Chapter 3: Policy Provisions, Options, and Other Features

What are the 3 nonforfeiture values a policy owner has to choose from?

- cash surrender value - reduced paid-up insurance - extended term

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She's decided that she would rather use her dividends to help pay her next premium. What option would allow her to do this? A) Reduction of premium B) Paid-up addition C) Accumulation of interest D) Cash option

A) Reduction of premium

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? A) fixed period B) life with period certain C) fixed amount D) interest only

A) fixed period

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 A) guaranteed insurability B) waiver of cost of insurance C) accelerated benefits D) cost of living

A) guaranteed insurability

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 A) guaranteed insurability option B) paid-up additions option C) cost of living provision D) nonforfeiture option

A) guaranteed insurability option

A policy owner who is also the insured wants to namer her husband as the beneficiary of her life policy. She also wishes to retain all the rights of ownership. The policy owner should have her husband named as the A) revocable beneficiary B) secondary beneficiary C) contingent beneficiary D) irrevocable beneficiary

A) revocable beneficiary)

When the policy owner specifies a dollar amount in which installments are to be paid, he/she has chosen what settlement option? A) life income period certain B) extended term C) fixed amount D) fixed period

C) fixed amount

Which of the following is TRUE of a children's rider added to an insured's permanent life insurance policy? A) the policy covers only the natural children of the insured B) each child covered must show evidence of insurability C) it is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age D) it is permanent insurance

C) it is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability? A) parents' federal income tax receipts B) medical exam and parents' medical history C) proof of insurability is not required D) medical exam

C) proof of insurability is not required

Under an extended term nonforfeiture option, the policy cash value is converted to A) a lower face amount than the whole life policy B) a higher face amount than the whole life policy C) the same face amount as the whole life policy D) the face amount equal to cash value

C) the same face amount as the whole life policy

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A) beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies B) one of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies C) the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive D) the beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time

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

A policy owner 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? A) assignment B) automatic premium loan C) waiver of premium D) incontestability period

C) waiver of premium

Which nonforfeiture option has the highest amount of insurance protection? A) conversion B) decreasing term C) reduced paid-up D) extended term

D) extended term

When changing a beneficiary through an endorsement method, what is the policy owner required to do? A) request a policy endorsement from the agent B) apply for a replacement policy C) make the change and inform the insurer D) submit a request for change to the home office of the insurer

D) submit a request for change to the home office of the insurer

Which of the following statements about a suicide clause in a life insurance policy is TRUE? A) suicide is covered for a specific period of years and excluded thereafter B) suicide is covered as long as the policy is in force C) suicide is excluded as long as the policy is in force D) suicide is excluded for a specific period of years and covered thereafter

D) suicide is excluded for a specific period of years and covered thereafter

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? A) beneficiary must pay interest to insurer B) the beneficiary will receive the lump sum plus interest C) primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments D) the beneficiary will only receive payments of the interest earned on the death benefit

D) the beneficiary will only receive payments of the interest earned on the death benefit

Which dividend option increases the death benefit?

Paid-up additions increase the DB of the original policy by whatever amount the dividend will buy

Can a policy be reinstated after the grace period expires? If so, how?

Reinstatement provision allows policy owner to put lapses policy back in force by policy owner proving continued insurability (physical)

What is the common disaster clause and who does it protect?

The common disaster clause protects the rights of the contingent beneficiary in cases when the insured and the primary beneficiary die at approximately the same time from a common accident with no clear evidence of who died first

Under what circumstances does the contingent (secondary) beneficiary receive the death benefit?

The secondary beneficiary has second claim to the death benefit in the event that the primary beneficiary dies before the insured

How does the guaranteed insurability rider work?

allows the insured to purchase additional coverage at specified future dates or events such as marriage, or birth of a new child without the proof of insurability

With the reduction of premium option, what happens to the dividend?

applied to next years premium

With regards to the Interest Only Option, what are the roles of the beneficiary the insurance company?

beneficiary receive payments of the interest on the policy proceeds, insurance company retains control of the policy proceeds until the proceeds are paid

If a claim is made, what happen if the insured has misstated his or her age?

benefits are adjusted to an amount that the premium at the correct age would have purchased

Which nonforfeiture option is automatically selected if the policy owner does not choose one?

extended term option will be automatically implemented in the event the original policy is terminated

With the accumulation at interest option, what happens to the dividend?

insurance company keeps dividend and it accumulates interest

Under the cash option, how does the policy owner receive the dividend?

insurer sends policy owner a check (usually annually)

What does the term "double indemnity" mean and what rider is it used with?

it means the insurer will pay the benefit twice the face amount. It is used with Accidental Death rider.

What are the 3 factors that determine the premium for a particular policy?

mortality, interest, and expense

When do benefit payments stop under a Joint and Survivor settlement option?

only guarantees income for 2 or more recipients for as long as they live

What does an absolute assignments do to a life insurance policy?

permanently transfers all rights of ownership to another person or entity

What is the purpose of the Automatic Premium Loan provision?

prevents unintentional lapse of a policy due to nonpayment of the premium

How long will a life income with a 10 year certain settlement option pay?

provides income for as long as recipient shall live. If recipient dies shortly after the start of receiving payments, payments will continue to beneficiary for remainder of 10 year period.

What are the policy dividends?

returns of excess premiums not taxable to policyowners

Explain how the number of installments might determine the amount of the installments in the settlement options with fixed period installments

size of each installment is determined by the amount of principal, guaranteed interest, and the length of period selected. The longer the period selected, the smaller each installment will be.

What could potentially be a downfall of selecting the life income option?

the beneficiary could die shortly after receiving payments. If this happens, the balance of the principal is forfeited

Assuming a similar initial premium, which settlement option pays more - a life and 20 year certain or a life only?

the installments for the life income with period certain option will be smaller than life income only option

What constitutes the entire contract?

the policy and copy of the application, along with any riders or amendments

Under what circumstances can a revocable beneficiary be changed?

the policy owner may change a removable designation at any time without the consent or knowledge of the beneficiary

What happens if a policy owner takes the reduced paid-up option?

the policy's cash value is used as a single premium to secure a completely paid-up policy for a reduced amount