Life Insurance Policy Provisions, Options and Riders
When will a contingent beneficiary receive death benefit from a life insurance policy?
When the primary beneficiary dies before the insured
Which of the 2 types of policy assignments requires transfer of ALL ownership rights in the policy to a third party?
absolute assignment
What life insurance policy provision states that both the policy and a copy of the application form the contract between the policy owner and the insurer?
entire contract
What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
extended term
What is the name for a life insurance policy rider that provides coverage on the insured's family members?
other insured rider
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
A copy of the original insurance application
With the reduction of premium dividend option, how is the dividend used?
Applied to the next year's premium
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
Benefits are paid to the insured's estate
Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?
Cash surrender
What are the 3 nonforfeiture options in life insurance policies?
Cash surrender, reduced paid up and extended term
What are the dividend options in life insurance policies?
Cash, reduced premium, accumulation at interest, paid up additions, paid up option and one year term
What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
Collateral assignment
What type of beneficiary is next in line after the primary beneficiary?
Contingent
What provision in a life insurance policy extends coverage beyond the premium due date?
Grace period
What required provision protects against unintentional policy lapse?
Grace period
What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
Incontestability
The sole beneficiary of a life insurance policy dies before the insured. If the policy owner doesn't amend the beneficiary designation, what will happen to the policy's death benefit?
It will be paid to the insured's estate
A policy owner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will it affect the death benefit to the beneficiary?
It will be subtracted from the death benefit
If a settlement option is not chosen by the policy owner or beneficiary, what option will be used by the insurer?
Lump sum payment
What settlement options are available in life insurance policies?
Lump sum/cash, fixed period, fixed amount, life income and interest only
Is the beneficiary required to have insurable interest in the insured?
No
An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?
Pay a reduced death benefit
Who controls changes in premium payments, face values and loans in a life insurance policy?
Policy owner
What is the advantage of reinstating a life insurance policy opposed to applying for a new one?
Policy premium in a reinstated policy will be set according to the insured's original age
With the interest only settlement option, what happens to the policy's death benefit?
Policy proceeds are retained by the insurance company, only the interest is paid to the beneficiary
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
Primary
What provision allows the policy owner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?
Reinstatement
What are policy dividends?
Return of unused premiums
What type of beneficiary can be changed at any point by the policy owner?
Revocable
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?
Settlement options
What happens to a policy's cash value under an extended term nonforfeiture option?
The cash value is converted to the same face amount as in the whole life policy
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
The death benefit will be adjusted to the amount that the insured could obtain for her correct age.
What does the term double indemnity mean?
The insurer will pay a benefit of twice the face amount
In the fixed period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?
The longer the period selected, the smaller the installments
What is the purpose of the free look period?
To allow the insured to return the policy with a full refund
What is the purpose of settlement options in life insurance policies?
To determine how the death benefit will be paid to. beneficiary
What is the purpose of the Automatic Premium Loan provision?
To prevent the unintentional lapse of a policy because of nonpayment of premium
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
Waiver of premium
What are the most common exclusions in life insurance policies?
War and military service, hazardous occupation and aviation
When can an insurance company use suicide as a defense against paying a death claim?
When a suicide is committed within a specified period of time after the policy is purchased. (usually 2 years)
What dividend option can increase the death benefit of the existing life policy?
paid up additions
What dividend option is automatically selected by the company if not chosen by the policy owner?
paid up additions
Who has the right to the cash value of an insurance policy?
policy owner
What nonforfeiture option provides coverage for the longest period of time?
reduced paid up
Who does the common disaster clause protect?
the contingent beneficiary