Chapter 4 - Life Insurance policy provisions, options and riders

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? $0 $50,000 (50% of the policy value) $100,000 $300,000 (triple the amount of policy value)

$100,000

An insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?

$200,000

An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy? $20,000 $25,000 $50,000 The face amount will be determined by the insurer.

$50,000

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

6 months

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death? A business partner of the insured The wife of the deceased insured The former wife of the deceased insured A minor son of the insured

A minor son of the insured

Under which of the following circumstances would an insurer pay accelerated benefits? A couple wants to build a house and would like to make a larger down payment. An insured is diagnosed with cancer and needs help paying for her medical treatment. A couple is nearing retirement and needs a steady stream of income. An insured is looking for a way to put her daughter through college.

An insured is diagnosed with cancer and needs help paying for her medical treatment.

The accelerated benefits provision will provide for an early payment of the death benefit when the insured Needs to borrow money. Has earned enough credits. Becomes disabled. Becomes terminally ill.

Becomes terminally ill.

Which of the following is TRUE about a class designation? Beneficiaries are not identified by name. Beneficiaries must be part of the insured's immediate family. It is not allowed. It determines the succession of beneficiaries.

Beneficiaries are not identified by name.

Which of the following best describes fixed-period settlement option? The death benefit must be paid out in a lump sum within a certain time period. Income is guaranteed for the life of the beneficiary. Both the principal and interest will be liquidated over a selected period of time. Only the principal amount will be paid out within a specified period of time.

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

A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? Collateral assignment Insurable interest Modification clause Ownership provision

Collateral assignment

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? Inflation Rider Cost of Living Rider Value Adjustment Rider Return of Premium Rider

Cost of Living Rider

A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called Living need rider. Payor rider. Cost of living rider. Accelerated benefit rider.

Cost of living rider.

What happens when a policy is surrendered for its cash value? The policy can be reinstated by paying back all policy loans and premiums. The policy can be converted to term coverage. Coverage ends and the policy cannot be reinstated. Coverage ends but the policy can be reinstated at any time.

Coverage ends and the policy cannot be reinstated.

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member? Additional insured rider Family term rider Spouse rider Children's rider

Family term rider

Which nonforfeiture option provides coverage for the longest period of time? Paid-up option Accumulated at interest Reduced paid-up Extended term

Reduced paid-up

An insured committed suicide one year after his life insurance policy was issued. The insurer will Pay nothing. Refund the premiums paid. Pay the policy's cash value. Pay the full death benefit to the beneficiary.

Refund the premiums paid.

J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid? Anytime, because the agent did not deliver the policy promptly. February 28th, or IO days after the time the policy is delivered. The time varies from one policy to anothen It was already too late when J received the policy because the 10-day free-look period had expired.

February 28th, or IO days after the time the policy is delivered.

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? Life income period certain Extended term Fixed amount Fixed period

Fixed amount

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 Waiver of cost of insurance. Accelerated benefits. Cost of living. Guaranteed insurability.

Guaranteed insurability.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium? If the daughter is disabled for more than 3 months If the daughter is disabled for any length of time If the father is disabled for more than 6 months If the father is disabled for at least a year

If the father is disabled for more than 6 months

What type of insurance would be used for a Return of Premium rider? Level Term Decreasing Term Annually Renewable Term Increasing Term

Increasing Term

During partial withdrawal from a universal life policy, which portion will be taxed? Principal Loan Interest Cash value

Interest

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? Fixed amount option Interest only option Life income with period certain Joint and survivor

Interest only option

What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy? It determines who receives policy benefits if the primary beneficiary is deceased. It allows creditors to receive payment out of the proceeds. It ensures the policy proceeds will be split between the primary and contingent beneficiaries. It requires that someone who is not the primary beneficiary handles the estate.

It determines who receives policy benefits if the primary beneficiary is deceased.

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? The policy covers only the natural children of the insured. Each child covered must show evidence of insurability. It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. It is permanent insurance.

It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.

Which of the following applies to the 10-day free-look privilege? It allows the insured 10 days to pay the initial premium. It can be waived only by the insurance company. It is granted only at the option of the agent. It permits the insured to return the policy for a full refund of premiums paid.

It permits the insured to return the policy for a full refund of premiums paid.

Which of the following is true regarding a single life settlement option? Payments continue until the entire principal is exhausted. Proceeds are paid out in a lump sum. It provides income for a specified period of time. It provides income the beneficiary cannot outlive.

It provides income the beneficiary cannot outlive.

Which of the following statements is TRUE about a policy assignment? It transfers rights of ownership from the owner to another person. It is the same as a beneficiary designation. It permits the beneficiary to designate the person to receive the benefits. It authorizes an agent to modify the policy.

It transfers rights of ownership from the owner to another person.

Which of the following statements is TRUE concerning the Accidental Death Rider? It is only available in group insurance. It will pay double or triple the face amount. It is also known as a triple indemnity rider. This rider is only available to insureds over the age of 65.

It will pay double or triple the face amount.

Which of the following settlement options in life insurance is known as straight life? Single life Life with period certain Fixed amount Life income

Life income

When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value? The face amount Mortality costs The cash surrender amount Outstanding loans and interest

Outstanding loans and interest

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident, and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do? Pay a reduced death benefit Pay the full death benefit Pay nothing; there was a misrepresentation on the application Pay the full death benefit and refund excess premium

Pay a reduced death benefit

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? Her parents' federal income tax receipts Medical exam and parents' medical history Proof of insurability is not required. Medical exam

Proof of insurability is not required.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to Purchase a term rider to attach to the policy. Pay back all premiums owed plus interest. Receive payments for a fixed amount. Purchase a single premium policy for a reduced face amount.

Purchase a single premium policy for a reduced face amount.

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. Secondary beneficiary. Contingent beneficiary. Irrevocable beneficiary.

Revocable beneficiary.

The Ownership provision entitles the policyowner to do all of the following EXCEPT Assign the policy. Designate a beneficiary. Set premium rates. Receive a policy loan.

Set premium rates.

All of the following are beneficiary designations EXCEPT primary• Specified. Tertiary. Contingent.

Specified.

Children's riders attached to whole life policies are usually issued as what type of insurance? Variable life Adjustable life Whole life Term

Term

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

The beneficiary will only receive payments of the interest earned on the death benefit.

If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?

The death benefit will be reduced or smaller

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit? The insured's contingent beneficiary The insurance company The insured's estate The primary beneficiary's estate

The insured's contingent beneficiary

A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. The insured's premiums will be waived until she is 21. The premiums will become tax deductible until the insured's 18th birthday. Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected.

The insured's premiums will be waived until she is 21.

If an insured continually uses the automatic premium loan option to pay the policy premium, The cash value will continue to increase. The insurer will increase the premium amount. The policy will terminate when the cash value is reduced to nothing. The face amount of the policy will be reduced by the automatic premium loan amount.

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 beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

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. They are optional provisions. A table showing nonforfeiture values for the next 10 years must be included in the policy. Policyowners do not have the authority to decide how to exercise nonforfeiture values.

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

What is the purpose of a fixed-period settlement option? To provide a guaranteed income for life To provide a guaranteed amount of money each month To provide a guaranteed income for a certain amount of time To settle the insurance company's liability

To provide a guaranteed income for a certain amount of time

An absolute assignment is a Transfer of some ownership rights in a policy. Change of beneficiary. Change of insuren Transfer of all ownership rights in a policy.

Transfer of all ownership rights in a policy.

The Waiver of Cost of Insurance rider is found in what type of insurance? Joint and Survivor Juvenile Life Universal Life Whole Life

Universal Life

What kind of policy allows withdrawals or partial surrenders? Variable whole life Universal life 20-pay life Term policy

Universal life

Who can request changes in premium payments, face value, loans, and policy plans?

policyowner