3. Life Policy Riders, Provisions, Options and Exclusions

Which of the following is TRUE about nonforfeiture values? AA table showing nonforfeiture values for the next 10 years must be included in the policy. BPolicyowners do not have the authority to decide how to exercise nonforfeiture values. CThey are required by state law to be included in the policy. DThey are optional provisions

C.They are required by state law to be included in the policy Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy

Which is true about a spouse term rider? AThe rider is usually level term insurance. BCoverage is allowed for an unlimited time. CThe rider is decreasing term insurance. DCoverage is allowed up to age 75.

A.The rider is usually level term insurance The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

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? AFixed amount option BInterest only option CLife income with period certain DJoint and survivor

B.Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Which of the following statements about a suicide clause in a life insurance policy is TRUE? ASuicide is excluded for a specific period of years and covered thereafter. BSuicide is covered for a specific period of years and excluded thereafter. CSuicide is covered as long as the policy is in force. DSuicide is excluded as long as the policy is in force

ASuicide is excluded for a specific period of years and covered thereafter. In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? AThe policy covers only the natural children of the insured. BEach child covered must show evidence of insurability. CIt is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. DIt is permanent insurance.

C.It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. Children's rider are term insurance covering all of the children in the family, including newly born children, and are convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

What is the waiting period on a Waiver of Premium rider in life insurance policies? A30 days B3 months C5 months D6 months

D.6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? AInsurable interest BModification clause COwnership provision DCollateral assignment

D.Collateral assignment The business owner could make a collateral assignment of his or her life insurance policy to the bank

An insured committed suicide one year after his life insurance policy was issued. The insurer will APay nothing. BRefund the premiums paid. CPay the policy's cash value. DPay the full death benefit to the beneficiary.

B.Refund the premiums paid If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium.

Which nonforfeiture option has the highest amount of insurance protection? AConversion BDecreasing Term CReduced Paid-up DExtended Term

D.Extended Term The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.

Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? AThe Consideration Clause BAssignment Rights COwner's Rights DThe Entire Contract Provision

C.Owner's Rights Policyowners can learn about their ownership rights by referring to the policy

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had concealed information during the application process. What can they do? APay a decreased death benefit BSue for the right to not pay the death benefit CPay the death benefit DRefuse to pay the death benefit because of the fraud

C.Pay the death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? AEntire contract clause BBeneficiary clause CConsideration clause DInsuring clause

D.Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate

The accelerated benefits provision will provide for an early payment of the death benefit when the insured ABecomes terminally ill. BNeeds to borrow money. CHas earned enough credits. DBecomes disabled.

A.Becomes terminally ill. The accelerated benefits provisions allow the owner to be advanced a significant portion of the death benefit when the insured is terminally ill.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? ANonforfeiture options BGuaranteed insurability option CDividend options DGuaranteed renewable option

B.Guaranteed insurability option The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability

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 AReduction of premiums. BPaid-up additions. COne-year term purchase. DAccumulation at interest.

B.Paid-up additions. When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

What type of insurance would be used for a Return of Premium rider? ALevel Term BDecreasing Term CAnnually Renewable Term DIncreasing Term

D.Increasing Term 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.

Which of the following riders would NOT cause the Death Benefit to increase? AAccidental Death Rider BPayor Benefit Rider CGuaranteed Insurability Rider DCost of Living Rider

B.Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount

If a life insurance policy has an irrevocable beneficiary designation, AThe owner can always change the beneficiary at will. BThe beneficiary cannot be changed. CThe beneficiary can only be changed with written permission of the beneficiary. DThe beneficiary cannot be changed for at least 2 years.

C.The beneficiary can only be changed with written permission of the beneficiary If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

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 AProjected interest rates. BFace amount of the policy. CThe insured's age at death. DThe beneficiary's life expectancy.

C.The insured's age at death The insured's age at death will not be considered, but the longer the life expectancy of the recipient, the lower the payments will be

Which of the following riders is often used in business life insurance policies when the policyowner needs to change the insured under the policy? AGuaranteed insurability rider BPayor benefit rider CSubstitute insured rider DTerm rider

C.Substitute insured rider The substitute insured rider, or change of insured rider, allows the policyowner to change the insured listed under the policy, subject to insurability. This rider is often used in business life insurance policies

Nonforfeiture values guarantee which of the following for the policyowner? AThat the death benefit will be paid in a lump sum BThat the policy premiums will never increase CThat the cash value will not be lost DThat the dividends will be paid annually

C.That the cash value will not be lost Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT AThe interest is credited at a rate specified by the policy. BThe policyholder has the right to withdraw the accumulations at any time. CThe interest is not taxable since it remains inside the insurance policy. DThe annual dividend is retained by the company.

C.The interest is not taxable since it remains inside the insurance policy The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? ALife income period certain BExtended term CFixed amount DFixed period

C.Fixed amount When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

Under an extended term nonforfeiture option, the policy cash value is converted to AA higher face amount than the whole life policy. BThe same face amount as in the whole life policy. CThe face amount equal to the cash value. DA lower face amount than the whole life policy.

B.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.

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.$100,000 The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

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 DThe face amount will be determined by the insurer.

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

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death? AThe wife of the deceased insured BThe former wife of the deceased insured CA minor son of the insured DA business partner of the insured

C.A minor son of the insured Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee

Which of the following riders would NOT cause the Death Benefit to increase? ACost of Living Rider BAccidental Death Rider CPayor Benefit Rider DGuaranteed Insurability Rider

C.Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

The interest earned on policy dividends is ATax deductible. B40% taxable, similar to a capital gain. CTaxable. DNontaxable. Correct! Incorrect! Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

C.Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the AJuvenile rider. BPayor rider. COther-insured rider. DChange of insured rider

COther-insured rider The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the AReinstatement clause. BInsuring clause. CMisstatement of Age clause. DIncontestability clause.

D.Incontestability clause If an insurer wishes to contest any statements on an application, they must do so within the first two years

What is the benefit of choosing extended term as a nonforfeiture option? AIt matures at age 100. BIt allows for coverage to continue beyond maturity date. CIt can be converted to a fixed annuity. DIt has the highest amount of insurance protection

D.It has the highest amount of insurance protection 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. The duration of the new term coverage lasts for as long a period as the amount of cash value will

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this? AWaiver of premium provision BIncontestable clause CGrace period DReinstatement provision

D.Reinstatement provision A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability

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? AAccidental death and dismemberment rider BGuaranteed insurability rider CChange of insured rider DTerm rider

D.Term rider Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner

All of the following are true regarding the guaranteed insurability rider EXCEPT AThe insured may purchase additional coverage at the attained age. BThe insured may purchase additional insurance up to the amount specified in the base policy. CIt allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. DThis rider is available to all insureds with no additional premium

D.This rider is available to all insureds with no additional premium The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

The paid-up addition option uses the dividend ATo purchase a one-year term insurance in the amount of the cash value. BTo reduce the next year's premium. CTo accumulate additional savings for retirement. DTo purchase a smaller amount of the same type of insurance as the original policy

D.To purchase a smaller amount of the same type of insurance as the original policy The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

If a settlement option is not chosen by the beneficiary or policyowner, which option will be used? AFixed period BFixed amount CLump sum DLife income

B.Fixed amount Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.

All of the following are dividend options EXCEPT APaid-up additions. BFixed-period installments. CAccumulated at interest DReduction of premium.

B.Fixed-period installments Fixed-period installments is a settlement option, and not one of the dividend options.

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? AIf the insured died from accidental means BIf the primary beneficiary predeceases the insured CThe primary and contingent beneficiaries share death benefits equally DWith the primary beneficiary's written consent

B.If the primary beneficiary predeceases the insured The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary

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? APremature death BReturn of premium CCost of living DDecreasing term

B.Return of premium The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? AThe insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. BThe insured's premiums will be waived until she is 21. CThe premiums will become tax deductible until the insured's 18th birthday. DSince it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected.

B.The insured's premiums will be waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

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.$200,000 The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member? ASpouse rider BChildren's rider CAdditional insured rider DFamily term rider

D.Family term rider A single rider that provides coverage on every family member is called a "family rider".

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? AThe insured's premiums will be waived until she is 21. BThe premiums will become tax deductible until the insured's 18th birthday. CSince it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. DThe insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums.

A.The insured's premiums will be waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

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? ASettlement Clause BNonforfeiture Clause CCommon Disaster Clause DSpendthrift Clause

C.Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary

Which of the following statements is TRUE concerning the Accidental Death Rider? AThis rider is only available to insureds over the age of 65. BIt is only available in group insurance. CIt will pay double or triple the face amount. DIt is also known as a triple indemnity rider

C.It will pay double or triple the face amount. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident.

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? ASpendthrift Clause BSettlement Clause CNonforfeiture Clause DCommon Disaster Clause

D.Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary

The interest earned on policy dividends is ANontaxable. BTax deductible. C40% taxable, similar to a capital gain. DTaxable.

D.Taxable Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

Which of the following information will be stated in the consideration clause of a life insurance policy? AThe time period allowed for the payment of premium BThe conditions for insurability CThe amount of premium payment DThe parties to the contract

C.The amount of premium payment The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments

Under which of the following circumstances would an insurer pay accelerated benefits? AAn insured is looking for a way to put her daughter through college. BA couple wants to build a house and would like to make a larger down payment. CAn insured is diagnosed with cancer and needs help paying for her medical treatment. DA couple is nearing retirement and needs a steady stream of income

C.An insured is diagnosed with cancer and needs help paying for her medical treatment 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? AIf the father is disabled for at least a year BIf the daughter is disabled for more than 3 months CIf the daughter is disabled for any length of time DIf the father is disabled for more than 6 months

D.If the father is disabled for more than 6 months Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months

All of the following are Nonforfeiture options EXCEPT ACash surrender BExtended term CReduced paid-up DInterest only

D.Interest only Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option

Which of the following is TRUE about nonforfeiture values? APolicyowners do not have the authority to decide how to exercise nonforfeiture values. BThey are required by state law to be included in the policy. CThey are optional provisions. DA table showing nonforfeiture values for the next 10 years must be included in the policy.

B.They are required by state law to be included in the policy. Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

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? ATerm rider BAccidental death and dismemberment rider CGuaranteed insurability rider DChange of insured rider

A.Term rider Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called AJoint and survivor. BFixed period. CFixed amount. DJoint life.

A.Joint and survivor. ! Incorrect! A joint and survivor option pays while either beneficiary is still living

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to APay back all premiums owed plus interest. BReceive payments for a fixed amount. CPurchase a single premium policy for a reduced face amount. DPurchase a term rider to attach to the policy.

C.Purchase a single premium policy for a reduced face amount When a whole life policy lapses or is surrendered prior to maturity, the cash value can be 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

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? ALimited BAviation CHazardous occupation DMilitary service or war

D.Military service or war There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war

If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a AGuaranteed insurability rider. BPaid-up additions option. CCost of living provision. DNonforfeiture option.

A Guaranteed insurability rider The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

All of the following statements concerning dividends are true EXCEPT AFavorable investment results generate higher dividends. BDividend amounts are guaranteed in the policy. CLower insurance company costs generate higher dividends. DThey stem from favorable underwriting experience.

B.Dividend amounts are guaranteed in the policy. Dividends cannot be guaranteed.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the APayor rider. BOther-insured rider. CChange of insured rider. DJuvenile rider.

B.Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

Which of the following factors determines the amount of each installment paid in a Life Income Option arrangement? AProjected income BRecipient's health and death benefits CProjected life insurance and health insurance DRecipient's life expectancy and amount of principal

D.Recipient's life expectancy and amount of principal The recipient's life expectancy and the amount of principal determine the amount of each installment paid in the Life Income Option arrangement

Which of the following riders is often used in business life insurance policies when the policyowner needs to change the insured under the policy? ATerm rider BGuaranteed insurability rider CPayor benefit rider DSubstitute insured rider

D.Substitute insured rider The substitute insured rider, or change of insured rider, allows the policyowner to change the insured listed under the policy, subject to insurability. This rider is often used in business life insurance policies

What is the other term for the cash payment settlement option? AFace amount BProceeds CLump sum DPrincipal amount

C.Lump sum Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

Which is TRUE about the cash surrender nonforfeiture option? AAfter the cash surrender, the insured is covered for a grace period of 1 month. BThe policy remains active for some time after the policyholder opts for cash surrender. CThe policyholder receives the original cash value of the policy. DFunds exceeding the premium paid are taxable as ordinary income.

D.Funds exceeding the premium paid are taxable as ordinary income The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called AGuaranteed insurability. BWaiver of cost of insurance. CPayor benefit. DWaiver of premium.

Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the ARevocable beneficiary. BSecondary beneficiary. CPrimary beneficiary. DIrrevocable beneficiary.

A.Revocable beneficiary The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? AThe policy beneficiary takes over the loan payments. BThe policy is rendered null and void. CThe balance of the loan will be taken out of the death benefit. DThe policy beneficiary receives the full death benefit.

C.The balance of the loan will be taken out of the death benefit. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit

An absolute assignment is a ATransfer of some ownership rights in a policy. BChange of beneficiary. CChange of insurer. DTransfer of all ownership rights in a policy

D.Transfer of all ownership rights in a policy. Absolute Assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured

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 AEqual to the original policy for as long a period of time that the cash values will purchase. BIn lesser amounts for the remaining policy term of age 100. CEqual to the cash value surrendered from the policy. DThe same as the original policy minus the cash value.

AEqual to the original policy for as long a period of time that the cash values will purchase. With this option, the cash value is used as a single premium to purchase the SAME face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? ACollateral assignment BInsurable interest CModification clause DOwnership provision

A.Collateral assignment The business owner could make a collateral assignment of his or her life insurance policy to the bank.

Which of the following is NOT typically excluded from life policies? ADeath due to plane crash for a fare-paying passenger BSelf-inflicted death CDeath that occurs while a person is committing a felony DDeath due to war or military service

A.Death due to plane crash for a fare-paying passenger Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline

Which of the following statements is TRUE about a policy assignment? AIt transfers rights of ownership from the owner to another person. BIt is the same as a beneficiary designation. CIt permits the beneficiary to designate the person to receive the benefits. DIt authorizes an agent to modify the policy.

A.It transfers rights of ownership from the owner to another person The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment).

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? A1 year B2 years C5 years D7 years

B.2 years The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? AFixed-amount BLife income with period certain CJoint and survivor DSingle life

B.Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

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? AReduction of premium BPaid-up addition CAccumulation at interest DCash option

B.Paid-up addition 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