Florida Agent's Health & Life (including Annuities & Variable Contracts) Chapter 3

Which of the following would be deducted from the death benefit paid to a beneficiary, if a partial accelerated death benefit had been paid while the insured was still alive? A 10% federal death benefit income tax, plus the amount of the accelerated benefit B Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit C There are no deductions taken from death benefits. D Penalty imposed for early withdrawal of the death benefit, plus the amount of earnings lost by the insurance company in interest income

B Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated benefit If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

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? A Term rider B Accidental death and dismemberment rider C Guaranteed insurability rider D Change of insured rider

A Term rider Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.

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? A The insured's contingent beneficiary B The insurance company C The insured's estate D The primary beneficiary's estate

A The insured's contingent beneficiary Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.

Which is true about a spouse term rider? A The rider is usually level term insurance. B Coverage is allowed for an unlimited time. C The rider is decreasing term insurance. D Coverage is allowed up to age 75.

A The rider is usually level term insurance. The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

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

A To provide a guaranteed income for a certain amount of time When the fixed-period installments option is selected, the insurer agrees to pay the proceeds in equal installments over a specified period of time.

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years? A 1 year B 2 years C 5 years D 7 years

B 2 years The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

An insured receives an annual life insurance dividend check. What term best describes this arrangement? A Accumulation at Interest B Cash option C Reduction of Premium D Annual Dividend Provision

B Cash option The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

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

B Fixed amount When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

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

B It transfers rights of ownership from the owner to another person. The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment).

The paid-up addition option uses the dividend A To reduce the next year's premium. B To accumulate additional savings for retirement. C To purchase a smaller amount of the same type of insurance as the original policy. D To purchase a one-year term insurance in the amount of the cash value.

C To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called A Waiver of cost of insurance. B Payor benefit. C Waiver of premium. D Guaranteed insurability.

C Waiver of premium. Waiver of premium rider waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

What is the waiting period on a Waiver of Premium rider in life insurance policies? A 30 days B 3 months C 5 months D 6 months

D 6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

According to the Entire Contract provision, a policy must contain A A declarations page with a summary of insureds. B Buyer's guide to life insurance. C Listing of the insured's former insurer(s) for incontestability provisions. D A copy of the original application for insurance.

D A copy of the original application for insurance. An insurance contract must contain a copy of the original application.

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

D Becomes terminally ill. The accelerated benefits provisions allow the owner to be advanced a significant portion of the death benefit when the insured is terminally ill.

Which is TRUE about the cash surrender nonforfeiture option? A After the cash surrender, the insured is covered for a grace period of 1 month. B The policy remains active for some time after the policyholder opts for cash surrender. C The policyholder receives the original cash value of the policy. D Funds exceeding the premium paid are taxable as ordinary income.

D Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

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? A The premiums will become tax deductible until the insured's 18th birthday. B Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. C 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. D The insured's premiums will be waived until she is 21.

D The insured's premiums will be waived until she is 21. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

An absolute assignment is a A Transfer of some ownership rights in a policy. B Change of beneficiary. C Change of insurer. D Transfer of all ownership rights in a policy.

D Transfer of all ownership rights in a policy. Absolute Assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

When may an insurance company use suicide as a defense against paying a death claim? A Only when there was a witness to the event B At any time suicide can be proven C At no time D When death occurs within a specified period of time after the policy was issued

D When death occurs within a specified period of time after the policy was issued An insurance company can deny a claim if the death of the insured was by suicide and occurred within a time specified in the policy.

If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death? A 0% B 50% C 25% D 10%

A 0% If an insured accepts an accelerated death benefit, the death benefit received by the beneficiary will be reduced by the amount paid by the accelerated death benefit, as well as the amount of earnings lost by the insurance company in interest income. Because it is legal for an insurer to pay 100% of the death benefit before an insured dies, it is possible that the beneficiary of a policy would not receive any benefits after the insured's death.

The two types of assignments are A Absolute and collateral. B Absolute and partial. C Complete and partial. D Complete and proportionate.

A Absolute and collateral. Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in A Adjustment in the amount of death benefit. B No change whatsoever. C Automatic lapse. D Recession of the policy.

A Adjustment in the amount of death benefit. If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.

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? A Common Disaster B Accidental Death C Survivor Life D Second-to-Die

A Common Disaster Under the Uniform Simultaneous Death Law, Common Disaster provision, the law will assume that the primary beneficiary dies first in a common disaster as long as the beneficiary dies within this specified period of time following the death of the insured (usually 30 days). This provides that the proceeds will be paid to either the contingent beneficiary or the insured's estate, if no contingent beneficiary is designated.

Items stipulated in the contract that the insurer will not provide coverage for are found in the A Exclusions clause. B Insuring clause. C Benefit Payment clause. D Consideration clause.

A Exclusions clause. Exclusions are restrictions of coverage as stated in the policy.

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? A Insuring clause B Entire contract clause C Beneficiary clause D Consideration clause

A Insuring clause The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A It is reduced to the amount of what the cash value would buy as a single premium. B It is increased when extra premiums are paid. C It decreases over the term of the policy. D It remains the same as the original policy, regardless of any differences in value.

A It is reduced to the amount of what the cash value would buy as a single premium. In a reduced paid-up policy, the original policy's cash value is used as single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until its maturity or the insured's death

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the A One-year term option. B Paid-up option. C Accelerated endowment. D Paid-up additions.

A One-year term option. The dividend is utilized to purchase one year term insurance.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the A Other-insured rider. B Change of insured rider. C Juvenile rider. D Payor rider.

A Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance

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 A Paid-up additions. B One-year term purchase. C Accumulation at interest. D Reduction of premiums.

A Paid-up additions. When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

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? A Pay a reduced death benefit B Pay the full death benefit C Pay nothing; there was a misrepresentation on the application D Pay the full death benefit and refund excess premium

A Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.

All of the following are true regarding insurance policy loans EXCEPT A Policy loans can be made on policies that do not accumulate cash value. B The amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies. C The policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. D Policyowners can borrow up to the full amount of their whole life policy's cash value.

A Policy loans can be made on policies that do not accumulate cash value. The policy loan option is only found in policies that contain cash value.

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? A Return of premium B Cost of living C Decreasing term D Premature death

A Return of premium The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.

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

A Set premium rates. The insurer sets premium rates based upon underwriting considerations.

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

A Suicide is excluded for a specific period of years and covered thereafter. In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit.

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

B An insured is diagnosed with cancer and needs help paying for her medical treatment. Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

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? A Assignment B Automatic premium loan C Waiver of premium D Incontestability period

B Automatic premium loan This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

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? A Ownership provision B Collateral assignment C Insurable interest D Modification clause

B Collateral assignment The business owner could make a collateral assignment of his or her life insurance policy to the bank.

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? A Nonforfeiture Clause B Common Disaster Clause C Spendthrift Clause D Settlement Clause

B Common Disaster Clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

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 A Acceptance. B Consideration. C Conditions. D Utmost good faith.

B Consideration. "Consideration" is the value offered by the insured to the insurer, and vice versa. The insured makes accurate statements in the application and remits premium payments. In exchange, the insurer provides benefits as stipulated in the contract.

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

B Coverage ends and the policy cannot be reinstated. Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount A The same as the original policy minus the cash value. B Equal to the original policy for as long a period of time that the cash values will purchase. C In lesser amounts for the remaining policy term of age 100. D Equal to the cash value surrendered from the policy.

B Equal to the original policy for as long a period of time that the cash values will purchase. With this option, the cash value is used as a single premium to purchase the SAME face amount as the original policy for as long a period of time as the cash will buy at the insured's current age

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 Interest only B Fixed period C Life with period certain D Fixed amount

B Fixed period Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.

All of the following are dividend options EXCEPT A Paid-up additions. B Fixed-period installments. C Accumulated at interest D Reduction of premium.

B Fixed-period installments. Fixed-period installments is a settlement option, and not one of the dividend options

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? A Nonforfeiture options B Guaranteed insurability option C Dividend options D Guaranteed renewable option

B Guaranteed insurability option The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurabilit

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 Nonforfeiture option. B Guaranteed insurability rider. C Paid-up additions option. D Cost of living provision.

B Guaranteed insurability rider. he Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

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? A If the daughter is disabled for any length of time B If the father is disabled for more than 6 months C If the father is disabled for at least a year D If the daughter is disabled for more than 3 months

B If the father is disabled for more than 6 months Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.

Which of the following statements is TRUE concerning irrevocable beneficiaries? A They may be changed only on the anniversary date of the policy. B They can be changed only with the written consent of that beneficiary. C They may be changed at any time. D They can never be changed.

B They can be changed only with the written consent of that beneficiary. Once irrevocable beneficiaries are indicated for the policy, their written consent is required to change the beneficiary.

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? A If the insured died from accidental means B If the primary beneficiary predeceases the insured C The primary and contingent beneficiaries share death benefits equally D With the primary beneficiary's written consent

B If the primary beneficiary predeceases the insured The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

Which of the following policy components contains the company's promise to pay? A Entire contract provision B Insuring clause C Premium mode D Consideration clause

B Insuring clause The insuring clause contains the company's promise to pay.

What is the benefit of choosing extended term as a nonforfeiture option? A It can be converted to a fixed annuity. B It has the highest amount of insurance protection. C It matures at age 100. D It allows for coverage to continue beyond maturity date.

B It has the highest amount of insurance protection. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

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

B It will pay double or triple the face amount. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident

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? A Fixed-amount B Life income with period certain C Joint and survivor D Single life

B Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

What is the other term for the cash payment settlement option? A Proceeds B Lump sum C Principal amount D Face amount

B Lump sum Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

What is the term for how frequently a policyowner is required to pay the policy premium? A Consideration B Mode C Schedule D Grace period

B Mode The premium mode is the manner or frequency that the policyowner pays the policy premium.

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? A Waiver of Premium B Payor Benefit C Jumping Juvenile D Juvenile Premium Provision

B Payor Benefit If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Who can request changes in premium payments, face value, loans, and policy plans? A Producer B Policyowner C Contingent beneficiary D Beneficiary

B Policyowner Mandatory provisions give these rights to the policyowner.

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

B Proof of insurability is not required. If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

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? A Flexible Premium B Reduction of Premium C Accumulation at Interest D Cash option

B Reduction of Premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

The interest earned on policy dividends is A 40% taxable, similar to a capital gain. B Taxable. C Nontaxable. D Tax deductible.

B Taxable. Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

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

B The beneficiary will only receive payments of the interest earned on the death benefit. With the Interest Only settlement option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually).

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

B The same face amount as in the whole life policy. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

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

C $100,000 The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

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? A $0 B $100,000 C $200,000 D $100,000 plus the total of paid premiums

C $200,000 The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies

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? A $20,000 B $25,000 C $50,000 D The face amount will be determined by the insurer.

C $50,000 The face of the term policy would be the same as the face amount provided under the whole life policy.

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? A $0 B $200 C $9,800 D $10,000

C $9,800 In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

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

C Both the principal and interest will be liquidated over a selected period of time. Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time

Life income joint and survivor settlement option guarantees A Payout of the entire death benefit. B Equal payments to all recipients. C Income for 2 or more recipients until they die. D Payment of interest on death proceeds.

C Income for 2 or more recipients until they die. The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies, although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.

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? A Joint and survivor B Fixed amount option C Interest only option D Life income with period certain

C Interest only option With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Which of the following is true about the mandatory free look in a Life Insurance policy? A It applies only to term life insurance policies. B It is optional on all life insurance policies. C It commences when the policy is delivered. D It commences when the application is signed.

C It commences when the policy is delivered. The free look provision is a mandatory provision that allows the insured to examine a policy, and if dissatisfied for any reason, return the policy for a full refund of any premiums paid

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

C It determines who receives policy benefits if the primary beneficiary is deceased. Naming a secondary beneficiary (also referred to as contingent beneficiary) ensures that there is a beneficiary to receive policy proceeds if the primary beneficiary dies before the insured. If there is no secondary beneficiary, the policy benefits will go to the insured's estate.

Which two terms are associated directly with the premium? A Term or permanent B Renewable or convertible C Level or flexible D Fixed or variable

C Level or flexible A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? A The Consideration Clause B Assignment Rights C Owner's Rights D The Entire Contract Provision

C Owner's Rights Policyowners can learn about their ownership rights by referring to the policy.

An insured purchases a policy in 2008 and died in 2013. The insurance company discovers at that time that the insured concealed information during the application process. What can they do? A Pay a decreased death benefit B Sue for the right to not pay the death benefit C Pay the death benefit D Refuse to pay the death benefit because of the fraud

C Pay the death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

Which of the following riders would NOT cause the Death Benefit to increase? A Cost of Living Rider B Accidental Death Rider C Payor Benefit Rider D Guaranteed Insurability Rider

C Payor Benefit Rider Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

Which of the following factors determines the amount of each installment paid in a Life Income Option arrangement? A Recipient's health and death benefits B Projected life insurance and health insurance C Recipient's life expectancy and amount of principal D Projected income

C Recipient's life expectancy and amount of principal The recipient's life expectancy and the amount of principal determine the amount of each installment paid in the Life Income Option arrangement.

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? A Incontestable clause B Grace period C Reinstatement provision D Waiver of premium provision

C Reinstatement provision A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

Nonforfeiture values guarantee which of the following for the policyowner? A That the death benefit will be paid in a lump sum B That the policy premiums will never increase C That the cash value will not be lost D That the dividends will be paid annually

C That the cash value will not be lost Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? A The policy beneficiary takes over the loan payments. B The policy is rendered null and void. C The balance of the loan will be taken out of the death benefit. D The policy beneficiary receives the full death benefit.

C The balance of the loan will be taken out of the death benefit. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

If a life insurance policy has an irrevocable beneficiary designation, A The owner can always change the beneficiary at will. B The beneficiary cannot be changed. C The beneficiary can only be changed with written permission of the beneficiary. D The beneficiary cannot be changed for at least 2 years.

C The beneficiary can only be changed with written permission of the beneficiary. If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

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 A Both children who share equally on a per-capita basis. B The insurance company. C The insured's estate. D The insured's firstborn child.

C The insured's estate. Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate.

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 A The state. B The beneficiary's estate. C The insured's estate. D Probate.

C The insured's estate. In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A The interest is credited at a rate specified by the policy. B The policyholder has the right to withdraw the accumulations at any time. C The interest is not taxable since it remains inside the insurance policy. D The annual dividend is retained by the company.

C The interest is not taxable since it remains inside the insurance policy. The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

What is the advantage of reinstating a policy instead of applying for a new one? A The face amount can be increased B The cash values have gained interest while the policy was lapsed C The original age is used for premium determination D Proof of insurability is not required

C The original age is used for premium determination The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

Which of the following is TRUE about nonforfeiture values? A A table showing nonforfeiture values for the next 10 years must be included in the policy. B Policyowners do not have the authority to decide how to exercise nonforfeiture values. C They are required by state law to be included in the policy. D They are optional provisions.

C They are required by state law to be included in the policy. Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policyowner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

All of the following are true regarding the guaranteed insurability rider EXCEPT A The insured may purchase additional insurance up to the amount specified in the base policy. B It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. C This rider is available to all insureds with no additional premium. D The insured may purchase additional coverage at the attained age.

C This rider is available to all insureds with no additional premium. The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

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

D Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? A Reduced paid-up B Paid-up options C Extended term D Cash surrender

D Cash surrender Once the cash surrender value is paid, the contract is over.

Which of the following is NOT typically excluded from life policies? A Self-inflicted death B Death that occurs while a person is committing a felony C Death due to war or military service D Death due to plane crash for a fare-paying passenger

D Death due to plane crash for a fare-paying passenger Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

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 A Total contract. B Aleatory contract. C Complete contract. D Entire contract.

D Entire contract. The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

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

D Family term rider A single rider that provides coverage on every family member is called a "family rider".

What provision in an insurance policy extends coverage beyond the premium due date? A Free look B Automatic premium loan C Waiver of premium D Grace period

D Grace period Grace period is a mandatory provision found in all life and health insurance policies that provides coverage for a period of time after the premium becomes past due.

All of the following are Nonforfeiture options EXCEPT A Cash surrender B Extended term C Reduced paid-up D Interest only

D Interest only Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option.

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

D It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. Children's rider are term insurance covering all of the children in the family, including newly born children, and are convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

Which of the following is true about the premium on the children's rider in a life insurance policy? A It decreases when the oldest child reaches the age of 21. B It increases when a newborn baby is added to the policy. C It decreases when an adopted child is added to the policy. D It remains the same no matter how many children are added to the policy.

D It remains the same no matter how many children are added to the policy. The premium does not change on the inclusion of additional children; it is based on an average number of children.

If a settlement option is not chosen by the beneficiary or policyowner, which option will be used? A Life income B Fixed period C Fixed amount D Lump sum

D Lump sum Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.

Regarding the free-look provision, the insurance company A Cannot charge a premium after 10 days. B Must issue a free policy for 30/31 days. C Must issue a free policy for 10 days. D Must allow the policyowner to return the policy for a full refund.

D Must allow the policyowner to return the policy for a full refund. This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.

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

D Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy

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

D Reduction of premium The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

If a life insurance policy has an irrevocable beneficiary designation, A The beneficiary cannot be changed for at least 2 years. B The owner can always change the beneficiary at will. C The beneficiary cannot be changed. D The beneficiary can only be changed with written permission of the beneficiary.

D The beneficiary can only be changed with written permission of the beneficiary. If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy? A The policy's cash value B A refund of premiums C Nothing, since the insured was killed as a result of a war D The full death benefit

D The full death benefit War or Military Service Clause specifically excludes or limits the insurer's liability for losses caused by war or active military service. If a life insurance policy does not have that exclusion, the benefits are paid to the beneficiary, as if the insured died of any other cause.