Chapter 3 part 2
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
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
An insurer may normally delay the payment of a cash value loan or surrender value for up to
6 months
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?
Beneficiary will be paid the Death Benefit
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
Which of these actions is taken on a policyowner uses a life insurance policy as collateral for a bank loan
Collateral assignment
Which of these types of policies may not have the automatic, premium loan provision attached to it
Decreasing term
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
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
Which of these statements about a guaranteed insurability option rider is not true
Evidence of insurability is required when the option is exercised
Which of the following nonforfeiture options are for the highest death benefit
Extended term
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?
Full face amount minus any past due premiums
A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following
Inability of the insured to perform more than 2 Activities of Daily Living (ADL's)
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
The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured death is called
Insuring agreement
In a life insurance contract, an insurance company's promise to pay stated benefits is called the
Insuring clause
How are policyowner dividends treated in regards to income tax?
Interest on accumulations is taxed
The accidental death & dismemberment provision in a life insurance policy would pay
Is blinded in an accident
Which of these are not an example of a nonforfeiture option?
Life Income
The accelerated death benefit provision in a life insurance policy is also known as a
Living Benefit
Which of these is not considered to be a right given to a policy owner
Modify a provision in the insurance contract
Which of the following statements is correct about accelerated death benefits
Must have a terminal illness to qualify
All of these statements concerning settlement options are true, except
Only the beneficiary may select
In a life insurance policy, which provision states who may select policy options, designated and name a beneficiary, and be the recipient of any financial benefits from the policy
Owners rights
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?
P will still receive declared dividends
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
All of the following statements are true regarding a policy's grace period except
Past due premiums are waived
Which statement is true in regards to a policy loan?
Past-due interest on a policy loan is added to the total debt
M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?
Pay face amount minus the past due premium
Which of the following provision in guarantees that premiums will be waived if a juvenile life policy owner becomes disabled
Payor clause
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the
Policy Loan provision
The ____ is authorized to assign a life insurance policy as collateral for a loan
Policyowner
What benefit does the Payor clause on a Juvenile Life policy provide?
Premiums are waived if payor becomes disabled
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 coverage under which of the following provisions?
Reinstatement provision
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
Which of these life insurance riders allows the applicant to have excess coverage
Term 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 ____ has the right to change a life insurance policy beneficiary
The policy owner
The advantage of it reinstating an original life policy is
The premiums are based on a younger age
The Free Look Provision begins
Upon receipt of the policy by the policyowner
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
Variable Life
Which type of life policy contains a monthly mortality charge, as well as self-directed investment choices
Variable Universal Life
A life insurance policyowner would like to take out a policy loan against the cash value in his whole life policy. The interest rate applied to this loan may vary over time. This is referred to as
Variable rate loan
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?
Void the policy only if it is discovered during the Contestable period and proven to be material
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached
Waiver of Premium's
A return of premium life insurance policy is
Whole life and Increasing term
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional Whole Life coverage at specified times
A cost of living rider gives the insured
additional death benefits
A Term Life rider offers the insured
additional life coverage
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
at future dates specified in the contract with no evidence of insurability required
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
The automatic premium loan provision is designed to
avoid a policy lapse
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
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
Additional coverage can be added to a Whole Life policy by adding a(n)
decreasing term rider
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
In a life insurance policy, which feature states that the policy will not cover certain risks?
exclusion
The purpose of the ________ Period clause is to avoid an unintentional lapse of a life insurance policy.
grace
A Nonforfeiture clause gives the policyowner
guaranteed values even if the policy has lapsed
Dividends paid from a life insurance policy are
issued by the insurer
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
long term care
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
Which life insurance rider typically appears on a Juvenile life insurance policy?
payor benefit rider
M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the
policy proceeds
Which of the following is an example of a nonforfeiture option
reduced paid-up option
What is the suicide provision designed to do?
safeguard the insurer from an applicant who is contemplating suicide
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
A ____ rider may be used to include coverage for children under their parents life insurance policy.
terms
The consideration clause in a life insurance policy indicates that a policyowners consideration consists of a completed application and
the initial premium
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 1 year later of natural causes. How much will the insurer pay the beneficiary?
$50,000
T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?
$50,000
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
A policy loan is made possible by which of these life insurance policy features?
Cash value provision
Whole Life insurance policyowner does not have the right to
Change the grace Period
P purchases a $50,000 term life insurance policy in 2005. One of the questions on the application ask 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
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called
Accidental Death and Dismemberment rider (AD&D)
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
Which rider provides coverage for a child under a parent's life insurance policy?
Child term rider
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
Claim will be denied
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
All of the settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT
Interest only
B receive yearly dividends and interest from a participating life insurance policy. Which of you should B include as gross and come for federal income tax purposes
Interest only
Which of the following statements about accumulated interest earned on dividends from an insurance policy is true
It is taxed as ordinary income
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policies reinstatement, except
K will forfeit the right to use the automatic loan provision upon reinstatement
Which of these provisions require proof of insurability after a policy has lapsed
Reinstatement
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
What does the ownership clause in a life insurance policy state
Who the policyowner is and what rights the policyowner is entitled to
L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will
adjust the death benefit to a reduced amount
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
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n)
exclusion