Life Insurance

What limits the amount that a policyowner may borrow from a whole life insurance policy? A. Cash value B. Premiums paid C. Amount stated in the policy D. Face amount

A. Cash value The amount available to the policyowner for a loan is the policy's cash value. If there are any outstanding loans, that amount will be reduced by the amount of the unpaid loans and interest.

Which of the following is NOT a characteristic of an insurable risk? A. The loss must be catastrophic. B. The loss must be due to chance. C. The loss must be measurable. D. The loss exposure must be large.

A. The loss must be catastrophic. In order to be characterized as pure risk, the loss must be due to chance, definite, measurable, and predictable, but not catastrophic.

An insurance company receives an application with some information missing and issues the policy anyway. What is this called? A. Aleatory B. Waiver C. Estoppel D. Subrogation

B. Waiver In insurance policies, a waiver is giving up one's known right or privilege.

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

C. The same face amount as in the whole life policy.

An insurance producer who by contract is bound to write insurance for only one company is classified as a/an A. Solicitor. B. Broker. C. Independent producer. D. Captive agent.

D. Captive agent. A captive/exclusive agent has agreed, by contract, to produce insurance business only for the insurer they are contracted with.

Which of the following is the most common way to transfer risk? A. Increase control of claims B. Lessen the possibility of loss C. Name a beneficiary D. Purchase insurance

D. Purchase insurance The most effective way to handle risk is to transfer it so that the loss is borne by another party. Insurance is the most common method of transferring risk from an individual or group to an insurance company.

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

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

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

A. They can be changed only with the written consent of that beneficiary. If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

When an individual purchases insurance, what risk management technique is he or she practicing? A. Retention B. Transfer C. Avoidance D. Sharing

B. Transfer Insurance is a transfer of the risk of financial loss from a covered peril from the insured to the insurance company.

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.

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

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

Which nonforfeiture option provides coverage for the longest period of time? A. Paid-up option B. Accumulated at interest C. Reduced paid-up D. Extended term

C. Reduced paid-up

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

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

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.

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

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

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.

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

A. Cash option

During replacement of life insurance, a replacing insurer must do which of the following? A. Guarantee a replacement for each existing policy B. Designate a new producer for a replaced policy C. Send a copy of the Notice Regarding Replacement to the Department of Insurance D. Obtain a list of all life insurance policies that will be replaced

D. Obtain a list of all life insurance policies that will be replaced The replacing insurance company must require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant, and send each existing insurance company a written communication advising of the proposed replacemen

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

B. 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.

The Medical Information Bureau (MIB) was created to protect A. Insureds from unreasonable underwriting requirements by the insurance companies. B. Medical examiners that perform insurance physical examinations. C. Insurance companies from adverse selection by high risk persons. D. Insurance departments from lawsuits by policyowners.

C. Insurance companies from adverse selection by high risk persons. The MIB makes information available to underwriters to assist them in the underwriting process. It is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals.

Which of the following is true regarding the spendthrift clause in life insurance policies? A. It is only used when the beneficiary is a minor. B. It is the same as irrevocable settlement clause. C. It can protect the policy proceeds from creditors of the beneficiary. D. It allows the beneficiary to select a different settlement option.

C. It can protect the policy proceeds from creditors of the beneficiary. The spendthrift clause in a life insurance policy prevents the beneficiary's reckless spending of benefits, and protects the policy proceeds from creditors of the beneficiary or policyowner.

Statements made by an applicant for a life insurance policy which are true to the best of one's knowledge are referred to as A. Warranties. B. Information. C. Representations. D. Facts.

C. Representations. Representations are statements that the applicant believes to be true, but that are not guaranteed.

Which of the following factors is NOT considered by an underwriter when determining the premium rates for an individual seeking insurance? A. Race B. Age C. Medical history D Sex

A. Race Age, medical history, and sex provide sound statistical data for determining the probability of loss. Race, religion, sexual orientation, etc., are some of the factors that cannot be used because there is not sound statistical data to show that they effect the probability of loss; therefore, they are considered to be discriminatory.

Children's riders attached to whole life policies are usually issued as what type of insurance? A. Adjustable life B. Whole life C. Term D. Variable life

C. Term Children's term riders provide term insurance with coverage expiring when the minor reaches a certain age.

An insured who had a life insurance policy for $1 million died. In filing the claim, his wife and children discovered that there was no beneficiary named on the policy. What will happen to the death benefit in this case? A. It will go to the insured's estate. B. It will be divided among his children. C. It will be automatically paid to the insured's surviving family. D. The insurer will retain the benefit.

A. It will go to the insured's estate. If there is not a beneficiary named in the policy, the death proceeds are paid to the estate of the insured.

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.

Units with the same or similar exposure to loss are referred to as A. Catastrophic loss exposure. B. Insurable risks. C .Law of large numbers. D. Homogeneous.

D. Homogeneous. The basis of insurance is sharing risk between a large homogeneous group with similar exposure to loss.

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

D. The insured's estate.

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

A. 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.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the A. Contingent beneficiary. B. Irrevocable beneficiary. C. Revocable beneficiary. D. Secondary beneficiary.

C. Revocable beneficiary. The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.

An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use? A. Reduction of premium B. Accumulation at interest C. Paid-up option D. One-year term

C. Paid-up option With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

Attempting to determine how much insurance an individual would require based upon their financial objectives is known as A. Viatical approach. B. Needs approach. C. Human life value approach. D. Estate planning.

B. Needs approach. Needs method determines how much benefit would be necessary to replace the loss income and increased expense should the insured die prematurely.

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

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

In insurance policies, the insured is not legally bound to any particular action in the insurance contract, but the insurer is legally obligated to pay losses covered by the policy. What contract element does this describe? A. Unidirectional B. Aleatory C .Conditional D. Unilateral

D. Unilateral In a unilateral contract, the insured is not legally bound to do anything. The insurer, however, must pay losses covered by the policy.

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

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

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

All advertisements are the responsibility of the A. Soliciting agent. B. Advertising agency. C. Department of Insurance. D. Insurer.

D. Insurer. The insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them.

Another name for a substandard risk classification is A. Controlled. B. Declined. C. Elevated. D. Rated.

D. Rated. Substandard risk classification is also referred to as "rated" since these policies could be issued with the premium rated-up, resulting in a higher premium.

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.

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.

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called A. Guaranteed insurability. B. Waiver of cost of insurance. C. Accelerated benefits. D. Cost of living.

A. Guaranteed insurability. Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

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

A. 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.

Which of the following types of insurance policies would perform the function of cash accumulation? A. Term life B. Credit life C. Increasing term D. Whole life

D. Whole life Life insurance is unique from other types of insurance in that it could perform the function of cash accumulation. Cash values are available in whole life policies.

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

C. 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.

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

D. 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.

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.

The requirement that agents not commingle insurance monies with their own funds is known as A. Express authority. B. Accepted accounting principal. C. Fiduciary responsibility. D. Premium accountability.

C. Fiduciary responsibility. Money collected with respect to an insurance transaction must be held in a position of trust by the agent or broker.

During partial withdrawal from a universal life policy, which portion will be taxed? A. Principal B. Loan C. Interest D. Cash value

C. Interest During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.

Insurance policies are not drawn up through negotiations, and an insured has little to say about its provisions. What contract characteristic does this describe? A. Personal B. Adhesion C. Unilateral D. Conditional

B. Adhesion A contract of adhesion is prepared by only the insurer; the insured's only option is to accept or reject the policy as it is written.

Which of the following is the closest term to an authorized insurer? A. Legal B. Admitted C .Certified D. Licensed

B. Admitted Insurers who meet the state's financial requirements and are approved to transact business in the state are considered authorized or admitted into the state as a legal insurer.

The mode of premium payment A. Is the method used to compute the cash surrender value of the policy. B. Does not affect the amount of premium paid. C. Is defined as the frequency and the amount of the premium payment. D. Is the factor that determines the amount of dividends in a policy.

C. Is defined as the frequency and the amount of the premium payment.

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

Which of the following is usually true of a participating life insurance policy? A. Assesses premiums against stockholders. B. Pays dividends to policyowners. C. May be converted to a term life policy. D. Pays dividends to stockholders.

B. Pays dividends to policyowners. Participating is a term used to refer to any insurance policy that distributes its dividends by cash payments, reduced premiums, units of paid-up life insurance, a savings program, or by the purchase of term insurance.

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

C. 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.

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.

Which of the following would be the best option that would help the surviving spouse of the insured to put her child through daycare after the insured's death? A. State Education Waiver B. Viatical settlement C. Estate conservation D. Life insurance proceeds

D. Life insurance proceeds There are many legitimate need-based expenses that can be paid by life insurance proceeds, from groceries to retirement income. Daycare is considered to be among these expenses.

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 beneficiary must pay interest to the insurer. B. The beneficiary will receive the lump sum, plus interest. C. The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. D. The beneficiary will only receive payments of the interest earned on the death benefit.

D. 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).

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

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

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

B. 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.

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

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

D. 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.

Statements made by an applicant for a life insurance policy which are true to the best of one's knowledge are referred to as A. Information. B. Representations. C. Facts. D. Warranties.

B. Representations. Representations are statements that the applicant believes to be true, but that are not guaranteed.

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

B. 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.

An insured committed suicide one year after his life insurance policy was issued. The insurer will A. Pay nothing. B. Refund the premiums paid. C. Pay the policy's cash value. D. Pay the full death benefit to the beneficiary.

B. Refund the premiums paid. If the insured commits suicide within 2 years following the policy effective date, the insurer's liability is limited to a refund of premium.

Which of the following is TRUE about a class designation? A. It is not allowed. B. It determines the succession of beneficiaries. C. Beneficiaries are not identified by name. D. Beneficiaries must be part of the insured's immediate family.

C. Beneficiaries are not identified by name. A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.

Which of the following produces evaluations of insurers' financial status often used by state departments of insurance? A. AM Best B. NAIC C. Consumer's guide D .SEC

A. AM Best AM Best & Company assigns ratings to life, property and casualty insurance companies based upon the financial stability of the insurer.

Which of the following is NOT an example of insurable interest? A. Employer in employee B. Child in parent C. Debtor in creditor D .Business partners in each other

C. Debtor in creditor The three recognized areas in which insurable interest exists are as follows: a policyowner insuring his or her own life, the life of a family member (relative or spouse), or the life of a business partner, key employee, or someone who has a financial obligation to them. A debtor does not have an insurable interest in the creditor.

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

D. 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.

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

D. 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 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.

A producer who fails to segregate premium monies from his own personal funds is guilty of A. Larceny. B. Embezzlement. C. Theft. D. Commingling.

D. Commingling. It is illegal for insurance producers to commingle premiums collected from the applicants with their own personal funds.

A long stretch of national economic hardship causes a 7% rate of inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change? A. Inflation Rider B. Cost of Living Rider C. Value Adjustment Rider D. Return of Premium Rider

B. Cost of Living Rider

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? A. Accelerated benefit provision B. Loan provision C. Spendthrift provision D. Settlement option

C. Spendthrift provision When a life insurance policy contains a spendthrift provision, all rights of the beneficiary to change time of payment or amount of installments, surrender for cash, borrow against, or assign for any purpose, are withdrawn and those parts of the policy that may give the beneficiary such rights are declared inoperative and void.

Representations are written or oral statements made by the applicant that are A. Immaterial to the actual acceptability of the insurance contract. B. Considered true to the best of the applicant's knowledge. C. Guaranteed to be true. D. Found to be false after further investigation.

B. Considered true to the best of the applicant's knowledge. Representations are statements made by an applicant that they believe to be true.

Which of the following is true regarding the spendthrift clause in life insurance policies? A. It is the same as irrevocable settlement clause. B. It can protect the policy proceeds from creditors of the beneficiary. C. It allows the beneficiary to select a different settlement option. D. It is only used when the beneficiary is a minor.

B. It can protect the policy proceeds from creditors of the beneficiary. The spendthrift clause in a life insurance policy prevents the beneficiary's reckless spending of benefits, and protects the policy proceeds from creditors of the beneficiary or policyowner.

When must the Buyer's Guide be delivered to the proposed insured? A. At policy delivery B. At the time the first premium is paid C. At the time the appointment is set for the first presentation D. At the time of application

D. At the time of application The buyer's guide must be provided prior to or at the time of application.

An insurer receives a report regarding a potential insured that includes the insured's financial status, hobbies and habits. What type of a report is that? A. Underwriter's Report B. Inspection Report C. Medical Information Bureau's report D. Agent's Report

B. Inspection Report Inspection reports cover moral and financial information regarding a potential insured, usually supplied by private investigators and credit agencies. Companies that use inspection reports are subject to the rules outlined in the Fair Credit Reporting Act.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A. Equal to the original policy for as long as the cash values will purchase. B. In lesser amounts for the remaining policy term of age 100. C. Equal to the cash value surrendered from the policy D. The same as the original policy minus the cash value

A. Equal to the original policy for as long as 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.

All of the following are business uses of life insurance EXCEPT A. Compensating executives. B. Funding against financial loss caused by the death of a key employee. C. Funding business continuation agreements. D. Funding against company's general financial loss.

D. Funding against company's general financial loss. Both life and health insurance can be used for a variety of purposes in a business setting, including the funding of business continuation agreements, compensating executives, and protecting the firm against financial loss resulting from the death or disability of key employees.

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

D. 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.

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. Accumulation at Interest B. Cash option C. Flexible Premium 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.

What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military? A. Military service or war B. Limited C. Aviation D. Hazardous occupation

A. Military service or war There are two different types of exclusions that may be used by life insurers that limit the death benefit if the insured dies as a result of war or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war.

An individual applies for a life policy. Two years ago he suffered a head injury from an accident, so he cannot remember parts of his past, but is otherwise competent. He has also been hospitalized for drug abuse, but does not remember this when applying for insurance. The insurer issues the policy and learns of his history one year later. What will probably happen? A. Because the insured is currently not a drug user, his policy will not be affected. B. The policy will not be affected. C. The policy will be voided. D. The insurer will sue the insured for committing fraud.

B. The policy will not be affected. In insurance, fraud is the intentional misrepresentation of material information that is crucial when deciding whether or not to write a contract for an applicant. If an insurer finds that an applicant has committed fraud, it can void the contract, provided that the discovery occurs within the first two years of the effective policy date. In this particular instance the applicant did not commit intentional fraud.

Which of the following individuals must have insurable interest in the insured? A. Beneficiary B. Underwriter C. Producer D. Policyowner

D. Policyowner The policyowner must have an insurable interest in the insured (his/her own life if the policyowner and the insured is the same person), or in the life of a family member or a business partner.

An applicant signs an application for a $25,000 life insurance policy, pays the initial premium, and receives a conditional receipt. If the applicant dies the following day, which of the following is TRUE? A. The application will be voided. B. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. C. The premium would be returned to the insured's estate because the policy was not issued. D. The death claim will be rejected.

B. The beneficiary will receive the full death benefit if it is determined that the applicant qualified for the policy. The conditional receipt provides that when the applicant pays the initial premium, coverage is effective on the condition that the applicant proves to be insurable either on the date the application was signed or the date of the medical examination, if one is required.