Individual Life Insurance Contract - Provision and Options
An insured receives an annual life insurance dividend check. What term best describes this arrangement
Cash option
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option
Fixed amount
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 stops making payments on a loan taken from his cash value policy. What will most likely happen
The policy will terminate when the loan amount with interest equals or exceeds the cash value
Life income joint and survivor settlement option guarantees
Income for 2 or more recipients until they die
All of the following are dividend options EXCEPT
Fixed-period installments
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
What is the purpose of a fixed-period settlement option
To provide a guaranteed income for a certain amount of time
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner
Cash surrender
What limits the amount that a policyowner may borrow from a whole life insurance policy
Cash value
The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the
Spendthrift clause
When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments
Spendthrift provision
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
The interest is not taxable since it remains inside the insurance policy
How long will the beneficiary receive payments under the single life settlement option
Until the beneficiary's death
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
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
Which of the following policy components contains the company's promise to pay
Insuring clause
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 is TRUE about the 10-day free-look period in a Life Insurance policy
It begins when the policy is delivered
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
The Ownership provision entitles the policyowner to do all of the following EXCEPT
Set premium rates
Which of the following information will be stated in the consideration clause of a life insurance policy
The amount of premium payment
If a life insurance policy has an irrevocable beneficiary designation,
The beneficiary can only be changed with written permission of the beneficiary
Under an extended term nonforfeiture option, the policy cash value is converted to
The same face amount as in the whole life policy
What is the other term for the cash payment settlement option
Lump sum
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
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
Which is NOT true about beneficiary designations
The beneficiary must have insurable interest in the insured
What is the purpose of a suicide provision within a life insurance policy
To protect the insurer from persons who purchase life insurance with the intention of committing suicide
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
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 of the following is TRUE about nonforfeiture values
They are required by state law to be included in the 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
$9,800
A fee charged to the insured when a policy or annuity is exchanged for its cash value is
1Surrender charge
Which is TRUE about the cash surrender nonforfeiture option
Funds exceeding the premium paid are taxable as ordinary income
Which of the following is true regarding the spendthrift clause in life insurance policies
It can protect the policy proceeds from creditors of the beneficiary
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy
It is reduced to the amount of what the cash value would buy as a single premium
Which of the following is true regarding a single life settlement option
It provides income the beneficiary cannot outlive
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 nonforfeiture option provides coverage for the longest period of time
Reduced paid-up
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
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
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
The paid-up addition option uses the dividend
To purchase a smaller amount of the same type of insurance as the original policy
Which of the following statements is TRUE about a policy assignment
It transfers rights of ownership from the owner to another person
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
What is the advantage of reinstating a policy instead of applying for a new one
The original age is used for premium determination
What type of account will most likely be established for a minor
Trust
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
If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used
Lump sum
Which of the following components must a life insurance policy have to allow policy loans
Cash value
When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called
Class designation
