Moody's corporate bond yield average and is stated in the policy. The policy loan amount cannot exceed the available cash surrender value.

Dividend Options

The different ways in which the insured under a participating life insurance policy may elect to receive surplus earnings: in cash, as a reduction of premium, as additional paid-up insurance, left on deposit at interest, or as additional term insurance.

Grace Period

The grace period is the time period provided after the premium due date before a policy lapses. If the insured dies during this period, the death benefit is payable minus any premiums or loans due. The typical grace period is a month (30 or 31 days) unless state law specifies otherwise. If applicable, additional information about this topic is presented in the state law chapter. Coverage continues during the grace period, but if the premium is not paid, the policy lapses at the end of the grace period.

Owner's Rights (Ownership Provision)

The policyowner retains all rights in the policy. Unless the insured is also the policyowner, the insured does not have rights. The policyowner has the right to name or change revocable beneficiaries, borrow against the cash values or access living values, receive dividends and select among the dividend options made available, and assign the policy on an absolute or a collateral basis, to name a few. It is also the owner's responsibility to make the premium payments. The beneficiary does not have rights in the policy.

Reduced Paid-Up

This nonforfeiture option provides coverage for the longest period of time:

Common Disaster Clause

When insured and primary die at the same time, it is assumed that the primary died first

Accelerated Death Benefits

allows insureds who are terminally ill to collect part or all of their life insurance benefits before they die

Automatic Premium Loan

provision that allows any premium not paid by the end of the grace period to be paid automatically with a policy loan if sufficient cash value or dividends have accumulated

Policy Loans Provision (Cash Loans)

may be made in cash value policy once there is sufficient cash value to borrow against. In most policies , cash value must be made available to borrow against after 3 years.

Exclusions

provision in an insurance policy eliminating coverage for certain risks or limiting coverage

The nonforfeiture option that provides coverage for the shortest duration is: A Extended Term B Reduced Paid-Up C Automatic Premium Loan D Convertible Term

A Extended Term

A contingent beneficiary has the right to: A Receive the policy proceeds if the primary beneficiary predeceases the insured B Prevent the policyowner from taking a loan against the cash value C Share in the death benefit with the primary beneficiary D Receive the policy proceeds if the primary beneficiary is a minor child

A Receive the policy proceeds if the primary beneficiary predeceases the insured

Q has a $100,000 Accidental Death & Dismemberment policy. Following Q's accidental death, the insurer learns Q's actual age was different than the age recorded on the application. What is the effect of this discovery? A The death benefit is paid, but adjusted to what premiums paid would have bought using the correct age B The policy is void since the insured made a misstatement C The death benefit is paid since the producer is responsible for the accuracy of the application D The additional premium will be deducted from the death benefit

A The death benefit is paid, but adjusted to what premiums paid would have bought using the correct age

What is the primary advantage to the policyowner in the reinstatement of a life insurance policy? A The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium B The insured is not required to prove insurability if under age 40 C The insurance company cannot start a new period of contestability D All policy loans that were outstanding at the time of lapse are forgiven and full cash value is restored

A The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium

Insuring Clause

A general statement that identifies the basic agreement between the insurance company and the insured, usually located on the first page of the policy.

Consideration Clause

A part of the insurance contract that states that both parties must give something of value for the transfer of risk, and specifies the conditions of the exchange.

Partial Withdrawals or Partial Surrenders

A partial withdrawal of cash value is permitted in a Universal or a Variable Universal Life policy. A partial withdrawal is considered a partial surrender of the policy. A partial surrender is actually paid from the policy value and either reduces the amount of the death benefit or the amount of cash value in the policy. Since this is not considered a loan, annual interest is not charged. Taxation applies to any interest on the cash value paid out as a withdrawal. In other words, any amount paid in excess of the premium is subject to taxation. When a partial withdrawal is made, the policy's cash or account value will be reduced by the amount of the withdrawal. There may be a surrender or withdrawal charge associated with the withdrawal. The insurer may limit the number of withdrawals that can be made annually or the amount of the withdrawal specifying minimums and maximums.

Collateral Assignment

Assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.

An insured with a participating life insurance policy receives an annual dividend check in the mail. He must have selected which Dividend Option: A Accumulate at interest B Cash C Dividend reinvestment D Premium reduction

B Cash

The nonforfeiture option that provides the most amount of coverage is: A Cash surrender value B Extended Term C Reduced Paid-Up D Automatic Premium Loan

B Extended Term

Dividend options do not include which of the following choices? A Reduce premiums due B Lifetime income C Paid-up additional insurance D Refund in cash

B Lifetime income

The grace period in a life insurance policy is typically 31 days and provides for the: A Payment of the premium to be received after its due date with a maximum 5% penalty B Payment of the premium to be received after its due date without a penalty or lapse in coverage C Insurance company to delay payment of the death benefit until it can determine the validity of the proof of death D Policyowner to reinstate the policy before it lapses

B Payment of the premium to be received after its due date without a penalty or lapse in coverage

A policyowner who wishes to maintain all rights in the policy should designate a(n): A Contingent beneficiary B Revocable beneficiary C Irrevocable beneficiary D Primary beneficiary

B Revocable beneficiary

Which statement is FALSE regarding Nonforfeiture Options? A They protect the policyowner against total loss of benefits if the policy should lapse or be cancelled B They are used when the insured lives to the endowment date of the policy or at the insured's death C They add flexibility to a cash value policy D The 3 nonforfeiture options are Cash Surrender, Reduced Paid-Up, and Extended Term

B They are used when the insured lives to the endowment date of the policy or at the insured's death

What is one of the main reasons for a Universal Life policy to have a surrender charge? A It is a way to recoup interest paid, but not earned by the policyholder B This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy C It encourages large additional premium deposits from policyowners D It motivates the producer to properly sell the policy

B This provides a means for the insurer to recapture their upfront expenses involved in issuing the policy

If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due. A Reinstatement B Incontestability C Grace D Settlement

C Grace

The incontestability clause states that after 2 years the: A Insurer will only pay for suicide if the insured was insane at the time B Insurer will not argue about which beneficiary is primary or contingent C Insurer will not refuse to pay a death claim based on misinformation in the original application for insurance D Policyowner cannot sue the insurer for misstatements made by the producer in the sale of the policy

C Insurer will not refuse to pay a death claim based on misinformation in the original application for insurance Incontestability means that the insurance company cannot use the statements in the original application for insurance as a reason to avoid paying a death claim. The policy becomes incontestable after two years in most states.

Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use? A Tertiary beneficiary B Irrevocable beneficiary C Revocable beneficiary D Contingent beneficiary

C. Revocable beneficiary

The insuring agreement in a life insurance policy states the: A Policyowner will indemnify the insurance company the policy proceeds if the beneficiary is not named in the application B Insurance company will not pay death claims in the event of suicide or other exclusion named in the policy unless all premiums are paid in advance C Insurance company may refuse to pay a death claim in the event a mistake is found in the original application for insurance at the time of the insured's death D Insurance company is obligated to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force

D Insurance company is obligated to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force

A beneficiary wants a guarantee that benefits will be paid for a period of 10 years or life whichever time period is greater. Which of the following options should the beneficiary select? A 10-year Period Certain B Joint Life Income C Fixed Amount D Life with 10-year Period Certain

D Life with 10-year Period Certain

Which of the following two documents always constitutes part of the entire contract? A Policy and Attending Physician's Statement B Application and Agent's Report C Policy illustration and Agent's Report D The application and policy

D The application and policy

Policy loan provisions include all of the following, EXCEPT: A Outstanding loans will be deducted from the face amount at time of claim B Unpaid interest is added to the value of the loan C Interest is charged annually D The death benefit of a policy is automatically reduced when a loan is requested

D The death benefit of a policy is automatically reduced when a loan is requested

Jerry has selected a Life Income 10 year Period Certain. What happens to the income payments if he dies in year 4 after starting to receive income benefit payments? A The payments are reduced by 40% then paid out to the surviving beneficiary for the remainder of their life B The payments are increased by 60% and paid out for the balance of the time remaining on the guaranteed benefit C The payments end immediately with any residual values retained by the insurer D The payments continue for the balance of the Period Certain to a named beneficiary

D The payments continue for the balance of the Period Certain to a named beneficiary

Which of the following statements about policy dividends is TRUE? A Nonparticipating policies are eligible for dividends B Dividends are guaranteed and taxable as income when received C Dividends can only be withdrawn at certain specified intervals D There are several dividend options to choose from

D There are several dividend options to choose from Dividends are declared under participating policies. They are not guaranteed, and if received, the dividend itself is generally not taxable. They can be withdrawn any time there is an accumulation.

Which of the following policies allow for a partial withdrawal or partial surrender? A Variable Whole Life B Current Assumption Life C Traditional Whole Life D Universal Life

D Universal Life

premium reduction dividend option

Dividends are applied toward the next premium due. The same could be accomplished if the policyowner received the dividends in cash and remitted the full premium. If the declared dividends equal or exceed the premium, the premium payment may be suspended.

Reinstatement

If a policy has lapsed unintentionally due to nonpayment, it can be reinstated by the owner. The reinstatement time period is typically 3 years from lapse, but can be as long as 5 years. In order to reinstate, the insured must provide evidence of insurability and the owner must pay all back premiums from the date of lapse plus interest. Reinstatements are designed to put a policy back in force as if the lapse never occurred. Upon reinstatement, a new incontestability period takes effect.

Misstatement of Age or Sex Provision

If the insured's age or sex is misstated in an application for insurance, the benefit payable usually is adjusted to what the premiums paid should have purchased.

accumulate at interest

The Dividend Option where the policyowner leaves the dividends with the insurer to invest and earn interest.

Surrenders

The owner of a cash value policy may surrender the entire policy. This action will cancel the insurance coverage. The policyowner is entitled to receive the cash surrender value in the policy.

Mode of Premium

This provision addresses the frequency of premium payments (monthly, quarterly, semiannually or annually), and to whom the premiums are payable. The more frequent the payment, the greater the cost. The policyowner has the right to change the premium mode.

Fixed Amount Settlement Option

Upon maturity of an insurance policy the beneficiary receives periodic payments of a set dollar amount from the policy proceeds.

Fixed Period Settlement Option

Upon maturity of an insurance policy, the beneficiary receives income from the policy proceeds for a stated period of time.

Life Income Settlement Option

Upon maturity of an insurance policy, the policy proceeds are used to purchase an immediate Life Annuity payable in periodic payments to the beneficiary for the rest of his/her life.

Cash Surrender

Upon surrendering the policy back to the insurer, the policy owner will receive the cash surrender value stated in the policy less any outstanding loans and accrued interest. Any amount that exceeds the premiums paid into the policy will be taxable as ordinary income. The insured no longer has insurance coverage if this option is selected.

Incontestability Clause

a provision stating that the insurer cannot dispute the validity of a policy after a specified period. 2years of a policy

Extended Term Option

use the policy's cash value to purchase a term insurance policy in an amount equal to the original policy's face value for as long a period as the cash value will purchase.