Life and Health Chapter 4

The insuring agreement in a life insurance policy states which of the following?

The obligation of the insurance company to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force

Which of the following is a reason why "class" designations of beneficiaries may be a problem?

They are vague descriptions of beneficiaries that could result in a court having to decide which person(s) will or will not receive the policy proceeds

The technical name of the person who makes a policy assignment is the: a. Assignor b. New owner c. Old owner d. Assignee

a. Assignor

If the beneficiary is concerned about a particular amount of cash flow each month, the _______ settlement option should be selected. a. Fixed Amount b. Life with Period Certain c. Fixed Period d. Interest Only

a. Fixed Amount

If overdue premiums are paid during the __________ period, the policy will remain in effect. a. Grace b. Nonforfeiture c. Loan d. Extended premium paying

a. Grace

J has an event that could be subject to a claim. This event occurs on April 1 of this year. How long does J have to bring legal action against the insurer? a. June 1 of this year b. July 1 of this year c. April 1 of next year d. October 1 of this year

c. April 1 of next year

The nonforfeiture option that, if exercised, terminates all coverage is: a. Reduced Paid-Up b. Extended Term c. Cash Surrender d. Paid-up Additions

c. Cash Surrender

What is meant when a life insurance policy becomes incontestable?

After 2 years, the insurer will not refuse to pay a death claim based on misinformation in the original application for insurance

The spendthrift laws of each state protect life insurance proceeds against the claims of which of the following?

Creditors of any beneficiary

Dividend options do not include which of the following choices?

Lifetime income

Interest only, life income with refund, lump sum, and life income only are all forms of which of these life insurance policy options?

Settlement Options

Policy loan provisions include all of the following, EXCEPT:

The death benefit of a policy is automatically reduced when a loan is requested

The grace period in a life insurance policy is typically 31 days and provides for the:

The payment of the premium after the due date without penalty or lapse in coverage

A contingent beneficiary has the right to which of the following?

The policy proceeds only when there is no primary beneficiary

What is the primary advantage to the policyowner in the reinstatement of a life insurance policy?

The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium

Paul is the insured and policyowner. Paul named Danny and Kayla as co-primary beneficiaries of Paul's $100,000 policy. What is the payout if Paul dies? a. $50,000 to Danny and $50,000 to Kayla b. $25,000 to Danny and Danny's spouse and $25,000 to Kayla and Kayla's spouse c. $100,000 to Danny and $100,000 to Kayla d. $50,000 is split amongst Danny and Kayla's children

a. $50,000 to Danny and $50,000 to Kayla

In a whole life policy, cash value must be made available to borrow against after _____ years. a. 3 b. 2 c. 5 d. 4

a. 3

_____________ is/are not considered material to the policy issuance. a. Age and/or gender b. Recent major inpatient hospital surgeries c. Hazardous occupations and/or hobbies d. 12 driving under the influence tickets within 6 months prior to application

a. Age/Gender

Albert owns a life insurance policy insuring his son David. He wants a Settlement Option that, if David were to die, would provide guaranteed payments to Albert and his wife until both of them die. Albert's producer should recommend: a. Life Income Joint and Survivor b. Joint Life c. Fixed Amount d. Life Income Period Certain

a. Life Income Joint and Survivor

Tom is the beneficiary and is concerned about both running out of money during his lifetime and at the same time leaving funds behind to the insurer. Looking for some time period guarantee, Tom should consider the _________ settlement option. a. Life with Period Certain b. Life with Refund c. Joint and Survivor Life d. Life Only

a. Life with period certain

Burt named Liz as his beneficiary; however, he did not choose a Settlement Option. At the time of his death, who determines the option to be used to receive the benefits? a. Liz the beneficiary determines which option she would like to have b. Lump sum is the automatic option when no option was preselected prior to death of the insured c. The insurer decides when the election is not made by the policyowner prior to death d. Burt's estate, since no Settlement Option was chosen

a. Liz the beneficiary determines which option she would like to have

A life Insurance policyowner receives an annual dividend. One option for this dividend is to use it to offset the annual obligation to the insurer. What is this option called? a. Premium Reduction b. Paid up additions c. Cash Surrender d. Cash

a. Premium Reduction

All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except: a. The premiums have not been paid and have been overdue for 3 years b. The insured was an experienced pilot who died in a plane crash but had a policy issued with an aviation rider for an additional premium c. The insurer discovers the gender of the insured was misstated d. An insured commits suicide 7 years after the policy was issued

a. The premiums have not been paid and have been overdue for 3 years

Which of the following policies allow for a partial withdrawal or partial surrender? a. Universal Life b. Current Assumption Life c. Traditional Whole Life d. Variable Whole Life

a. Universal Life

K has a $50,000 traditional whole life policy in force with $25,000 of cash values. Her outstanding loan and loan interest total $5,000. If K surrenders the policy, K will receive: a. $30,000 b. $20,000 c. $45,000 d. $25,000

b. $20,000

A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy's named beneficiary receive? a. $70,000 b. $90,000 c. $80,000 d. $100,000

b. $90,000

After a life insurance policy has been in force for more than _____ years the policy is considered incontestable. a. 3 b. 2 c. 4 d. 1

b. 2 years

B's policy had a $1,000 annual premium. B has not paid it for 2 years and wants to put the policy back in force. The insurer charges 10% interest on overdue premiums. What does B have to pay in order to reinstate their policy? a. 2 years of premiums, a reinstatement fee, and interest b. 2 years of premiums, plus interest due on overdue premiums amounts c. 2 years of premiums d. One month's premium, plus a reinstatement fee specified in the policy

b. 2 years of premiums, plus interest due on overdue premiums amounts

Tom elects the Life Income with 10-year Period Certain settlement option. Tom dies in year 6. The beneficiary receives payments for _______. a. Life b. 4 years c. 6 years d. 10 years

b. 4 years

If overdue premiums are not paid by the end of the grace period, a traditional whole life policy will automatically: a. Be cash surrendered b. Become extended term c. Be reduced in face amount by the amount of the overdue premium d. Be canceled with no value

b. Become extended term

The cash received by the policyowner when he/she terminates a policy is known as what? a. Accrued Premium Value b. Cash Surrender Value c. Loan Value d. Paid-Up Insurance Value

b. Cash Surrender Value

An insured goes to the bank for a business start-up loan. Asking for more security, the bank agrees to accept a(n) __________ on a permanent life insurance policy owned by the customer. a. Exclusion Provision b. Collateral Assignment c. Policy Loan d. Promissory Note

b. Collateral Assignment

What provision describes the parts of the life insurance contract? a. Incontestability b. Entire Contract c. Consideration d. Insuring

b. Entire Contract

When a policy lapses due to nonpayment of premium, which nonforfeiture option is the automatic option? a. Reduced paid-up b. Extended term c. Cash surrender value d. Automatic premium loan

b. Extended term

If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due. a. Incontestability b. Grace c. Reinstatement d. Settlement

b. Grace

Fred owns a 40-Pay Life Policy. He designated his wife, Ethel, as primary beneficiary. Upon Fred's death, Ethel receives a set amount for life. Fred chose which Settlement Option? a. Fixed Period b. Life Income Only c. Joint Life d. Extended Term

b. Life Income Only

How long, typically, is the grace period on a $500,000 level term life insurance policy? a. One week b. One month c. One quarter d. One year

b. One month

The name of the beneficiary designation that will pay a deceased beneficiary's share to the heirs of that beneficiary who predeceases the insured is called: a. Per individual b. Per stirpes c. Per capita d. Per class

b. Per stirpes

Which of the following is NOT a Dividend Option? a. Paid in Cash b. Reduced Paid-Up c. Accumulate at Interest d. Paid-Up Additions

b. Reduced Paid-Up

The provision which denies the beneficiary the right to commute, alienate, or assign his/her interest in the policy proceeds is: a. The Insuring Clause b. The Spendthrift Clause c. The Consideration Clause d. The Common Disaster Clause

b. The Spendthrift Clause

What is the purpose of nonforfeiture values? a. Federal insurance law requires them b. Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium c. The NAIC mandates nonforfeiture values d. It is a way for the insurance company to charge extra for this optional benefit

b. Without them, any cash values would be retained by the insurer when the policy lapses due to non-payment of premium

How long, typically, is the reinstatement period from policy lapse? a. 1 year b. 2 years c. 3 years d. Indefinitely

c. 3 years

Which of the following is an example of a collateral assignment? a. A wealthy person signing over a life insurance policy to their irrevocable trust for estate planning purposes b. A corporation signing over a policy on the life of an executive upon their retirement c. A business using a life insurance policy to secure a bank loan d. A parent turning over the juvenile policy to the now adult child

c. A business using a life insurance policy to secure a bank loan

If no money is involved when the ownership of a policy changes, this is referred to specifically as a(n) __________. a. Transfer for value b. Viatical settlement c. Absolute assignment d. Life settlement

c. Absolute assignment

What will cause the time period of the fixed amount settlement option to be extended? a. Lower mortality b. A decrease in the insurer's expenses c. An increase in interest credited d. A stock market rally

c. An increase in interest credited

The ____________ provision prevents a Whole Life Policy from lapsing, as long as there is adequate cash value, if the insured/policyowner forgets to pay the premium by the end of the grace period. a. Reinstatement b. Mode of Premium c. Automatic Premium Loan d. Conservation

c. Automatic Premium Loan

Concerning the Paid-Up Additions Dividend Option, all of the following are true, except: a. Paid-up additions increase the amount of future dividends credited b. Paid-up additions have their own increasing cash values c. Eventually, no more premiums will be due on the policy d. These single premium additions do not change the face value of the original policy

c. Eventually, no more premiums will be due on the policy

Which of the following provisions commence at the time of the delivery of the policy to the insured? a. Suicide Clause b. Misstatement of Age or Gender c. Free Look Period d. Insuring Clause

c. Free Look Period

Which of the following statements regarding life insurance policy exclusions is TRUE? a. The war clause states coverage is provided if death is the result of war b. The status clause states that coverage is provided to individuals with military status c. Generally, aviation is excluded, except for fare-paying passengers on a commercial flight d. Hazardous occupations are usually covered at a reduced benefit if death is the result of an insured's occupation

c. Generally, aviation is excluded, except for fare-paying passengers on a commercial flight

Which of the following correctly describes the effect of the Common Disaster Clause? a. If the insured and primary beneficiary are killed in an auto accident in which both were in the car at the time of the crash, an autopsy will be required in order to determine which passenger died first b. If the primary and contingent beneficiary die when the boat they were sailing in sinks, it is presumed that the primary beneficiary outlived the contingent beneficiary for claims paying purposes c. If an insured and primary beneficiary both are killed when the bus they are riding in goes over a cliff and if it cannot be determined who died first, the insured or primary beneficiary, the insured will be presumed to have survived the primary beneficiary so the contingent beneficiary will be able to receive the death proceeds d. If an insured and contingent beneficiary both die in a train wreck, it is presumed that the insured died first in order to protect the primary beneficiary's right to claim the death benefit

c. If an insured and primary beneficiary both are killed when the bus they are riding in goes over a cliff and if it cannot be determined who died first, the insured or primary beneficiary, the insured will be presumed to have survived the primary beneficiary so the contingent beneficiary will be able to receive the death proceeds

No assignment of a policy will be binding on the insurer, unless: a. Sworn affidavits accompany the request b. It is accompanied by supporting legal documentation c. It is in writing and received at the insurer's home office d. It is determined to be a valid by the insurer

c. It is in writing and received at the insurer's home office

The __________ provision specifies what an insured must do, if a policy has lapsed, in order to put it back in force? a. Reissuance b. Reconsideration c. Reinstatement d. Renewal

c. Reinstatement

Linda wants her husband to be the beneficiary of her life policy but also wants to retain all rights of ownership. Which of the following types of beneficiary designations should she use? a. Contingent beneficiary b. Tertiary beneficiary c. Revocable beneficiary d. Irrevocable beneficiary

c. Revocable beneficiary

The owner's rights include all of the following, except: a. Name and change beneficiaries b. Borrowing the cash values c. Selection of mortality table to use d. Select dividend paying options on a participating policy

c. Selection of mortality table to use

All of the following can determine the death benefit settlement option, except: a. The policyowner prior to death b. The beneficiary if no option was designated c. The insurer d. The beneficiary if the policyowner directs the insurer to permit him or her to choose

c. The insurer

If an insurer is successful in challenging the claim on a life insurance policy, what happens next? a. The insurer reports this to the MIB b. The insurer will demand a return of the policy c. The insurer refunds all premiums received d. The insurer will reprimand the producer

c. The insurer refunds all premiums received

What provision establishes that if both the insured and the primary beneficiary die in the same accident, and it cannot be determined who died first, the insured will be presumed to have survived the beneficiary and proceeds will be paid to a named contingent beneficiary of the insured, or to the insured's estate? a. Spendthrift Clause b. Consideration Clause c. Insuring Clause d. Common Disaster Clause

d. Common Disaster Clause

If an applicant for life insurance misstates his age on the application, what would be the consequence if/when it is discovered? a. Real age divided by actual age, multiplied by death benefit b. Premiums refunded with interest, no death benefit paid c. The policy will be voided d. Death benefit will be what the premium paid would have purchased at issuance at the correct age

d. Death benefit will be what the premium paid would have purchased at issuance at the correct age

Once issued, if the application is attached to the policy itself, it then becomes part of the ___________. a. Insuring Clause b. Incontestability Clause c. Consideration Clause d. Entire contract

d. Entire Contract

An insured has a $175,000 permanent life insurance policy and is having difficulty keeping up with the premium payments. Which Nonforfeiture Option would allow him to forego the premiums and retain the same face amount until the cash surrender value is exhausted? a. Cash Surrender b. Reduced Paid-Up c. Premium Reduction d. Extended Term

d. Extended term

A policy is issued with a rider. Years later the policyowner would like to drop the rider in order to save some money. Who has the authority to effect that policy change? a. The producer b. The insured c. The beneficiary d. An executive officer of the insurer

d.An executive officer of the insurer