FL 2-15 Chapter 3 Practice Questions

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called

Joint and survivor.

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain

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

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. How much will the beneficiary receive from the policy?

$200,000

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?

$9,800

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

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

Adjustment in the amount of death benefit.

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.

Which of the following premium payment modes will incur the lowest overall payment?

Annual

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

Becomes terminally ill.

Which of the following is TRUE about a class designation?

Beneficiaries are not identified by name.

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option

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

An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?

Common Disaster

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

Common Disaster Clause

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

Copy of the original application

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?

Cost of Living Rider

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated.

Which of the following is NOT typically excluded from life policies?

Death due to plane crash for a fare-paying passenger

All of the following statements concerning dividends are true EXCEPT

Dividend amounts are guaranteed in the policy.

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause.

Which nonforfeiture option has the highest amount of insurance protection?

Extended Term

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider

What required provision protects against unintentional lapse of the policy?

Grace period

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 life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the

Incontestability clause.

All of the following are Nonforfeiture options EXCEPT

Interest only

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?

Interest only option

What is the purpose of a free-look period in insurance policies?

It allows the insured to reject the policy with a full refund.

Which of the following is true about the mandatory free look in a Life Insurance policy?

It commences when the policy is delivered.

Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home?

Long-term care

If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used?

Lump sum

Regarding the free-look provision, the insurance company

Must allow the policyowner to return the policy for a full refund.

Using a class designation for beneficiaries means

Naming beneficiaries as a group.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the

One-year term option.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the

Other-insured rider.

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called

Paid-up additions.

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.

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

Reinstatement provision

Which of the following describes attachments made to policies that either add or modify coverage?

Riders

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.

Which of the following information will be stated in the consideration clause of a life insurance policy?

The amount of premium payment

A 40-year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to

The insured's estate.

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.

Which is true about a spouse term rider?

The rider is usually level term insurance.

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 statements is TRUE concerning irrevocable beneficiaries?

They can be changed only with the written consent of that beneficiary.

What is the purpose of settlement options?

They determine how death proceeds will be paid.

An absolute assignment is a

Transfer of all ownership rights in a policy.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called

Waiver of premium.

When may an insurance company use suicide as a defense against paying a death claim?

When death occurs within a specified period of time after the policy was issued

An insured pays an annual premium to his insurer. In return, the insurer promises to pay benefits in accordance with the terms of the contract. This is called

Consideration.

What provision in an insurance policy extends coverage beyond the premium due date?

Grace period

Which of the following statements about the reinstatement provision is true?

It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.

Which of the following statements is TRUE about a policy assignment?

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

Which of the following statements is TRUE concerning the Accidental Death Rider?

It will pay double or triple the face amount.

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

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?

Paid-up option

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

Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?

Payor Benefit

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

Payor Benefit Rider

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?

Policyowner

When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy, as well as a refund of all of the premiums paid. Which rider is attached to the policy?

Return 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, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?

Term rider

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.

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

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military?

War or military service

According to the Entire Contract provision, a policy must contain

A copy of the original application for insurance.

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 minor son of the insured

The two types of assignments are

Absolute and collateral.

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

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Cash surrender

The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the

Entire contract.

All of the following are dividend options EXCEPT

Fixed-period installments.

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income.

An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?

If the primary beneficiary predeceased the insured

What type of insurance would be used for a Return of Premium rider?

Increasing Term

Which two terms are associated directly with the premium?

Level or flexible

Which of the following settlement options in life insurance is known as straight life?

Life income

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

Mode

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

Reduced paid-up

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?

Reduction of Premium

An insured committed suicide 6 months after his life insurance policy was issued. The insurer will

Refund the premiums paid.

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

Term

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit.

Which is NOT true about beneficiary designations?

The beneficiary must have insurable interest in the insured.

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to

The insured's estate.

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's premiums will be waived until she is 21.

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy.

All of the following are true regarding the guaranteed insurability rider EXCEPT

This rider is available to all insureds with no additional premium.

The interest earned on policy dividends is

Taxable.

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection.

The automatic premium loan provision is activated at the end of the

Grace Period

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid?

Insuring clause

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?

Automatic premium loan

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.

Which of the following is true of a children's rider added to an insured's permanent life insurance policy?

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 best describes fixed-period settlement option?

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

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?

Fixed amount

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

Life income joint and survivor settlement option guarantees

Income for 2 or more recipients until they die.

Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?

Size of each installment

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 only receive payments of the interest earned on the death benefit.

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 the premium on the children's rider in a life insurance policy?

It remains the same no matter how many children are added to the policy.

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to

The contingent beneficiary.

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 smaller.