Chapter 3 (Life Provisions)

Dividends paid from a life insurance policy are

Issued by the insurer

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

Reduced Paid-Up

The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called:

Reinstatement

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish covera under which of the following provisions?

Reinstatement provision

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 only

The Accelerated Death Benefit provision in a life insurance policy is also known as a(n):

Living Benefit

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

Long term care

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

Jditional coverage can be added to a Whole Life policy by adding a(n):

Decreasing term rider

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?

Evidence of insurability is required when the option is exercised

All of these statements concerning Settlement Options are true, EXCEPT:

Only the beneficiary may select

P is the insured on a participating life policy. Which statement is true if P's premiums are waived due a disability?

P will still receive declared dividends

How are policyowner dividends treated in regards to income tax?

Interest on accumulations is taxed

What does the ownership clause in a life insurance policy state?

Who the policyowner is and what rights the policyowner is entitled to

An insurer may normally delay the payment of a cash value loan or surrender value for up to

6 months

A policyowner may generate taxable income from which of the following Dividend Options?

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

The Consideration clause in a life insurance contract contains what pertinent information?

Amount of premium payments and when they are due

What does the insuring agreement in a Life insurance contract establish?

An insurer's basic promise

What action can a policyowner take if an application for a bank loan requires collateral?

Assign policy ownership to the bank

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

Which statement is TRUE in regards to a policy loan?

Past-due interest on a policy loan is added to the total debt

The free-look provision begins

Upon receipt of the policy by the policyowner

A Life insurance policyowner would like to take out a policy loan against the cash value in his Whole Lite policy. The interest rate applied to this loan may vary over time. This is referred to as a(n) ________ rate loan.

Variable

Which type of life policy contains a monthly mortality charge as well as self-directed investment

Variable Universal Life

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

When the insured dies or at the policy's maturity date, whichever happens first

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 that the premium would have purchased at the correct age

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

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

taxed as ordinary income

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

Cash value provision

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?

Accidental Death and Dismemberment clause

The purpose of the _______ period clause is to avoid an unintentional lapse of a life insurance policy.

grace

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

S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies year later of natural causes. How much will the insurer pay the beneficiary?

$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?

$50,000 minus any outstanding policy loans

How are surrender charges deducted in a life policy with a rear-end loaded provision?

Deducted when the policy is discontinued

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

Entire Contract provision

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 D's ex wife is still the beneficiary of this policy, even though policy ownership has changed to his current spouse.

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

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

Which of the following Nonforfeiture options offers the highest death benefit?

Extended term

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

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?

Return of premium 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?

The full face amount

The advantage of reinstating an original life policy is

The premiums are based on a younger age

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

beneficiary's age

Variable Whole Life Insurance can be described as:

both an insurance and securities product

A Whole Life insurance policyowner does NOT have the right to

change the grace period

Whose life is covered on a life insurance policy that contains a payor benefit clause?

child

The incontestable clause allows an insurer to:

contest a claim during the contestable period

A Nonforfeiture clause gives the policyowner

guaranteed values even if the policy has lapsed