CH 4

A misstatement of an insured's age was not discovered until after the insured died. The policy had been in effect for 3 years. What will the insurer do to address this situation?

Pay benefits based on what past premiums would have purchased at the correct age

If an insured dies during the policy's grace period, the insurer will:

Pay the death benefit, less the amount of premium due

All of the following are TRUE of Policy Loan Rate provisions, except:

Policies with fixed interest loan rates have a maximum interest rate of 10% The policies with fixed interest loan rates usually have a maximum interest rate of 8%.

The ________ decides which dividend option is in effect and can change his/her election at any time.

Policyowner

Upon non-payment of premium due, the extended term option kicks in automatically and is paid for by the cash values of the policy. The policy has nonforfeiture values which are available to the policyowner.

Unless specified otherwise, the cash values buy extended term

Which of the following is not a way to access the money accumulated in a traditional ordinary permanent life insurance policy?

Partial surrender

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 policy loan amount cannot exceed the ____________.

Available cash surrender value

If the premiums are not paid on a Traditional Whole Life policy that has been in force for decades with no loan outstanding, what happens?

Unless specified otherwise, the cash values buy extended term

Mona let her permanent policy lapse. She discovered there was $2,498 in cash value remaining in the policy and decided to pay off some of her credit card debt. She exercised which Nonforfeiture Option?

Cash Surrender

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Alice dies, so who receives the policy proceeds?

Claire

A _______ Option protects the policyowner against total loss of benefits in the event of a lapsed policy.

Nonforfeiture Nonforfeiture Options are found in life insurance policies that generate a cash value, and protect the owner against total loss of that cash value, if the policy should lapse or is cancelled.

Z elects the life refund settlement option for a $250,000 death benefit. Z lives long enough to recover $150,000 of the $250,000 death benefit. How much does his beneficiary receive?

$100,000 With Life Refund, payments are made for the lifetime of the recipient. Upon death, if a recipient has not received an amount equal to the total death benefit, the balance is refunded to the beneficiary, either in a lump sum (cash refund), or in installments (installment refund).

K has a $100,000 traditional whole life policy with $30,000 of cash values and a $10,000 loan outstanding. What is the maximum additional amount she could borrow from the policy at this time? A $60,000

$20,000

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

Albert owned a $100,000 policy that had accumulated a cash value of $20,000, against which he had borrowed $10,000. If he dies with this loan outstanding, his beneficiary will receive which of the following amounts?

$90,000

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

Consideration

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies and Alice names Dale as the new primary beneficiary. Alice dies, so who receives the policy proceeds?

Dale

All of the following are common exclusions, except:

Driving

Concerning the Paid-Up Additions Dividend Option, all of the following are true, except:

Eventually, no more premiums will be due on the policy The Paid-Up Additions purchased under this Option have their own values and do not change the face amount of the original policy. Each additional segment of insurance contains both a death benefit and increasing cash surrender value, and by purchasing paid-up additions, larger dividends may be paid in the future. Paid up additions do not eliminate need to pay premiums on the original policy.

The nonforfeiture option that provides the most amount of coverage is:

Extended Term

All of the following are Dividend Options, except:

Extended term

If the beneficiary is concerned about a payout for a particular period of time, the _______ settlement option should be selected.

Fixed Period

If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due.

Grace If the insured dies during the grace period, the death benefit of the policy is payable to the beneficiary, minus any premiums or loans due.

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.

The provision that limits the amount of time an insurer has to challenge a claim and void the contract upon proof of a material misstatement is called the ____________ clause.

Incontestability

The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.

Insuring

Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option?

Life Income Only

The nonforfeiture option that provides protection to age 100 is:

Reduced Paid-Up

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.

An insured, whose policy is in force, intentionally kills herself 7 months after purchasing the policy. How much will the insurer pay?

Refund of premiums paid only Suicide within 2 years of policy issue is a common exclusion in life insurance (the time can vary by state). Only premiums paid are refunded.

The __________ provision specifies what an insured must do, if a policy has lapsed, in order to put it back in force.

Reinstatement

Maria's policy was issued with an incorrect age. She was actually older than what was listed in the policy. Which of the following will the insurer most likely do if she had died 5 years after policy issue, but prior to this discovery?

The insurer would pay out a reduced benefit in proportion to the underpayment of premium

Who retains all of the rights in a life insurance policy?

The policyowner

An insured has paid premiums annually on her life insurance policy. She would now like to change to a monthly premium payment. What must occur to effect this change?

The policyowner needs to contact the insurance company and request a change in premium mode Changing the mode of payment is provided for in the contract. A telephone call from the policyowner to the insurance company can effect the change beginning with the next premium due date. in most cases, however, companies will want to receive the request in writing.

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 insurer's consideration is __________ while the applicant's consideration is ________.

Their promise to pay the claim / The application and premium payment

Contractual provisions explain all of the following, except:

Where the premium is going to come from

A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy's named beneficiary receive?

$90,000 The collateral assignee, the bank, will take a priority claim on the policy's death benefit limited to the amount of the loan outstanding at the time of death, the named beneficiary will receive the balance. In this case $90,000 ($100,000 - $10,000).

B's policy had a $1,000 annual premium. B has not paid it for 2 years and wants to put the policy back in force. The insurer charges 10% interest on overdue premiums. What does B have to pay in order to reinstate their policy?

2 years of premiums, plus interest due on overdue premiums amounts

In a whole life policy, cash value must be made available to borrow against after _____ years

3

Typically, how many days can elapse before an overdue premium will cause a policy to lapse?

30

A partial withdrawal is considered ______________.

A partial surrender of the policy

An _________ assignment is considered permanent.

Absolute In an absolute assignment, a new owner is named. This is considered a permanent assignment.

When a life insurance policy's ownership is changed from the original owner to a new owner without payment, this is known as a(n) ___________.

Absolute assignment When a life insurance policy's ownership is changed from the original owner to a new owner, this is known as an absolute assignment when no money is involved.

K has a $10,000 traditional whole life policy with a loan outstanding of $1,000 and a 5% interest charge. At the end of the first year of the loan, K did not pay the loan interest. What is the result of K's inaction?

K has a $10,000 traditional whole life policy with a loan outstanding of $1,000 and a 5% interest charge. At the end of the first year of the loan, K did not pay the loan interest. What is the result of K's inaction?

Albert owns a life insurance policy insuring his son David. He wants a Settlement Option that, if David were to die, would provide guaranteed payments to Albert and his wife until both of them die. Albert's producer should recommend:

Life Income Joint and Survivor

A beneficiary wants a guarantee that benefits will be paid for a period of 10 years or life whichever time period is greater. Which of the following options should the beneficiary select?

Life with 10-year Period Certain

Provisions and clauses, unlike riders, are included in the contract for:

No additional charge

The insuring clause is found:

On the first page of the policy

What is the intent of the suicide clause?

To discourage individuals from purchasing an insurance policy while contemplating suicide

An insured forgets to pay his insurance premium. Instead of the policy lapsing, the premium is paid by the company. This would suggest that a __________ policy was purchased.

Whole life Only cash value policies can provide for missed premium payments to be paid with the policy's cash value through an automatic premium loan.