Quiz: Life policy Provisions, Riders, and Options

The insured under $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?

$100,000 The triple indemnity, accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to buy any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

What two terms are associated directly with the premium?

Level or flexible

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary?

Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

What is the other term for the cash payment settlement option?

Lump sum. Upon the death of the insured, the contract is designed to pay the proceeds in cash, called a lump sum.

How long does a policy owner have to return the policy and receive a full premium paid refund?

10 days after the time the policy is delivered. This is called the 10-day free-look period.

What type of account will most likely be established for a minor?

A trust Trusts are commonly established for minors, or to create a scholarship fund.

Which of the following statements about a suicide clause in a life insurance policy is true? A. Suicide is excluded for a specific period of years and covered thereafter. B. Suicide is covered for a specific period of years and excluded thereafter. C. Suicide is covered as long as the policy is in force. D. Suicide is excluded as long as the policy is in force.

A. Suicide is excluded for a specific period of years and covered thereafter. In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit.

Which is true about a spouse term rider? A. The rider is usually level term insurance B. Coverage is allowed for an unlimited time. C. The rider is decreasing term insurance. D. Coverage is allowed up to age 75.

A. The rider is usually level term insurance The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

A policy owner 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?

Automatic premium loan This provision is not required, but it is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

What components must a life insurance policy have to allow policy loans?

Cash Value The policy loan option is found only in policies that contain cash value.

In a case where the primary beneficiary predeceases the insured, in the event of the insureds death, the death benefit proceeds will be paid to

Contingent beneficiary If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate if the insured.

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

Copy of the original application. An insurance contract must contain a copy of the original application.

According to the Entire Contract provision, a policy must contain. A. A declarations page with a summary of insureds. B. Buyer's guide to life insurance. C. Listing of the insured's former insurer(s) for incontestability provisions. D. A copy of the original application for insurance.

D. A copy of the original application for insurance. An insurance contract must contain a copy of the original application.

Items stipulated in the contract that the insurer will not provide coverage for are found in the

Exclusions clause Exclusions are restrictions of coverage as stated in the policy.

True or False: a table showing nonforfeiture values for the next 10 years must be included in the policy?

False A table showing the nonforfeiture values for the next 20 years must be included in the policy.

J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid?

February 28, or 10 days after the time the policy is delivered. The 10 day free look period begins when the policy is delivered.

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 Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period.

What is a flexible premium?

Found in universal life policies where the insured changes their premium payment.

Which is TRUE about the cash surrender nonforfeiture option? A. Funds exceeding the premium paid are taxable as ordinary income. B. After the cash surrender, the insured is covered for a grace period of one month. C. The policy remains active for some time after the policyholder opts for cash surrender. D. The policyholder receives the original cash value of the policy.

Funds exceeding the premium paid are taxable as ordinary income.

Life income joint and survivor settlement options guarantees what?

Income for two or more recipients until they die. The life income joint and survivor option guarantees awn 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.

During partial withdrawal from a universal life policy, which portion will be taxed?

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

During partial withdrawal from a universal life policy, which portion will be taxed?

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

What is an absolute assignment?

It transfers all of the policy owners ownership rights in a policy. Absolute assignment involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policy owner does not need to have an insurable interest in the insured.

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

Policyowner Only the policy owner has the ownership rights under the policy, not the insured or the beneficiary.

What is a level premium?

Premium that remains constant (never changes) throughout policy term.

If a life insurance policy has an irrevocable beneficiary designation,

The beneficiary can only be changed with written permission of the beneficiary

Upon the death of the insured, the primary beneficiary discovers that the insured shows the interest only settlement option. What does this mean?

The beneficiary will only receive payments of the interest earned on the death benefit. With the interest only settlement option, the insurance company, retains the policy proceeds, and it pays interest on the proceeds to the recipient (beneficiary), at regular intervals (monthly, quarterly, semi annually, or annually).

If an insured withdraws a portion of the face amount in the form of accelerated death benefits because of a terminal illness, how will that affect the payable death benefit from the policy?

The death benefit will be smaller If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income .

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 two grown-up children. Assuming he never change the beneficiary the policy proceeds will go to

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

When does the 10-day free-look period start?

The moment the policy is delivered to the policy owner.

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value. In lost 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 values.

Which of the following is true about nonforfeiture values?

They are required by state law to be included in the policy. Nonforfeiture values are required by state law to be included in the policy, and cannot be altered by the policy owner. A table showing the nonforfeiture values for the next 20 years must be included in the policy.

What kind of policy allows withdrawals or partial surrenders?

Universal Life Universal life products allow the partial withdrawal, or surrender, of the policy cash value.

And insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policies 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?

Universal life Universal life policies allow for policy holders 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.