Life Insurance Policy Provisions, Options & Riders
cost of living rider
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?
automatic premium loan
A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?
revocable beneficiary
A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wished to retain all of the rights of ownership. The policyowner should have her husband named as what?
other-insured rider
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the what?
monthly premium waiver and monthly income
After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. What benefits will he receive?
guaranteed insurability option
An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy?
if the primary beneficiary predeceases the insured
An individual purchased a life insurance policy on his life naming his wife as primary beneficiary, and their daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?
suicide
An insurance company can deny a claim if the death of the insured was by what and occurred within a time specified in the policy?
common disaster
An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision?
$9,800
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?
the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
universal life
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?
reduction of premium
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?
$200,000
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?
cash option
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
it will go to the insured's estate
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?
contingent beneficiary
Common disaster clause protects who?
interest
During partial withdrawal from a universal life policy, which portion will be taxed?
fixed period
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?
guaranteed insurability rider
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a what?
the balance of the loan will be taken out of the death benefit
If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
lump-sum payment
If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?
the policy will terminate when the cash value is reduced to nothing
If an insured continually uses the automatic premium loan option to pay the policy premium, what will happen to the policy?
the death benefit will be smaller
If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?
the insured's estate
If no beneficiary is named, policy proceeds go to who?
the contingent beneficiary
In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to who?
guaranteed insurability rider
In a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes what rider?
No
Is the beneficiary required to have insurable interest in the insured?
exclusions clause
Items stipulated in the contract that the insurer will not provide coverage for are found in the what?
income for 2 or more recipients until they die
Life income joint and survivor settlement option guarantees what?
premiums / benefits
Misstatement of age on the application will result in adjustment of what?
children's term rider
One premium for all children refers to what rider?
cash value / whole life
Policy loans are only available in policies that have what?
100
Settlement options are triggered by the insured's death or at age what?
representations
Statements made by an applicant for an insurance policy which are true to the best of the applicant's knowledge are referred to as what?
universal life
The Waiver of Cost of Insurance rider is found in what type of insurance?
universal life
The Waiver of Cost of Insurance rider is found in what type of life insurance?
becomes terminally ill
The accelerated benefits provision for an early payment of the death benefit when the insured becomes what?
grace period
The automatic premium loan provision is activated at the end of the what?
$100,000
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?
taxable as ordinary income
The interest earned on policy dividends are taxed how?
to purchase a smaller amount of the same type of insurance as the original policy
The paid up option uses the dividend to purchase what?
reduction of premium
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?
interest only option
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. What settlement option should the policyowner choose?
entire contract
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 what?
waiver of premium
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called what?
joint and survivor
The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called?
outlive the benefit payments
Under life income/straight life settlement option, the recipient cannot do what?
cash surrender
Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?
cash surrender
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
the beneficiary will only receive payments of the interest earned on the death benefit.
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?
immediately after receiving written proof of loss
Upon the submission of a death claim under a life insurance policy, when should the insurer pay the policy benefit?
naming beneficiaries as a grop
Using a class designation for beneficiaries means what?
return of unused premiums
What are policy dividends?
cash surrender, reduced paid-up, and extended term
What are the three nonforfeiture options in life insurance policies?
riders
What describes attachments made to policies that either add or modify coverage?
paid-up additions
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 policyowner?
entire contract
What equals the policy, copy of application, and any riders / amendments?
the cash value is converted to the same face amount as in the whole life policy
What happens to a policy's cash value under an extended term nonforfeiture option?
children's rider
What is a term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability?
accelerated benefit
What is an early payment of part of death benefit to the insured from the insurer for qualifying medical expenses?
the original age is used for premium determination
What is the advantage of reinstating a policy instead of applying for a new one?
war or military service
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?
to prevent the unintentional lapse of a policy because of nonpayment of the premium
What is the purpose of the Automatic Premium Loan provision?
6 months
What is the waiting period on a Waiver of Premium rider in life insurance policies?
universal life
What kind of policy allows withdrawals or partial surrenders?
waiver of premium
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
cash value
What limits the amount that a policyowner may borrow from a whole life insurance policy?
reduced paid-up
What nonforfeiture option provides coverage for the longest period of time?
nonforfeiture options
What options are triggered by policy surrender or lapse?
grace periods
What protects policyholders from losing insurance coverage if they are late on a premium payment?
grace period
What provision in a life insurance policy extends coverage beyond the premium due date?
grace period
What required provision protects against unintentional policy lapse?
long term care
What rider added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home?
waiver of premium
What rider waives the premium for a total disability after a waiting period?
extended term
What term is the automatic nonforfeiture option?
settlement options
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?
trust
What type of account will most likely be established for a minor?
collateral assignment
What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
increasing term
What type of insurance would be used for a Return of Premium rider?
spendthrift provision
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?
class designation
When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called what?
it is reduced to the amount of what the cash value would buy as a single premium
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
purchase a single premium policy for a reduced face amount
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to do what?
return of premium
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?
absolute assignment
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
family term rider
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
policyowner
Who controls changes in premium payments, face values, and loans in a life insurance policy?
policyowner
Who has the right to the cash value of a life insurance policy?
policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary
With interest only settlement option, what happens to the policy's death benefit?
