3.2 - policies provisions, options, and riders
An insurer may normally delay the payment of a cash value loan or surrender value for up to: - 2 months - 4 months - 6 months - 8 months
6 months
A policyowner may generate taxable income from which of the following Dividend Options? - nonforfeiture - cash - accumulation at interest - reduced premium
Accumulation at Interest
S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made? - automatic policy loan - assignment - grace period - waiver of premium
Automatic Policy Loan
Which life insurance rider typically appears on a Juvenile life insurance policy? - decreasing term rider - inflation rider - payor benefit rider - waiver of premium rider
Payor Benefit rider
Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled? - family maintenance clause - payor clause - assignment provision - automatic premium loan provision
Payor clause
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called: - reinstatement - grace period - automatic premium loan - waiver of premium
Reinstatement
J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions? - payor clause - automatic premium loan provision - reinstatement provision - waiver of premium
Reinstatement provision
The free-look provision begins: - upon the date of the sales presentation - upon receipt of the policy by the producer - upon receipt of the policy by the policyowner - upon the completion of the application
Upon receipt of the policy by the policyowner
Whose life is covered on a life insurance policy that contains a payor benefit clause? - parent - beneficiary - child - spouse
Child
Which rider provides coverage for a child under a parent's life insurance policy? - spouse term rider - base insured rider - payor benefit rider - child term rider
Child term rider
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period? - refund of all premiums paid, plus interest - refund of all premiums paid - full face amount minus any past due premiums - full face amount
Full face amount minus any past due premiums
All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT: - Fixed Period - Interest Only - Fixed Amount - Life Income
Interest Only
Which of these are NOT an example of a Nonforfeiture option?
Life income
A Nonforfeiture clause gives the policyowner: - lifetime income - guaranteed values even if the policy has lapsed - unemployment benefits - cost of living allowances
guaranteed values even if the policy has lapsed
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it? - modified whole life - 20-pay life - decreasing term - endowment
Decreasing Term
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary? - return of premiums paid - cash value plus interest - $20,000 death benefit - face amount plus interest
$20,000 death benefit
T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?
$50,000
P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary? - premiums paid plus interest - nothing. claim will be denied - $50,000 minus any outstanding policy loans - $100,000 because the cause of death was accidental
$50,000 minus any outstanding policy loans
A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct? - straight life accumulates faster than limited-pay life - 20-pay life accumulates cash value faster than straight life - cash value accumulation of both 20-pay life and straight life depend on the insurer's financial rating - 20-pay life and straight life accumulate cash value at the same rate
20-Pay Life accumulates cash value faster than Straight LIfe
P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount? - accelerated benefits provision - entire contract - accidental death & dismemberment clause - consideration clause
Accidental Death and Dismemberment clause
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n): - term rider - accidental death & dismemberment rider (ad&d) - family rider - annuity
Accidental Death and Dismemberment rider
What does the insuring agreement in a Life insurance contract establish? - an insurer's basic promise - the insurance policy's grace period - an insurer's required reserve amount - the obligations of the beneficiary
An insurer's basic promise
A policy loan is made possible by which of these life insurance policy features? - extended term provision - cash value provision - owner's rights provision - consideration clause
Cash value provision
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take? - claim will be denied - claim will be paid in full - claim will be partially paid - claim will be decided by an arbitrator
Claim will be denied
In a life insurance policy, which feature states that the policy will not cover certain risks? - exception - exclusion - ejection - expulsion
Exclusion
A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following? - critical illness - terminal illness - inability of the insured to perform more than 2 activities of daily living (ADL's) - inability to maintain insurance premiums due to enemployment
Inability of the insured to perform more than 2 activities of daily living
The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n): - entire contract provision - consideration clause - insuring agreement - assignment agreement
Insuring agreement
In a life insurance contract, an insurance company's promise to pay stated benefits is called the: - insuring clause - consideration clause - entire contract - owner's rights
Insuring clause
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider? - waiver of premium - long term care - accelerated death benefit - accidental
Long term care
Which of these is NOT considered to be a right given to a policyowner? - Surrendering the policy's cash value - Modify a provision in the insurance contract - Assignment of ownership - Change the beneficiary, if revocable
Modify a provision in the insurance contract
Which of the following statements is CORRECT about accelerated death benefits? - full face amount is available as an accelerated benefit - those on social security disability automatically qualify for this benefit - this provision is usually provided with an increase in premium - must have a terminal illness to qualify
Must have a terminal illness to qualify
All of these statements concerning Settlement Options are true, EXCEPT: - Increased proceeds can be provided through accumulation of interest - Rapid depletion of proceeds can be avoided - Proceeds can be administered by the insurance company - Only the beneficiary may select
Only the beneficiary may select
In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy? - nonforfeiture - entire contract - insuring clause - owner's rights
Owner's Rights
What benefit does the Payor clause on a Juvenile Life policy provide? - allows payor to assign ownership in the event payor becomes disabled - allows payor to increase face amount without providing evidence of insurability - premiums are waived if juvenile becomes disabled - premiums are waived if payor becomes disabled
Premiums waved if payor becomes disabled
Which of these Nonforfeiture Options continue a build-up of cash value? - waiver of premium - extended term - reduced paid-up - cash surrender
Reduced Paid-Up
S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy? - accelerated death benefit rider - return of premium rider - family income rider - term rider
Return of premium rider
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options? - modified whole life - variable life - universal life - adjustable life
Variable Life
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? - joint life - adjustable life - variable universal life - universal life
Variable Universal Life
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take? - void the policy if found during the Contestable period - void the policy, no matter when it is discovered - void the policy at any time only if it is found to be material - void the policy only if it is discovered during the Contestable period and proven to be material
Void the policy only if it is discovered during the Contestable period and proven to be material
A life insurance policy which ensures that the premium will be paid fi the insured becomes disabled has what kind of rider attached? - accelerated benefits - waiver of premium - cost of living - return of premium
Waiver of Premium
A Return of Premium life insurance policy is: - a nonforfeiture option - whole life and increasing term - interest-sensitive - variable life
Whole life and Increasing term
A Term Life rider offers the insured: - additional life coverage - cash value - long-term care coverage - disability protection
additional life coverage
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage? - 10 year increments - at future dates specified in the contract with proof of insurability required - at future dates specified in the contract with no evidence of insurability required - at any time while policy is active
at future dates specified in the contract w no evidence of insurability required
What action will an insurer take if an interest payment on a policy loan is not made on time? - cancel the policy if not paid within the grace period - automatically add the amount of interest due to the loan balance - subtract from any dividends - disallow any further loans
automatically add the amount of interest due to the loan balance
S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT: - type of life insurance - S's attained age - dividend amount used toward purchase - beneficiary's age
beneficiary's age
Variable Whole Life Insurance can be described as: - both an insurance and securities product - an insurance product only - a securities product - the insurance company assumes the investment
both an insurance and securities product
The incontestable clause allows an insurer to: - disallow a change of ownership throughout the Contestable period - disallow a change of beneficiary during the Contestable period - contest a claim at anytime if the cause of death was accidental - contest a claim during the contestable period
contest a claim during the contestable period
All of these statements about the Waiver of Premium provision are correct EXCEPT: - A waiting period must pass before becoming eligible for benefits - Waiver of Premium is available on both permanent & term insurance policies - Insured must be eligible for Social Security disability for claim to be accepted - Insured must be totally disabled to qualify
insured must be eligible for Social Security disability for claim to be accepted
The Accidental Death and Dismemberment provision in a life insurance policy would pay additional benefits if the insured: - dies of natural causes - becomes critically ill - becomes chronically ill - is blinded in an accident
is blinded in an accident
What is the Suicide provision designed to do? - decline an applicant who is contemplating suicide - safeguard the insurer from an applicant who is contemplating suicide - protect the insurer from ever paying a claim that results from suicide - allows the insurer the option to pay a death benefit in the event of suicide
safeguard the insurer from an applicant who is contemplating suicide
Typically a life insurance death benefit is paid by a lump-sum payment. A(n) __________ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment. - settlement - dividend - conversion - aleatory
settlement
The advantage of reinstating an original life policy is: - premiums are based on the current age of the insured - premiums are based on a younger age - interest charged on policy loans will be lowered - new incontestible period will begin
the premiums are based on a younger age
A Life insurance policyowner would like to take out a policy loan against the cash value in his Whole Life policy. The interest rate applied to this loan may vary over time. This is referred to as a(n) _____ rate loan: - fluctuating - fixed - variable - increasing
variable
S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?
$50,000
The Consideration clause in a life insurance contract contains what pertinent information? - summary of benefits - offer and acceptance - entire contract - amount of premium payments and when they are due
Amount of premium payments and when they are due
What action can a policyowner take if an application for a bank loan requires collateral? - utilize accelerated benefits provision - borrow against policy cash value and use as a down payment - assign policy ownership to the bank - name bank as beneficiary
Assign policy ownership to the bank
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take? - beneficiary will be denied the claim - beneficiary will be denied the claim and refunded all paid premiums - beneficiary will be paid the death benefit - beneficiary will be paid a partial death benefit
Beneficiary will be paid Death Benefit
How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period? - claims are denied under the suicide clause of the policy - company pays twice the face amount under the double indemnity clause - claims are paid in full - premiums are returned under the consideration clause
Claims are denied under the Suicide clause of the policy
Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan? - revocable assignment - beneficiary change - irrevocable assignment - collateral assignment
Collateral assignment
Which statement regarding the Misstatement of Age provision is considered to be true? - Coverage will be adjusted to reflect the insured's age if a misstatement of age is discovered - Requires that a new policy must be applied for if a misstatement of age is found on the current policy - Misstatement of Age provision is valid only during the contestable period - Insurer may void the policy if a misstatement of age is discovered
Coverage will be adjusted to reflect the insured's age if a misstatement of age is discovered
How are surrender charges deducted in a life policy with a rear-end loaded provision? - deducted from the death benfit - deducted when the policy is discontinued - deducted from policy's cash value - deducted when assigned to another policyowner
Deducted when the policy is discontinued
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself? - policy exclusion - incontestable - entire contract provision - assignment
Entire Contract Provision
What provision in a life insurance policy states that the application is considered part of the contract? - application provision - policy exclusion provision - entire contract - incontestability provision
Entire Contract provision
Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE? - Coverage can be added at specific events such as marriage or having a child - Evidence of insurability is not required when the option is exercised - Evidence of insurability is required when the option is exercised - Coverage can be added at specific ages
Evidence of insurability is required when the option is exercised
D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?
Ex-wife
N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot? - misrepresentation - exclusion - collateral assignment - concealment
Exclusion
D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with? - extended term - loan provision - reduced paid-up - cash surrender
Extended term
Which of the following Nonforfeiture options offers the highest death benefit? - cash surrender - reduced paid-up - extended term - dividend
Extended term
The purpose of the ___ Period clause is to avoid an unintentional lapse of a life insurance policy: - grace - incontestible - conversion - reinstatement
Grace
How are policyowner dividends treated in regards to income tax? - dividends are not taxable - interest on accumulations is taxed - taxed as ordinary income - taxed as capital gains
Interest on accumulations is taxed
B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes? - interest and dividends - interest only - dividends only - neither interest nor dividends are taxable
Interest only
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT - K must reinstate within a stated period - K must pay back interest and premiums - K will forfeit the right to use the automatic loan provision upon reinstatement - K must provide evidence of insurability
K will forfeit the right to use the automatic loan provision upon reinstatement
The Accelerated Death Benefit provision in a life insurance policy is also known as a(n): - 1035 exchange - inter vivos gift - non-forfeiture option - living benefit
Living Benefit
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability? - P cannot borrow against the policy's cash value while disabled - P will have to pay income taxes on the amount of premiums waived - P will still receive declared dividends - P cannot assign ownership of the policy while premiums are being waived
P will still receive declared dividends
K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose? - paid-up additional insurance - cash option - reduced premiums - accumulate with interest
Paid-Up Additional Insurance
All of the following statements are true regarding a policy's Grace period, EXCEPT: - Past due premiums waived - Policy loans may still be made - Full coverage continues - Grace period terms are stated in the policy
Past due premiums waived
Which statement is TRUE in regards to a policy loan? - past-due interest payments not paid after 3 months will void the policy - past-due interest on a policy load is added to the total debt - insurance companies can send delinquent interest accounts to a collection agency - insurance companies can charge an interest rate based on the policyowner's credit report
Past-due interest on a policy load is added to the total debt
M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take? - collect premium from M's estate - deny the claim - pay face amount minus the past due premium - subtract past due premium from cash value
Pay face amount minus the past due premium
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the: - policy loan provision - automatic premium loan provision - accelerated benefits provision - consideration clause
Policy Loan provision
Which of the following is an example of a nonforfeiture option? - Conversion option - Reduced Paid-Up option - Inflation option - Guaranteed insurability option
Reduced Paid-Up option
Which of these provisions require proof of insurability after a policy has lapsed? - insuring - conversion - reinstatement - consideration
Reinstatement
Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE? - partially taxable - tax deductible - nontaxable - taxed as ordinary income
Taxed as ordinary income
A(n) ___ rider may be used to include coverage for children under their parents' life insurance policy: - payor - term - conversion - parent
Term
Which of these life insurance riders allows the applicant to have excess coverage? - automatic premium loan rider - waiver of premium rider - guarantee insurability rider - term rider
Term rider
D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive? - refund of premiums paid plus interest - nothing, due to actively serving in the armed forces - double the face amount because cause of death was accidental - the full face amount
The full face amount
What does the ownership clause in a life insurance policy state? - who the policyowner is and what rights the policyowner is entitled to - who the beneficiary is and what rights the beneficiary is entitled to - ownership cannot be assigned after the incontestable period - allows the policyowner to adjust the death benefit and premium amount at anytime
Who the policyowner is and what rights the policyowner is entitled to
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of: - additional Term Life coverage at any time - additional Term Life coverage at specified intervals - additional Whole Life coverage at any time - additional Whole Life coverage at specified times
additional Whole Life coverage at specified times
A Cost of Living rider gives the insured: - tax incentives - monthly income - decreasing premiums - additional death benefits
additional death benefits
L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will: - pay the death benefit in full - adjust the death benefit to an increased amount - adjust the death benefit to a reduced amount - deny the claim
adjust the death benefit to a reduced amount
The Automatic Premium Loan provision is designed to: - provide a source of revenue to the insurance company - avoid a policy lapse - allow a policyowner to request a policy loan - allow a policyowner to take out additional coverage without evidence of insurability
avoid a policy lapse
A Whole Life insurance policyowner does NOT have the right to: - designate a beneficiary - take out a policy loan - change the grace period - assign the policy
change the grace period
Additional coverage can be added to a Whole Life policy by adding a(n): - payor rider - accelerated benefit rider - decreasing term rider - automatic premium loan rider
decreasing term rider
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n) - elimination - exclusion - limitation - exception
exclusion
Dividends paid from a life insurance policy are: - guaranteed - taxable - issued by the insurer - issued by the department of insurance
issued by the insurer
B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will: - pay the amount of premiums paid plus interest - pay the amount that the premium would have purchased at the correct age - pay half of the full face amount - pay the full face amount
pay the amount that the premium would have purchased at the correct age
M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the: - cash value - estate of the insured - policy proceeds - nonforfeiture value
policy proceeds
The ____ has the right to change a life insurance policy's beneficiary - insurer - insured - policyowner - beneficiary
policyowner
The ____ is authorized to assign a Life Insurance policy as collateral for a loan: - beneficiary - insured - policyowner - lender
policyowner
The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and: - the initial premium - agreeing to a physical examination - delivery of policy - disclosure of any medical conditions
the initial premium
When is the face amount of a Whole Life policy paid? - at the policy's maturity date only - when the insured dies or at the policy's maturity date, whichever happens first - only when the insured dies - when the policy is surrendered
when the insured dies or at the policy's maturity date, whichever happens first