2 - Life Insurance Policies - Provisions, Options and Riders Chapter Exam 2

All of the following are standard policy provisions found in life insurance policies EXPECT? A) Annual yield clause. B) Entire contract clause. C) Consideration clause. D) Incontestable clause.

A) Annual yield clause. Annual yield clause is not a standard policy provision.

If the extended term option is selected, the amount of insurance will be? A) equal to the cash value. B) more than the original policy. C) less than the original policy. D) the same as the original policy.

D) the same as the original policy. When an applicant surrenders their whole life policy and selects the extended term non-forfeiture option, the new term policy will have the same face amount as the original whole life policy.

All of the following are standard life insurance policy nonforfeiture options EXCEPT? A) Reduced paid-up (permanent). B) 1-year term insurance. C) Cash surrender. D) Extended term insurance.

B) 1-year term insurance. Standard nonforfeiture options for whole life insurance policies are: cash surrender, extended term insurance, and reduced paid-up insurance.

All of the following are "rights of ownership" given to the owner of a life insurance policy EXCEPT the right to? A) cancel the policy and select a nonforfeture option. B) legally change any provision of the policy. C) assign ownership of the policy to someone else. D) select how death proceeds will be paid to the beneficiary.

B) legally change any provision of the policy. Rights of Ownership do not allow the changing of a provision in a policy.

Tom has a $10,000 whole life policy and took out a policy loan of $500 using his cash value. If Tom were to die before paying back the policy loan, how much would Tom's beneficiary receive from the death benefit of his policy? A) $9,000. B) $10,500. C) $10,000. D) $9,500.

D) $9,500. Tom's beneficiary would receive the amount of the policy's death benefit minus any loans, which in this case is $500, making the death benefit $9,500.

Myron has a whole life policy that has accrued cash value. He let his payments go unpaid beyond the grace period, yet his policy does not lapse and coverage continues. Which provision was applied in this instance? A) Assignment provision. B) Policy loan provision. C) Accelerated benefits provision. D) Automatic premium loan provision.

D) Automatic premium loan provision. The automatic premium loan provision authorizes the insurer to withdraw from the policy's cash value the amount of premium due if the premium has not been paid by the end of the grace period.

Which of the following statements is INCORRECT about a contract receiving a waiver of premium benefit? A) It usually requires a waiting period. B) It can apply to long-term illnesses. C) The insured must be totally disabled. D) The policyholder must continue to pay premiums.

D) The policyholder must continue to pay premiums. This is an incorrect statement. Waiver of premium allows premiums to be waived due to total disability.

Who qualifies for more time if their premiums are not paid during the grace period? A) Disabled. B) Those age 59 1/2 and older. C) Juveniles. D) Those age 64 years and older.

D) Those age 64 years and older. Anyone who is 64 years or older receives an additional 21 days after the original grace period has expired to pay their premiums.

All of the following items are included in the entire contract of an insurance policy EXCEPT the? A) medical examination report. B) policy. C) attached riders. D) application.

A) medical examination report. The medical examination report is not part of the entire contract.

A policyowner may take all of the following actions with dividends earned from a life policy EXCEPT? A) Purchase a paid-up addition. B) Borrow against the dividends. C) Leave them to accumulate interest. D) Purchase a one-year term policy.

B) Borrow against the dividends. Borrowing against dividends is not a dividend option.

Under a collateral assignment, the policy is assigned to a? A) Fiduciary. B) Creditor. C) Debtor. D) Trustee.

B) Creditor. A collateral assignment is one in which the policy is assigned to a creditor, as security or collateral, for a debt. When the debt is repaid, the policyowner is entitled to the return of the rights assigned.

Under the reinstatement provison, most insurers require that the policyowner meet all of the following requirements EXCEPT? A) Pay any outstanding loans. B) Pay back all accrued dividends. C) Pay all back premiums. D) Pay interest of past-due premiums.

B) Pay back all accrued dividends. Paying back all accrued dividends is not a requirement of the reinstatement provision.

Which policy rider is normally available on juvenile policies providing for waiver of premiums should the adult payor die or became totally disabled? A) Cost of Living Rider. B) Payor Rider. C) Automatic Premium Loan Rider. D) Return of Premium Rider.

B) Payor Rider. A payor provision (or rider) is usually available on juvenile policies. This will waive future premiums should the adult premium-payor die or become totally disabled.

Which policy rider prevents a policy from lapsing for nonpayment of premiums while the insured is disabled? A) Guaranteed insurability rider. B) Automatic premium loan rider. C) Payor rider. D) Waiver of premium rider.

D) Waiver of premium rider. Under the waiver of premium, if the company determines that the insured is totally disabled, the policyowner is relieved of paying premiums as long as the disability continues.

Which of the following terms defines the authority given to an agent to transact business on behalf of the insurer? A) license. B) certificate of authority. C) insurance contract. D) appointment.

D) appointment. Appointment is the authorization or certification of an agent to act for or represent an insurance company.

"The insurance company agrees, in accordance with the provision of this policy, to pay to the beneficiary the death proceeds upon receipt at the principal office of due proof of the insured's death prior to the maturity date". This statement would be an example of a(an)? A) entire contract. B) consideration clause. C) free look. D) insuring clause.

D) insuring clause. The insuring clause states that insurance companies promise to pay benefits when the insured dies.

Which of the following statements regarding the assignment of a life insurance policy is NOT correct? A) Absolute assignment involves a complete transfer, giving the assignee full control over the policy. B) Under a collateral assignment, policy proceeds in excess of the collateral amount pass to the insured's beneficiary. C) All beneficiaries must approve an assignment of a life insurance policy. D) Under a collateral assignment, a creditor is entitled to be reimbursed out of the policy's proceeds only for the amount of the outstanding credit balance.

C) All beneficiaries must approve an assignment of a life insurance policy. This is an incorrect statement. Beneficiaries do not need to approve an assignment of a life insurance policy.

Which of the following is a common life insurance policy exclusion? A) Death by accidental means. B) Death by illness. C) Death by commercial aviation. D) Death from war.

D) Death from war. A war exclusion provision in a life insurance policy states death benefits will not be paid if the insured dies from war-related causes. Normally there is a return of premium plus interest paid.

Under what type of assignment can an assignee receive full control of the policy and right to policy benefits? A) Beneficiary. B) Absolute. C) Collateral. D) Irrevocable.

B) Absolute. With absolute assignment the assignee receives full control of the policy and rights to the policy benefits.

Which type of whole life policy is characterized by premiums that vary to reflect the insurer's changing assumptions with regard to its death, investment, and expense factors? A) Interest-Sensitive Whole Life. B) Limited Pay Whole Life. C) Graded Premium Whole Life. D) Modified Whole Life.

A) Interest-Sensitive Whole Life. Interest-sensitive whole life can have changing premiums or cash values that vary to reflect the insurer's changing assumptions regarding its death, investment, and expense factors.

All of the following are considered "rights of ownership" EXCEPT? A) Right to purchase insurance company stock for a reduced price. B) Right to change the beneficiary. C) Right to cancel the policy and select a nonforfeiture option. D) Right to assign ownership to someone else.

A) Right to purchase insurance company stock for a reduced price. A policyowner does have the right to change the beneficiary, cancel the policy, select the nonforfeiture option, and assign ownership to someone else.

Under an absolute assignment, the transfer is? A) complete and irrevocable. B) incomplete and irrevocable. C) incomplete and revocable. D) complete and revocable.

A) complete and irrevocable. Under an absolute assignment, the transfer is complete and irrevocable. The assignee receives full control over the policy and full rights to its benefits.

Dividends may be paid on a participating policy if the company's operations result in? A) divisible surplus. B) common stock of dividends. C) capital stock. D) legal reserves.

A) divisible surplus. Essentially, policy dividends represent a "refund" of the portion of premium that remains after the company has set aside the necessary reserves and has made deductions for claims and expense.

All of the following are incuded in a waiver of premium rider EXCEPT? A) the policy must be for permanent insurance. B) cash values continue to be available. C) disability must be total and permanent as defined by the contract. D) the insured reaches a specified age.

A) the policy must be for permanent insurance. A waiver of premium rider may be added to both term and permanent insurance policies.

Nonforfeiture options provide policyowners with all of the following options EXCEPT? A) using the cash value to fund an automatic premium loan. B) using the cash value to buy extended term insurance. C) taking the policy's surrender value. D) using the cash value to buy paid-up insurance.

A) using the cash value to fund an automatic premium loan. Using the cash value to fund an automatic premium loan is not a nonforfeiture option.

If a premium payment is not received during the grace period, the following will be used to make the premium payments? A) Assignment. B) Automatic premium loan provision. C) Automatic loan approval. D) Free-look.

B) Automatic premium loan provision. The automatic premium loan provision will automatically start making the premium payments if a payment is not received during the grace period. These premium payments will be taken out of the cash value of the policy.

What happens to the death proceeds of an insured if he/she commits suicide after the suicide clause has passed? A) Half of death proceeds will be paid. B) Death proceeds fully paid. C) Death proceeds not paid, nothing refunded. D) Death proceeds not paid, premiums are refunded.

B) Death proceeds fully paid. If an insured takes his own life after the policy has been in force for the period specified in the suicide clause, the company will pay the entire proceeds, just as if death were from a natural cause.

Which of the following is CORRECT about policy dividends? A) Dividends are guaranteed by the company's policy illustration. B) Dividends may vary from the company's policy illustration. C) Dividends are paid from participating policies issued only by stock companies. D) Dividends are considered taxable income as are common stock dividends.

B) Dividends may vary from the company's policy illustration. Dividend returns are not guaranteed and this must be clearly stated in the company's dividend illustration.

Which life insurance provision allows the policyholder to inspect and, if dissatisfied, return the policy for a full refund? A) Grace period. B) Free look. C) Facility of payments. D) Waiver of Premium.

B) Free look. The free look provision allows the policyholder a certain period of time to review the policy and return it for a full refund.

Which of the following best describes life insurance policy dividends? A) Policy dividends represent earnings to shareholders who hold stock in insurance companies. B) Policy dividends are an intentional return of a portion of the premiums paid. C) Policy dividends provide the policyowners with a level, annual cash flow. D) Policy dividends affect the costs of virtually all insurance policies issued today.

B) Policy dividends are an intentional return of a portion of the premiums paid. When a participating (par) company has a year end surplus from positive operating or investment income, they will pay dividends. Policy dividends are a return of a portion of the premiums paid by the policyowner. Note: premiums paid on participating (par) policies are more expensive than those paid for nonparticipating (nonpar) policies.

Which of the following are characteristics of a variable universal life policy? A) Premiums are fixed, investments held in separate account. B) Premiums are flexible, investments held in separate account. C) Premiums are flexible, investments held in general account. D) Premiums are fixed, investments held in general account.

B) Premiums are flexible, investments held in separate account. Premiums for variable universal life insurance (VUL) are flexible and may be changed by the consumer as needed. The investment feature usually includes "sub-accounts" which provide exposure to the risks involved with stocks and bonds.

Paying all back premiums, interest, and any outstanding loans along with providing insurability may be required as part of the? A) Free look. B) Reinstatement provision. C) Waiver of premium. D) Grace period.

B) Reinstatement provision. In order to reinstate a policy that was not paid for before the end of the grace period, an insurer may require all of the following in order to reinstate the policy: pay all back premiums, interest, and any outstanding loans. They may also need to provide evidence of insurability.

What provision is found at the beginning of the policy and contains the application? A) Consideration provision. B) Insuring provision. C) Incontestable provision. D) Entire contract provision.

D) Entire contract provision. The entire contract provision states that all of the policy documents, application, and any riders make up the entire contract.

An error in age was discovered after the death of an insured. The insured was older than previously assumed. How would an insurance company handle such a situation? A) The amount of death proceeds would be increased to reflect the statistically diminished mortality risk. B) The amount of death proceeds would be reduced to reflect whatever benefit the premium paid would have purchased at the correct age. C) The beneficiary would be required to pay all underpaid back premiums before the death benefit is received. D) adjustment would be made because the contestable period had passed.

B) The amount of death proceeds would be reduced to reflect whatever benefit the premium paid would have purchased at the correct age. The amount of death proceeds would be reduced to reflect the insured's increased mortality risk because of being at an older age than originally stated.

What happens when the Reduced Paid-Up insurance option is selected by a policyowner? A) The policyowner pays the same premium but may skip a stated number of years. B) The policyowner pays no more premiums but the face amount is decreased. C) The policyowner pays more premium and the policy is paid up sooner. D) The policyowner pays no more premiums and the policy is converted to extended term insurance.

B) The policyowner pays no more premiums but the face amount is decreased. The cash value is used as the premium for a single-premium whole life policy, at a lesser-face amount than the original policy.

Under a universal life policy, a specific percentage of all premiums must be used to purchase death benefits or the policy will? A) be terminated. B) not receive favorable tax benefits on its cash value. C) be converted to straight whole life. D) be classified as an MEC.

B) not receive favorable tax benefits on its cash value. A specific percentage of all premiums must be used to purchase death benefits or the universal life policy will not receive favorable tax treatment on its cash value.

If an insured becomes disabled and is unable to work, the waiver of premium rider would begin paying the premiums after the? A) grace period. B) waiting period (usually 90 days or 6 months). C) time covered under the payor benefit. D) time covered under the automatic premium loan benefit.

B) waiting period (usually 90 days or 6 months). An insured generally must be seriously disabled for a certain length of time, called the "waiting period" (usually 90 days or six months). The policyowner continues paying premiums during the waiting period.

The amount and frequency of premium payments are all part of the? A) Insuring clause. B) Entire contract. C) Consideration clause. D) Incontestable clause.

C) Consideration clause. The consideration clause explains the amount and frequency of premium payments for the applicant.

Which of the following states that the application is part of the contract? A) Incontestable clause. B) Insuring clause. C) Entire contract clause. D) Consideration clause.

C) Entire contract clause. The entire contract is found at the beginning of the policy and states that the policy documents, the application, and any attached riders are a part of the entire contract.

Which of the following provisions is found at the beginning of every life insurance policy issued? A) Suicide B) Reinstatement. C) Entire contract. D) Assignment.

C) Entire contract. The entire contract provision, found at the beginning of the policy, states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract.

All of the following are dividend options EXCEPT? A) Accelerated endowment. B) Paid up additions. C) Fixed period. D) Cash.

C) Fixed period. Fixed period is not considered a dividend option.

Which of the following allows 30 days during which premiums may be paid to keep a policy in force? A) Waiting period B) Reinstatement clause C) Grace period D) Incontestable clause

C) Grace period A life insurance company normally provides a 30 day grace period during which premiums have to be paid.

What authority is not specifically granted but may be needed by the agent to transact business of the principal? A) Express. B) Contract. C) Implied. D) Apparent.

C) Implied. Implied Authority is not specifically granted but may be needed by the agent to transact business of the principal.

What part of the insurance policy states the promise of the insurance company to pay the death benefit? A) Reinstatement Provision. B) Consideration clause. C) Insuring clause. D) Entire contract.

C) Insuring clause. The insuring clause is the insurance company's commitment to pay the death benefit.

Which of the following is NOT a nonforfeiture option? A) Extended term. B) Reduced paid-up. C) Paid-up additions. D) Cash.

C) Paid-up additions. Paid-up additions are not considered a nonforfeiture option.

All of these are considered acceptable dividend options permitted by insurers EXCEPT? A) Take dividends in cash. B) Allow dividends to accumulate with interest. C) Use dividends to purchase company stock. D) Use dividends to purchase one year term insurance.

C) Use dividends to purchase company stock. Policyowners are generally permitted by insurers to apply their dividends with one of five options. Purchasing company stock is not considered one of those five options.

When an insured missed a payment on a life policy, the insurance company deducted the overdue amount from the cash value. Which optional rider has been applied? A) Guaranteed insurability. B) Payor benefit. C) Waiver of premium. D) Automatic premium loan.

D) Automatic premium loan. The automatic premium loan rider allows the insurer to pay premiums from the policy's cash value if premiums have not been paid by the end of the grace period. These deductions from cash values are treated as "loans" and are charged interest.

The amount and frequency of premium payments are contained in which clause of a life insurance policy? A) Insuring clause. B) Reinstatement clause. C) Payor clause. D) Consideration clause.

D) Consideration clause. The consideration clause of a life insurance policy specifies the amount and frequency of premium payments.

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

D) It permits the insured to reject the policy with a full refund. The free-look provision, required by most states, gives policyowners the right to return the policy for a full premium refund within a specified period of time if they decide not to purchase the insurance.

Which policy rider waives payment of future premiums in the event the parent-owner of a policy on a juvenile becomes disabled and unable to make the premiums? A) Automatic premium loan. B) Waiver of premium. C) Guaranteed insurability. D) Payor provision.

D) Payor provision. A payor provision waives payment of future premiums in the event the parent-owner of a policy on a juvenile becomes disabled and unable to make the premiums.

A typical incontestability clause specifies that a contract will not be voidable after two years due to a misstatement. All of these are an exception to that EXCEPT? A) impersonation of the applicant by another. B) intent to murder. C) no insurable interest. D) concealment of serious illness.

D) concealment of serious illness. Every insurance company has the right to contest a death claim on a life insurance policy during the first two years. After that, the company cannot dispute any misstatements made by the applicant. The three exceptions to the incontestability clause are: intent to murder, no insurable interest, and impersonation of the applicant by another.