Life Insurance Policy Provisions, Options and Riders

Question 15 of 15 The law states that an insurer is allowed to pay the entire Death Benefit to the insured if they qualify to use the Accelerated Death Benefit Rider; however, most insurers limit the amount of the Death Benefit paid to A75% B30% C50% D60%

50% While the law technically allows an insurance company to advance the entire death benefit, most carriers impose their own cap, such as 50% of the death benefit.

uestion 14 of 15 What is the waiting period on a Waiver of Premium rider in life insurance policies? A30 days B3 months C5 months D6 months

6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Question 3 of 15 When an annuity is written, whose life expectancy is taken into account? ALife expectancy is not a factor when writing an annuity. BOwner CAnnuitant DBeneficiary

Annuitant he annuitant receives payments from an annuity and is the person whose life expectancy is considered when writing the contract. The annuitant and annuity owner are often the same person but do not have to be.

Question 3 of 15 During partial withdrawal from a universal life policy, which portion will be taxed? ACash value BPrincipal CLoan DInterest

Interest During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.

Question 5 of 15 Which nonforfeiture option provides coverage for the longest period of time? APaid-up option BAccumulated at interest CReduced paid-up DExtended term

Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

Question 8 of 15 Which entity determines the amount of accelerated death benefits that will be paid to an insured? AEmployers offering plans that include accelerated death benefits BFederal law CState law DThe insurer

The insurer The law stipulates that up to 100% of death benefits can be paid in advance, but it is legal for individual insurers to decide the maximum amount of accelerated death benefits that they will pay.

Question 7 of 15 The paid-up addition option uses the dividend ATo reduce the next year's premium. BTo accumulate additional savings for retirement. CTo purchase a smaller amount of the same type of insurance as the original policy. DTo purchase a one-year term insurance in the amount of the cash value.

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.

Question 7 of 15 Which nonforfeiture option provides coverage for the longest period of time? AExtended term BPaid-up option CAccumulated at interest DReduced paid-up

Reduced paid-up The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

Question 10 of 15 The two types of assignments are AAbsolute and collateral. BAbsolute and partial. CComplete and partial. DComplete and proportionate.

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

Question 10 of 15 If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used? AFixed amount BLump sum CLife income DFixed period

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.

Question 12 of 15 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? AInflation Rider BCost of Living Rider CValue Adjustment Rider DReturn of Premium Rider

Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

Question 11 of 15 The automatic premium loan provision is activated at the end of the AFree-look period BElimination period. CPolicy period. DGrace period.

Grace period. Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

Question 15 of 15 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 DThe face amount will be determined by the insurer.

$50,000 The face of the term policy would be the same as the face amount provided under the whole life policy.

Question 6 of 15 What is the waiting period on a Waiver of Premium rider in life insurance policies? A30 days B3 months C5 months D6 months

6 months Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Question 14 of 15 Which of the following is TRUE about a class designation? ABeneficiaries are not identified by name. BBeneficiaries must be part of the insured's immediate family. CIt is not allowed. DIt determines the succession of beneficiaries.

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.

Question 11 of 15 A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? AOwnership provision BCollateral assignment CInsurable interest DModification clause

Collateral assignment The business owner could make a collateral assignment of his or her life insurance policy to the bank.

Question 6 of 15 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? ASpendthrift Clause BSettlement Clause CNonforfeiture Clause DCommon Disaster Clause

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.

uestion 1 of 15 The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the AComplete contract. BEntire contract. CTotal contract. DAleatory contract.

Entire contract. The policy, together with the attached application, constitutes the entire contract. This provision limits the use of evidence other than the contract and the attached application in a test of the contract's validity. This is a mandatory provision in life insurance.

Question 1 of 15 Under which installments option does the annuitant select the amount of each payment, and the insurer determines how long they will pay benefits? AVariable amount BFixed period CFixed amount DVariable period

Fixed amount Under the installments for a fixed amount option, the annuitant selects the amount of each payment, and the insurer determines how long they will pay benefits. This option pays a specific amount until the funds are exhausted. There are no life contingencies.

Question 12 of 15 Upon the submission of a death claim under a life insurance policy, when should the insurer pay the policy benefit? AWithin 2 years of the date of loss BImmediately after receiving written proof of loss COn the next anniversary of the policy DAfter the estate of the insured has been settled

Immediately after receiving written proof of loss Death proceeds under a life insurance policy are due as soon as the insurer receives written proof of loss.

Question 2 of 15 The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the AReinstatement clause. BInsuring clause. CMisstatement of Age clause. DIncontestability clause.

Incontestability clause. If an insurer wishes to contest any statements on an application, they must do so within the first two years.

Question 9 of 15 What type of insurance would be used for a Return of Premium rider? AAnnually Renewable Term BIncreasing Term CLevel Term DDecreasing Term

Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Question 4 of 15 Which of the following is true about the premium on the children's rider in a life insurance policy? AIt remains the same no matter how many children are added to the policy. BIt decreases when the oldest child reaches the age of 21. CIt increases when a newborn baby is added to the policy. DIt decreases when an adopted child is added to the policy.

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.

Question 1 of 15 After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive? APercentage of medical costs paid by the insurer BPayments for life CYearly premium waiver and income DMonthly premium waiver and monthly income

Monthly premium waiver and monthly income The Disability Income Benefit rider waives the policy premiums, just like the Waiver of Premium rider. Unlike the Waiver of Premium rider, it also allows the insured to receive a weekly or monthly income during the disability period.

Question 9 of 15 The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? AReduction of premium BPaid-up addition CAccumulation at interest DCash option

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.

Question 4 of 15 A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor Benefit rider. If the father becomes disabled, what will happen to the life insurance premiums? AThe insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums. BThe insured's premiums will be waived until she is 21. CThe premiums will become tax deductible until the insured's 18th birthday. DSince it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected.

The insured's premiums will be waived until she is 21. 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.

Question 13 of 15 An insured stops making payments on a loan taken from his cash value policy. What will most likely happen? AThe policy will be reduced to an extended term option. BThe policy will terminate when the loan amount with interest equals or exceeds the cash value. CThe insurer will increase the interest rate on the loan and charge a penalty. DThe insurer will not permit the policyowner to take out any more loans.

The policy will terminate when the loan amount with interest equals or exceeds the cash value. In most policies, failure to pay back a loan will result in termination of the policy if the total amount of the loan and accrued interest equals the cash value.

Question 3 of 15 What limits the amount that a policyowner may borrow from a whole life insurance policy? APremiums paid BAmount stated in the policy CFace amount DCash value

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.

Question 13 of 15 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? APay the full death benefit and refund excess premium BPay a reduced death benefit CPay the full death benefit DPay nothing; there was a misrepresentation on the application Id

Pay a reduced death benefit

Question 2 of 15 All of the following statements about equity index annuities are correct EXCEPT AThe annuitant receives a fixed amount of return. BThey have a guaranteed minimum interest rate. CThe interest rate is tied to an index such as the Standard & Poor's 500. DThey invest on a more aggressive basis aiming for higher returns.

The annuitant receives a fixed amount of return. Equity indexed annuities have a guaranteed minimum interest rate, so while they are aggressive in nature, the annuitant will not have to worry about receiving less than what the minimum interest rate would yield.

Question 5 of 15 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 AThe insured's estate. BThe insured's firstborn child. CBoth children who share equally on a per-capita basis. DThe insurance company.

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

Question 2 of 15 A rider attached to a life insurance policy that provides coverage on the insured's family members is called the AJuvenile rider. BPayor rider. COther-insured rider. DChange of insured rider.

Other-insured rider. The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

Question 8 of 15 The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? ACash option BReduction of premium CPaid-up addition DAccumulation at interest

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.