Chapter 3: Life Policy Riders, Provisions, Options and Exclusions

What is the term for how frequently a policyowner is required to pay the policy premium?

mode

Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Absolute assignment

The accelerated benefits provision will provide for an early payment of the death benefit when the insured

Becomes terminally ill

What is the other term for the cash payment settlement option?

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

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use?

Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

when can an insurance company use suicide as a defense against paying a death claim?

When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)

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?

$100,000

Grace Period

A time period during which no finance charges will be added to your account

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time.

What are the 3 nonforfeiture options in life insurance policies?

Cash surrender value, reduced paid-up insurance or extended term option

According to the entire contract provision, what document must be made part of the insurance policy?

Copy of the original application

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Extended term

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called

Guaranteed insurability

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?

Guaranteed insurability option

Which rider allows an insured to purchase additional coverage without evidence of insurability?

Guaranteed insurability rider

If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?

Lump-sum payment

All of the following are true regarding insurance policy loans EXCEPT

Policy loans can be made on policies that do not accumulate cash value.

Which nonforfeiture option provides coverage for the longest period of time?

Reduced Paid-Up

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?

Reduction of premium

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

Revocable beneficiary

Which of the following statements about a suicide clause in a life insurance policy is TRUE?

Suicide is excluded for a specific period of years and covered thereafter.

Nonforfeiture values guarantee which of the following for the policyowner?

That the cash value will not be lost

what does the term double indemnity mean

The insurer will pay a benefit of twice the face amount

If an insured continually uses the automatic premium loan option to pay the policy premium,

The policy will terminate when the cash value is reduced to nothing

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?

The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

Which of the following is TRUE about nonforfeiture values?

They are required by state law to be included in the policy.

which of the following is true about nonforfeiture values?

They are required by state law to be included in the policy.

what is the purpose of a free-look period?

To allow the insured to return the policy with a full refund

NAICS (North American Industry Classification System)

an organization composed of insurance commissioners from all states and jurisdictions formed to resolve insurance regulatory issues

For how long is an insurance company allowed to defer policy loan requests?

6 months

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months

Under which of the following circumstances would an insurer pay accelerated benefits?

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.

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Incontestability

minor

a person under the age of 21

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

fixed period

Incontestability

insurer cannot contest misstatements on the application after a time period

what is the name for a life insurance policy rider that provides coverage on the insured's family members?

other-insured rider

What dividend option can increase the death benefit of the existing life policy?

Paid-up additions

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Policyowner

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?

Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount

What are policy dividends?

Return of unused premiums

With the reduction of premium dividend option, how is the dividend used?

The dividend is applied to the next year's premium (it reduces the next year's premium)

what constitutes the entire contract?

The insurance policy with a copy of the application, and any riders and amendments

what is the purpose of settlement options in life insurance policies?

To determine how the death benefit will be paid to the beneficiary

the paid up option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy.

What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Waiver of Premium

what are the most common exclusions in life insurance policies?

War and military service, hazardous occupation, and aviation

lump sum

payment of the entire benefit in one sum

What are the dividend options in life insurance policies?

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment

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

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.

Which of the following riders would NOT cause the Death Benefit to increase?

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.

With the interest only settlement option, what happens to the policy's death benefit?

Policy proceeds are retained by the insurance company; only the interest is paid to 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

The insured's age at death

indemnity

a principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss

C.L.I.F.F (cash payment, life income, interest only, fixed-period installments, fixed-amount installments

settlement options

what term is used to describe methods of payment of the death beneficiary upon the insured's death?

settlement options

Consideration

something of value exchanged for something else of value

what happens to a policy's cash value under an extended term nonforfeiture option?

the cash value is converted to the same face amount as in the whole life policy

principal

the face value of the policy; the original amount invested before the earnings