Chap 3 Life Provisions

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?

$20,000 death benefit. If the insured dies before the endowment's maturity, the policy's face value - also known as the "death benefit" is paid in a lump sum to any beneficiaries.

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?

20-Pay Life accumulates cash value faster than Straight Life.

A policy loan is made possible by which of these life insurance policy features?

Cash Value Provision. The Cash Value provision makes a policy loan possible.

Which of these types of policies may not have the Automatic Premium Loan provision attached to it?

Decreasing Term

How are policyowner dividends treated in regards to income tax?

Interest on accumulations is taxed. If the dividends exceed the total premium payments for the insurance policy, the excess dividends are considered taxable income.

All of these statements concerning Settlement Options are true, except?

Only the beneficiary may select. This inaccurate because settlement options may be selected by the policyowner.

Which of these Nonforfeiture Options continue a build-up of cash value?

Reduced Paid-Up. A reduced paid-up option would provide continuing cash value build-up.

Which of the following statements about accumulated interest earned on dividends from an insurance policy is true?

It is taxed as ordinary income. Accumulated interest earned on dividends from an insurance policy is taxed as ordinary income.

All of these statements about the Waiver of Premium provision are correct, except?

Insured must be eligible for Social Security disability for claim to be accepted. Receiving social security disability is not a requirement to be eligible for the Waiver of Premium.

An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?

Long Term Care. A long term care rider is triggered by the insured's inability to perform two or more activities of daily living.

When is the face amount of a Whole Life policy paid?

When the insured dies or the policy's maturity date, whichever happens first. The face amount of a Whole Life policy will be paid when the insured dies or on maturity of the policy, whichever occurs first.

A Return of Premium life insurance policy is:

Whoe Life and Increasing Term. A Return of Premium life insurance policy is whole life insurance with a death benefit rider of increasing term insurance equal to the amount of premiums paid. If the insured dies within the period of term, the beneficiary will receive the face amount plus the value of all paid premiums.

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.

Entire Contract Provision. Found at the beginning of the policy, stated that the policy document, the application (which is attached to the policy) and any attached riders constitute the entire contract. Nothing may be "incorporated by reference," meaning that the policy cannot refer to any outside documents as being part of the contract.

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):

Insuring Agreement. The insuring clause or provision sets forth the company's basic promise to pay benefits upon the insured's death.

In a life insurance policy, which provision stated who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy?

Owner's Rights. States who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy.

A young, married teacher has two children and owns a Whole Life policy. If the teacher wants an increasing Death Benefit to protect against inflation, the teacher should select which of the following Dividend options?

Paid-Up Additional Insurance. In this situation, Paid-Up Option should be selected.

What provision in a life insurance policy states that the application is considered part of the contract?

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.

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.

Exclusion. Exclusion are specified hazards listed in a policy for which benefits will not be paid.

The incontestable clause allows an insurer to:

Contest a claim during the contestable period. The incontestable clause or provision specifies that after a certain period of time (usually two years from the issue date) the insurer no longer has the right to contest the validity of the life insurance policy so long as the contract continues in force.

What action will an insurer take if an interest payment on a policy loan is not made on time?

Automatically add the amount of interest due to the loan balance. Unpaid interest from a policy loan is added to the loan balance if not paid by the due date.