Life Insurance Policy Provisions, Options, and Riders

According to the entire contract provision, what document must be made part of the insurance policy? A. Copy of the original application B. Buyer's Guide C. Agent's Report D. Outline of coverage

Answer: A. Copy of the original application Correct! An insurance contract must contain a copy of the original application.

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

Answer: A. Cash value Correct! 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 statements about suicide class in a life insurance policy is TRUE? A. Suicide is covered as long as the policy is in force B. Suicide is excluded as long as the policy is in force C. Suicide is excluded for a specific period of years and covered thereafter D. Suicide is covered for a specific period of years and excluded thereafter

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

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

Answer: B. Family term rider Correct! A single rider that provides coverage on every family member is called a "family rider"

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

Answer: D. Owner's Rights Correct! Policyowners can learn about their ownership rights by referring to the policy.

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. Jumping Juvenile B. Juvenile Premium Provision C. Waiver of Premium D. Payor Benefit

Answer: D. Payor Benefit Correct! 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.

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

Answer: B. Reduced paid-up Correct! The reduced paid-up nonforfeiture option would provide protection until the insurer reaches 100, but the face amount is reduced to what the cash would buy.

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

Answer: A. Purchase a single premium policy for a reduced face amount. Correct! 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.

All of the following are true regarding the guaranteed insurability rider EXCEPT A. The insured my 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 premiums. D. The insured may purchase additional coverage at the attained age.

Answer: C. This rider is available to all insureds with no additional premiums. Correct! The guaranteed insurability rider me be structured to all 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.

Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early? A. Dividend Accumulation option B. Paid-up option C. Accumulation at interest D. Paid-up additions

Answer: B. Paid-up option Correct! With the paid-up option, the insurer can accumulate dividends at the 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.

What type of beneficiary designation allows the benefit to pass from a deceased primary beneficiary to the beneficiary's heirs, instead of spitting the benefit among surviving primary beneficiaries? A. Per Stirpes B. By class C. By the head D. Per capita

Answer: A. Per Stirpes Correct! Per stirpes class designation provides distribution by family line or branch in the event a beneficiary predeceases the insured.

Which settlement option provides a single beneficiary with income for the rest of his/her life? A. Lump Sum B. Retained Assets C. Single Life D. Fixed Amount

Answer: C. Single Life Correct! The Single Life Option provides a single beneficiary with income for the rest of his/her life.

Because of financial obligations, John felt that he needed more insurance than the insurer was willing to issue. John's insurance producer told him that he could maximize the death benefit without increasing the face amount by the use of a(n) A. Payor rider B. Waiver of premium rider C. Automatic premium loan rider D. Return of premium rider

Answer: D. Return of premium rider Correct! With the "Return of premium" rider attached to the policy, upon the insured's death, the benefit paid will be the face amount plus an amount equal to all the premiums paid on the contract.

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.

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

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

Answer: C. Spendthrift provision Correct! When a life insurance policy contains a spendthrift provision, all rights of the beneficiary to change time of payment or amount off 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.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A. The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. B. The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. C. One of the beneficiary will receive 1/3 and the other 2/3 of the proceeds when the insured dies D. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

Answer: D. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. Correct! When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

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

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