Life Policy Provisions, Riders, and Options

What is the waiting period on a Waiver of Premium rider in life insurance policies?

6 months

Which of the following best describes fixed-period settlement option?

Both the principal and interest will be liquidated over a selected period of time

All of the following statements concerning dividends are true EXCEPT a. They stem from favorable underwriting experience b. Favorable investment results generate higher dividends c. Dividend amounts are guaranteed in the policy d. Lower insurance company costs generate higher dividends

Dividend amounts are guaranteed in the policy

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income

What required provision protects against unintentional lapse of the policy?

Grace period

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

Incontestability clause

Which of the following is true about the mandatory free look in a Life Insurance policy?

It commences when the policy is delivered

What is the benefit of choosing extended term as a nonforfeiture option?

It has the highest amount of insurance protection

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy as a single premium

Which of the following is true of a children's rider added to an insured permanent life insurance policy?

It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age

Which of the following statements is TRUE about policy assignment? a. It permits the beneficiary to designate the person to receive the benefits b. It authorizes an agent to modify the policy c. It transfers rights of ownership from the owner to another person d. It is the same as a beneficiary designation

It transfers rights of ownership from the owner to another person

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?

Pay a reduced death benefit

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?

Policyowner

Which of the following riders is often used in business life insurance policies when the policyowner needs to change the insured under the policy?

Substitute insured rider

Children's riders attached to whole life policies are usually issued as what type of insurance?

Term

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy

An absolute assignment is a

Transfer of all ownership rights in a policy

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

adjustment in the amount of death benefit

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the

other-insured rider

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?

$50,000

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?

$9,800

According to the Entire Contract provision, a policy must contain

A copy of the original application for insurance

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?

A minor son of the insured

The two types of assignments are

Absolute and collateral

Which of the following premium payment modes will incur the lowest overall payment?

Annual

An insured receives an annual life insurance dividend check. What term best describes this arrangement?

Cash option

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?

Cash surrender

According to the entire contract provision, what document must be made part of the insurance policy?

Copy of the original application

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

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

Entire contract

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

Equal to the original policy for as long as the cash values will purchase

Which nonforfeiture options has the highest amount of insurance protection?

Extended term

Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?

Family term rider

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?

Fixed period

All of the following are dividend options EXCEPT a. Accumulated at interest b. Reduction of premium c. Paid-up additions d. Fixed-period installments

Fixed-period installments

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had misstated information during the application process. What can they do?

Pay the death benefit

Who can request changes in premium payments, face value, loans, and policy plans?

Policyowner

A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?

Proof of insurability is not required

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to

Purchase a single premium policy for a reduced face amount

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

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?

Reduction of premium

All of the following are true statements regarding the accumulation at interest option EXCEPT a. The interest is not taxable since it remains inside the insurance policy b. The annual dividend is retained by the company c. The interest is credited at a rate specified by the policy d. The policyholder has the right to withdraw the accumulations at any time

The interest is not taxable since it remains inside the insurance policy

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

Reinstatement provision

Nonforfeiture values guarantee which of the following for the policy owner?

That the cash value will not be lost

If the policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?

The balance of the loan will be taken out of the death benefit

Which is NOT true about beneficiary designations? a. The beneficiary may be natural person b. The policy does not have to be a beneficiary named in order to be valid c. Trusts can be valid beneficiaries d. The beneficiary must have insurable interest in the insured

The beneficiary must have insurable interest in the insured

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?

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