Life insurance policy provisions, riders, and options
What is a major problem with naming a trust as the beneficiary of a life insurance policy?
A) It is illegal to name a trust a s the beneficiary. B) The insured must have the Superintendent's permission to name a trust as the beneficiary. C) They are expensive to administer. D) The insurance company will not pay the proceeds to a nonliving beneficiary. C: The major disadvantage of trusts is that they are expensive to administer.
When an insured under a life insurance policy died, the designate beneficiary received the face amount of the policy as well as a refund of all the premiums paid. Which rider is attached to the policy?
A) Decreasing term B) Premature death C) Return of premium D) Cost of living C: 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.
If an insured continually uses the automatic premium loan option to pay the policy premium,
A) The insurer will increase the premium amount. B) The policy will terminate when the cash value is reduced to nothing C) The face amount of the policy will be reduced by the automatic premium loan amount. D) The cash value will continue to increase. B: This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.
What provision in an insurance policy extends coverage beyond the premium due date?
A) Waiver of premium B) Grace period C) Free look D) Automatic premium loan B: Grace period is a mandatory provision found in all life and health insurance policies that provides coverage for a period of time after the premium becomes past due.
Which of the following statements is TRUE about a policy assignment?
A) It transfers rights of ownership from the owner to another person B) It is the same as a beneficiary designation. C) It permits the beneficiary to designate the person to receive the benefits. D) It authorizes an agent to modify the policy. A: The policyowner may assign a part of the policy (collateral assignment) or the entire policy (absolute assignment).
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?
A) Adjustable life B) Term life C) Limited pay D) Universal life D: Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.
Who has the legal title of the property in a trust?
A) Beneficiary B) Guardian C) Trustee D) Grantor C: The person who receives the legal title of the property to be used for the benefit of the trust beneficiary is called the "trustee"
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: 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.
Life income joint and survivor settlement option guarantees
A) Payment of interest on death proceeds B) Payout of the entire death benefit C) Equal payments to all recipients. D) Income for 2 or more recipients until they die. D: The Life Income Joint and Survivor option guarantees an income for two or more recipients for the duration of their lives. Most contracts stipulate that the surviving partner will receive a reduced payment after the other dies. although some will continue to pay the same amount. There is no guarantee that all the life insurance proceeds will be paid out.
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) Reduction of Premium B) Accumulation at Interest C) Cash option D) Flexible Premium A: 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.