LIfe insurance

All of the following statements are true about the changing of a beneficiary, EXCEPT:

A change of beneficiary may be made by simply calling the insurer. --- The beneficiary is the person, persons or legal entity to which insurance proceeds will be paid in the event of the insured's death. A change of beneficiary must be made in writing to the insurance company.

All of the following are true of reinstating a life insurance policy, EXCEPT:

A policy may be reinstated any time after 10 years after the date of default. --- REINSTATEMENT The restoration of a lapsed policy. Reinstatement requires payment of all back premiums plus interest, plus evidence of insurability. Reinstatement is possible in the first three years of default (some policies allow five years). Policies that cannot be reinstated: 1. A policy that has been surrendered for cash. 2. A policy that has exceeded the period of extended term insurance used in nonforfeiture.

Which of the following is correct about minor beneficiaries?

A trust can be the beneficiary of a policy. --- Minor Beneficiary Insurer will not pay benefits to children under a specified age. The age is specified by state law and can be less than 18. For beneficiaries under the state specified minimum age, benefits will be paid to a guardian or custodian named by the policy owner. If a guardian or custodian has not been named the insurer will hold the benefits in trust until the court names a custodian. A trust can be named as beneficiary of a life insurance policy. The trust specifies how the proceeds of the policy are to be used.

Henry Mayorga purchased a 30 year endowment policy and wants to accumulate the greatest amount of cash possible over the 30 years. To accomplish this purpose Henry's dividends should be:

Allowed to accumulate at interest --- Accumulate at interest dividend option gives the most possible cash build up in the policy.

Bobby, a student airline pilot purchased a life insurance policy at the standard rate. The policy he purchased probably contains which of the following:

Aviation exclusion rider --- The Aviation Exclusion Rider allows a pilot to buy insurance at standard rates, but if killed while flying the policy would exclude coverage.

A dividend:

Cannot be guaranteed --- A dividend is the return of an overcharged or unused premium. Dividends are not taxable. Dividends are never guaranteed. Dividends are issued to owners of participating (par) policies when the insurance company has surplus funds. Mutual companies must issue par policies.

What nonforfeiture option is called the automatic nonforfeiture option and will provide the same face value as the original policy?

Extended term --- Extended Term is called the Automatic Nonforfeiture Option. The cash value is used to buy a term policy with the same face value as the old lapsed policy. The term period will last as long as the cash value will pay the premium.

Ed Rushton owns a $50,000 participation whole life policy. He decides to use the dividends to purchase paid-up additions. How is the amount of paid-up insurance determined?

Paid-up additions are paid on a net premium basis (no agent's commission is involved). The dividends are used to buy a small paid-up insurance policy of the same kind as the current policy. The face amount that may be purchased depends upon the attained age of the insured and also the amount of dividends paid. A participation policy must pay dividends if there is a surplus.

At the death of the insured, who is eligible to receive the proceeds of a life insurance policy first?

Primary beneficiary as stated in the insurance policy --- The primary beneficiary has first rights to receive proceeds under the terms of the policy upon death of the insured. The contingent beneficiary is the second named beneficiary. If no primary or contingent beneficiary is named the insurer pays proceeds to the insured's estate.

Which of the following riders provide that the cash value, or the equivalent of the cash value, will be paid to the beneficiary on the death of the insured?

Return of Cash Value --- Return of cash value is an increasing amount of term insurance that always equals the amount of cash value. Return of premium is an increasing amount of term insurance that always equals the amount of premium paid. These are both term riders which will terminate at some point in the policy.

Select a settlement option that might provide payments which exceed the policy face amount, plus interest.

Straight life settlement option --- All life income options may have payments that exceed the face value plus interest if the beneficiary outlives the annuity life expectancy tables. Straight Life Settlement Option and Period Certain Life Income Option are both life income options. The other life income options are cash refund, joint and survivor.

An insured may choose any of the following as a beneficiary, except:

The family pet --- An insured may designate an individual (including a minor), a class of individuals, his/her estate, a trust, an institution, a charity, or an organization as beneficiary. Naming an animal or pet as beneficiary is NOT permitted. A beneficiary need not have insurable interest to be named.

If Benjamin dies during the grace period of his life insurance policy, the insurance company will pay which of the following?

The insurer will pay the death benefit which is the face value minus all indebtedness --- The Grace Period gives the insured extra time to pay a late premium. The usual time given is one month and not less than 30 days. If the insured dies during the grace period, the company will pay the face amount to the beneficiary less the premium and less interest.

Elmer has a $10,000 life insurance policy with a double indemnity rider. The policy has been in force for five years. Elmer travels to South America to purchase emeralds. On his return trip home he loses control of the car, drives over a cliff and dies instantly. The emeralds mysteriously disappear. What would be the death proceeds under the policy?

Twenty thousand dollars --- Multiple indemnity policies pay two or three times the face value of the policy depending on the multiple stated in the policy if death is the result of an accident (even a mysterious accident).

The free look provision is best described as which of the following?

Within the stated number of days from delivery, it provides the insured a refund of premiums paid if he/she is dissatisfied with the policy. --- The FREE LOOK provision is a notice placed on the face (first page) of the policy, advising the insured of the right to examine the policy. If the insured is dissatisfied during this period of time, the insured may return the policy to the insurance company and receive a full refund of all premiums paid.

Janette has a $100,000 policy and wishes for her husband to receive monthly payments for the rest of his life. She also wishes for her son to be the contingent beneficiary and for him to receive the full $100,000 lump sum at the time of her husband's death. Which settlement option should Janette select?

Interest only --- INTEREST ONLY settlement option pays to the beneficiary for a stated period of time (e.g. 2 yrs, 10 yrs, 20 yrs) and then pays the face value to a second beneficiary. With the lump sum face value the second beneficiary may choose another settlement option. Interest only payments are fully taxable as ordinary income

Which settlement option will not exhaust the face value?

Interest only --- Interest Only settlement option pays only the interest on the face value, and at the end of the interest period pays the full face value.

Which of the following statements best describes the guaranteed insurability provision or rider?

A guaranteed amount of additional coverage at certain intervals --- Guaranteed Insurability guarantees that on specific dates in the future(attained age or time period) the insured may purchase additional insurance without evidence of insurability. The rate will be determined using the insured's attained age and amount of insurance, but not health characteristics. Increases are therefore provided at a standard rate (not rated). Guarantee insurability lasts until a maximum age, e.g., to age 60.

Exclusions may or may not be used in a policy. Which one of the following exclusions is a standard exclusion in a life policy?

Death by suicide --- The suicide provision states that if the insured commits suicide during the first two years of the policy, the company will refund the premium. Face amount is forfeited. After two years, (incontestability period) the company will pay the face value. This is a standard provision.

Which of the following best describes the common disaster clause or simultaneous death law?

If both the insured and the primary beneficiary die simultaneously, it is assumed the beneficiary died first, leaving the proceeds to the 2nd beneficiary. --- The Uniform Simultaneous Death Law or Common Disaster Clause helps to protect the interest of the insured. It states that if the insured and primary beneficiary die at the same time, it will be assumed that the beneficiary died first leaving the proceeds to the insured's estate or contingent (second) beneficiary. The difference between the USDL and Common Disaster Clause is time. USDL requires death to be simultaneous. Common Disaster allows up to 30 days for the beneficiary to die.

Which of the following standard provisions require the insurer to pay life insurance dividends?

Participation in surplus --- Participation in Surplus: states that all par policies must pay dividends and, if available, payment of dividends is not to begin any later than the end of the third policy year. Table of Installments: shows the premium payments. Table of Values and Options: states that loan values, cash values, etc. must be shown in the policy for at least 20 years. Nonforfeiture Options: provide that insureds will be able to receive their nonforfeiture values when they become available.

What nonforfeiture option essentially uses the cash value to buy the same type of policy but with lower values?

Reduced paid-up --- The Reduced Paid-up nonforfeiture option uses the cash value to buy another policy that is of the same kind but with a reduced face value. The new policy is paid for and no more premiums are required. The cash value will continue to build equity within the reduced policy but at a slower rate. Cash Surrender nonforfeiture option, the insurer pays to the policy owner the accumulated cash value at the time of policy lapse. The policy is surrendered and no coverage exists.

The owner of a life insurance policy may do which of the following?

The owner of a life insurance policy may: * Transfer or assign the policy * Select and change the payment schedule * Select and change beneficiaries * Receive cash values and dividends * Borrow against the cash values in the policy The owner may also select and change settlement options and transfer ownership to anyone who has an insurable interest in the life of the insured.

Which of the following statements is true concerning policy loans?

The policyholder must repay the full amount of the loan plus interest to reinstate the full death benefit. --- After three years, the insured may borrow the cash value at a specified interest rate stated in the policy. The company may require the interest in advance. Before the loan is made, the company may require that all unpaid premiums be paid and the company may delay the loan up to 6 months. If the insured dies, the company pays the face value less the loan value and interest.

Tina assigns her life insurance policy for the full face amount to her bank to provide security for a debt. If Tina dies after the assignment has been made, to whom would the proceeds go?

Tina's bank --- An ASSIGNMENT is a transfer of ownership rights to a third party. There are two types of assignments: Absolute assignment: The assignment is permanent (does not revert back to the original owner). Absolute assignment can be for a single right (e.g. premium payment) or a complete change of ownership. In the latter, the policy owner must have the permission of the insurer. Collateral assignment: The cash value (or F.V.) is assigned and used as collateral for a loan. This assignment is temporary, and only for the outstanding loan amount. Due to widespread insurance fraud in the past, insurance companies sometimes will not guarantee the validity of an assignment.

If Evelina states her age on a life insurance application as being younger than what she really is, the insurance company will do which of the following?

Wait until Evelina dies and pay an adjusted face amount to the beneficiary. --- Misstatement of age is considered an error. Errors are not subject to the two-year incontestability provision. If the age of the insured has been misstated, the amount payable under the policy shall be the amount the paid premium would have purchased at the correct age. Misstatement of gender is treated the same as misstatement of age. The amount payable under the policy shall be the amount the paid premium would have purchased for the correct gender.

All of the following are true about settlement options, EXCEPT:

Settlement options must be selected prior to the death of the insured. --- Settlement Options do not need to be selected prior to the death of the insured. If a settlement option has not been selected, the beneficiary may select any of the settlement options offered. NOTE: Settlement options allow the insurance company to hold and manage the face value. It is to the favor of the insurance company to have the owner or beneficiary select a settlement option.

Which of the following are dividend options?

Dividend Options include: * Cash * Application to reduce premium * Accumulate at interest * Paid-up additions * One year term Two other DIVIDEND OPTIONS are: Accelerated endowment - Dividends accumulate until the point when the accumulated dividends plus the cash value equal the face amount of the policy. Paid-up option - When the accumulated dividends and cash value together equal enough to pay a net single premium for a paid-up policy of the same amount.

Ann and Phil are getting a divorce. As part of the divorce decree a judge orders one of the parties to purchase a life insurance policy and name the other party as permanent beneficiary. Such a beneficiary is called:

A mandatory irrevocable beneficiary designation --- The irrevocable beneficiary provision allows that the beneficiary of the policy cannot be changed without the knowledge and consent of the beneficiary. It is not uncommon to see an irrevocable beneficiary designation required in the dissolution of a marriage.

An Other Insured Term Rider may be added to a life insurance policy to cover all of the following, except:

A non-resident parent of the insured --- Other Insured Riders (Additional Insured's) are specifically to provide coverage for family members on the principal policy of an insured. Additional insured's may be added to a life policy to cover a spouse, child (including step-chidren and adopted children), or family members (spouse and children), at a lower cost than purchasing several individual policies. The rider is not meant to cover non-household members, other than non-custodial children. A health questionaire must be completed on all additional insured's.

A settlement option is a way to pay the face value to the beneficiary in ways other than a lump sum. An owner of a policy wishes the beneficiary to receive a specified amount of money each month. Which of the following settlement options provides this?

Fixed amount --- FIXED AMOUNT pays the beneficiary a fixed amount of money monthly, quarterly, semi-annually or annually until the face value and interest have expired. The owner specifies the period of time. If the owner does not choose a settlement option, the beneficiary can choose one.

What settlement option pays a fixed income for a stipulated period of time?

Fixed period --- FIXED PERIOD (sometimes called fixed installment settlement option) pays the face value plus interest in equal periodic installments to the end of a stipulated period of time. Another type of settlement option is called LIFE INCOME. The face value is used to purchase an annuity for the beneficiary.

Which of the following best describes a nonforfeiture option?

In the case of policy lapse, the insured does not forfeit the cash value. --- NONFORFEITURE OPTIONS pay the cash value to the insured upon lapse of the policy. The insurer must return the cash value in the case of policy lapse. The three nonforfeiture options are: * Cash Surrender * Reduced paid-up * Extended Term

Which of the following provisions states that the insurance company promises to pay a death benefit upon proof of death?

Insuring clause --- The Insuring Clause states that in consideration of the premium payment, the insurer promises to pay the stated face amount to a named beneficiary. This clause sets forth the basic agreement between the insurer and the insured.

All of the following statements about the accidental death and dismemberment rider are true, EXCEPT:

The principal sum is paid upon death by suicide --- Accidental death and dismemberment policies will pay the face amount, which is the principal sum for loss of life or loss of two major parts of the body. The capital sum, which is one-half the face value, will be paid for the loss of one major part of the body. The company must pay the face value of the policy if death results from an accidental death within a stated number of days from the date of accident, usually one year or 365 days. Suicidal death is not considered an accident.

Which of the following must be included in the entire contract?

the POLICY shall constitute the entire contract between parties. The APPLICATION is attached to the policy and is part of the entire contract. Statements made in the applications shall be deemed representations and not warranties. If a RIDER or ENDORSEMENT is added to the policy it also becomes a part of the contract, but not all policies have riders or endorsements. The entire contract provision also prevents the insurer from changing the policy or waiving its provisions.