Ch 4

For a replacement policy of individual life insurance and annuities (other than variable contracts), the free look period is at least how many days?

20 For a replacement policy for individual life insurance and annuities (other than variable contracts), the free look period is at least 20 days.

K has a $50,000 traditional whole life policy in force with $25,000 of cash values. Her outstanding loan and loan interest total $5,000. If K surrenders the policy, K will receive:

$20,000 Any outstanding loans will be deducted from the face amount at the time of claim or from the cash values upon surrender along with any interest due. $25,000 - $5,000 = $20,000.

The _________ clause states what each party exchanges in the contract.

Consideration

Nonforfeiture Options (Guaranteed Values)

These options are required in policies that accumulate cash values and protect the policyowner against total loss of benefits if the policy should lapse due to nonpayment of premium or is intentionally cancelled.

How does a policyowner exercise the free look?

By delivering the policy to the agent or mailing the policy back to the agent or insurer A policyowner exercise his/her free look by delivering or mailing the policy during the free look period, by voiding the policy from the beginning, the parties will be in the same position as if no policy had been issued.

Which of the following is NOT a Dividend Option?

Reduced Paid-Up Reduced Paid-Up is a Nonforfeiture Option. The other answer choices are Dividend Options.

Which provision requires the application, the contract itself and any riders to be attached to establish a complete contract?

The Entire Contract Provision The Entire Contract Provision states that the contract consists of the basic policy, a copy of the application, and all riders.

All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except:

The premiums have not been paid and have been overdue for 3 years The insuring clause states that the policy must be in force. A policy that has overdue premiums unpaid will cause the policy to lapse which means no coverage was in effect.

All of the following are examples of an absolute assignment, except:

Using a Life Insurance policy as collateral for a loan The owner, and only the owner, possesses all of the rights in the policy, one of which is the right to assign. When a policy is used to collaterize a loan it is referred to as a temporary or collateral assignment.

What provision establishes that if both the insured and the primary beneficiary die in the same accident, and it cannot be determined who died first, the insured will be presumed to have survived the beneficiary and proceeds will be paid to a named contingent beneficiary of the insured, or to the insured's estate?

Common Disaster Clause The Common Disaster Clause is designed to rule in such situations. If a contingent beneficiary is named and is alive, he or she receives the proceeds. Otherwise they are paid to the insured's estate.

When can a policyowner make a change in the policy's coverage or other benefits if an irrevocable beneficiary has been named?

After the irrevocable beneficiary dies The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable beneficiary is named, the owner may not make changes to the policy that affect the coverage or benefits without consent of the beneficiary.

Dividend Options

Cash Premium Reduction Accumulate at Interest Paid-up Additions - Purchases single premium, additional permanent benefits at the insured's attained age. The additional insurance is paid out in addition to the face amount if the insured dies. While the insured is living, it generates cash value and dividends as if the paid-up additional benefit was part of the original policy. 1-Year Term - Purchases a single premium, 1-year term benefit. Paid-up Option - Pays off the policy more quickly than scheduled. If the company's overall performance declines, premiums may have to be resumed.

Which of the following is TRUE concerning reinstatement of a life insurance policy?

Companies have the right to require medical examinations To reinstate a lapsed policy, back premiums plus interest need be paid and proof of insurability is required. The right to request reinstatement has a time limit, typically 3 to 5 years from policy lapse.

Which of the following policies allow for a partial withdrawal or partial surrender?

Universal Life A partial withdrawal of cash value is permitted in a Universal or a Variable Universal Life policy.

Which of the following beneficiary designations is a class designation?

Any children of this marriage A class designation is when the beneficiary is not directly identified by name.

An insured has a $175,000 permanent life insurance policy and is having difficulty keeping up with the premium payments. Which Nonforfeiture Option would allow him to forego the premiums and retain the same face amount until the cash surrender value is exhausted?

Extended Term Cash Surrender is a Nonforfeiture Option that terminates the policy. Extended Term continues the same coverage until the cash value from which the premium is paid is exhausted.

Which statement is FALSE regarding Nonforfeiture Options?

They are used when the insured lives to the endowment date of the policy or at the insured's death Distribution options are used when the insured lives to the endowment date of the policy, and Settlement Options are used at the insured's death.

Which of the following correctly describes the effect of the Common Disaster Clause?

If an insured and primary beneficiary both are killed when the bus they are riding in goes over a cliff and if it cannot be determined who died first, the insured or primary beneficiary, the insured will be presumed to have survived the primary beneficiary so the contingent beneficiary will be able to receive the death proceeds The purpose of the Common Disaster Clause is to establish that, if it cannot be determined whether the insured or the primary beneficiary died first in a common disaster, the insured will be presumed to have survived the primary beneficiary and the proceeds of the policy will be paid to the contingent beneficiary, or if none is named, then to the estate of the insured.

A policy is issued with a rider. Years later the policyowner would like to drop the rider in order to save some money. Who has the authority to effect that policy change?

An executive officer of the insurer Any policy changes or modifications must be in writing and signed off at the home office by an executive officer. A producer cannot change, alter, modify, or waive any policy provisions.

The free look period for individual life insurance and annuities begins as of the date:

The policyowner signs an Acknowledgement of Delivery Receipt The free look period begins when the policyowner signs an Acknowledgement of Delivery Receipt.

The only way a death benefit can be 100% income tax-free is to be paid out __________.

In a lump sum Only a lump sum payment is without interest, therefore it is not taxable. The others have a component of interest that is taxable as income to the recipient.

Nonforfeiture Options (Guaranteed Values)

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 Reduced Paid-Up - Present cash value is used to buy a single premium, permanent paidup policy of a reduced face amount. This option provides the longest period of coverage provided by a nonforfeiture option. Coverage, although reduced in face value, will continue to age 100. Extended Term - Present cash value is used to buy a single premium term policy of the same face amount for as long a period as it will buy, expressed as a combination of years and days. The policy will expire prior to age 100.

Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mind of being covered for the same $200,000 in death benefit although it may be for an abbreviated period of time. The Nonforfeiture Option Jamie should choose is:

Extended Term One-Year Term and Paid-Up Additions are dividend options, not nonforfeiture options. Since Jamie's concern is to sustain a like amount of death benefit, she should choose Extended Term.

Which Settlement Option pays a specified dollar amount until benefits are exhausted?

Fixed Amount The Fixed Amount option pays benefits at a specified dollar amount (such as $1,000/month) until the benefits are exhausted.

An aunt and uncle purchase a life insurance policy on their niece, for whom they are the legal guardians. Both guardians perish in an accident some time later. Who receives the death benefit?

No claim is paid out The policy insures the life of the niece, and she has not died.

A Whole Life policyowner elects to use his dividends to pay off the policy sooner than originally planned. Which option allows this to occur?

Paid-Up Option The Paid-Up Option is designed so that at a future point the base policy is fully prepaid (i.e. no more premiums are due). In Paid-Up Additions, only the additions are paid up, not the base policy. Only a Whole Life can achieve paid-up status.

K needs funds and needs to maintain the life insurance she has at the same time. Which of the following should K do with her traditional whole life policy?

Take out a policy loan A policy loan may be made from a 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.

Lyle owns a $50,000 20-Pay Life Policy that he lets lapse at the end of the fourth year. The Nonforfeiture Option providing the longest period of coverage would be:

Reduced Paid-Up Reduced Paid-Up provides the longest period of coverage. Extended Term would provide the most protection. The other two answers are not Nonforfeiture Options, rather they are dividend options.