3 - Life Insurance Policies - Provisions, Options and Riders
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
$20,000 death benefit
S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?
$50,000
P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?
$50,000 minus any outstanding policy loans
A policyowner may generate taxable income from which of the following Dividend Options?
Accumulation at Interest
What action can a policyowner take if an application for a bank loan requires collateral?
Assign policy ownership to the bank
When a policyowner exchanges a term policy for a whole life policy without providing proof of good health, which of these apply?
Conversion provision
Which statement regarding the Misstatement of Age provision is considered to be true?
Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
Decreasing Term
Additional coverage can be added to a Whole Life policy by adding a(n):
Decreasing term rider
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Deducted when the policy is discontinued
What does a Face Amount Plus Cash Value Policy pay upon the insured's death?
Face amount plus the policy's cash value
What kind of life insurance policy pays a specified monthly income to a beneficiary for 30 years and then pays a lump sum benefit at the end of that 30 years?
Family Maintenance policy
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?
Full face amount minus any past due premiums
Which of the following actions require a policyowner to provide proof of insurability in an Adjustable Life policy?
Increase face amount
Which of these would be considered a Limited-Pay Life policy?
Life Paid-Up at Age 70
Life insurance that covers an insured's whole life with level premiums paid over a limited time is called:
Limited pay life
When a life insurance policy exceeds certain IRS table values, the result would create which of the following?
Modified Endowment Contract (MEC)
Which of the following information is NOT required to be included in a Whole Life policy?
Policy's guaranteed dividend table
Which of these characteristics is consistent with a Straight Life policy?
Premiums are payable for as long s there is insurance coverage in force
Which of the following actions is NOT possible with a Universal Life Policy?
Premiums may be applied as a credit against income tax
Which of these provisions require proof of insurability after a policy has lapsed?
Reinstatement
How does a typical Variable Life Policy investment account grow?
Through mutual funds, stocks, bonds
Which of the following is considered an element of a Variable Life Policy?
Underlying equity investment
K purchased a Life insurance policy in 1986 which paid 10% interest in the early years of the policy. Twenty years after the purchase, she received a notice from the insurer stating that the policy will soon terminate unless a much-higher premium is paid because of falling interest rates. This type of policy is known as a(n) _________ life policy.
Universal
What type of life insurance incorporates flexible premiums and an adjustable death benefit?
Universal Life
Which policy requires an agent to register with the National Association of Securities Dealers (NASD) before selling?
Variable life
Which of the following policies is characterized by a flexible premium and death benefit and allows the policyowner control of the investment aspect of the plan?
Variable universal life
At what point does a Whole Life Insurance policy endow?
When the cash value equals the death benefit
When is the face amount of a Whole Life policy paid?
When the insured dies or at the policy's maturity date, whichever happens first
How long does the coverage normally remain on a limited-pay life policy?
age 100
Under a Graded premium policy, the premiums
are lower during the policy's early years
What action will an insurer take if an interest payment on a policy loan is not made on time?
automatically add the amount of interest due to the loan balance
S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT
beneficiary's age
Who has the option to renew a Renewable Term policy?
Insured
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
Variable Universal Life
Which of the following types of Term Life policies most likely contains a Renewability feature?
10 Year Convertible term
G purchased a Family Income policy at age 40. The policy has a 20-year rider period. If G were to die at age 50, how long would G's family receive an income?
10 years
J is 35-years old and looking to purchase a whole life insurance policy. Which of the following types of policies will provide the most rapid growth of cash value?
20-Pay Life
A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?
20-Pay Life accumulates cash value faster than Straight Life
An insurer may normally delay the payment of a cash value loan of surrender value for up to
6 months
Which of these is an element of a Variable Life policy?
A fixed, level premium
Which statement is TRUE regarding a Variable Whole Life policy?
A minimum guaranteed Death benefit is provided
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n):
Accidental Death and Dismemberment Rider (AD&D)
Which statement about a whole life policy is true?
Cash value may be borrowed against
Whose life is covered on a life insurance policy that contains a payor benefit clause?
Child
Which rider provides coverage for a child under a parent's life insurance policy?
Child term rider
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
Claim will be denied
How do life insurance companies handle cases where ethe insured commits suicide within the contract's stated Contestable period?
Claims are denied under the Suicide clause of the policy
P owns a $25,000 Life Policy that pays the face amount to him if he lives to age 70, or to his beneficiary if he dies before age 70. What kind of policy does P own?
Endowment at Age 70
In a life insurance policy, which feature states that the policy will not cover certain risks?
Exclusion
N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?
Exclusion
Term insurance has which of the following characteristics?
Expires at the end of the policy period
D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with?
Extended term
Which of the following Nonforfeiture options offers the highest death benefit?
Extended term
B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes?
Interest only
What type of life policy covers two lives and pays the face amount after the first one dies?
Joint Life Policy
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT
K will forfeit the right to use the automatic loan provision upon reinstatement
K, age 45, and his wife, age 43, have three children. They purchase a Family Policy that covers K's wife to age 65. All of these situations will pay a death benefit EXCEPT
K's wife dies at age 66
An architecture firm would stand to lose a lot of money in the event of the death of its project manager. Which type of policy should the firm purchase on its project manager?
Key Person insurance
K is looking to purchase Renewable Term insurance. Which of the types of Term insurance may be renewable?
Level
D needs life insurance that provides coverage for only a limited amount of time while also paying the lowest possible premium. What kind of policy is needed?
Level Term
All of the following statements are true regarding a policy's Grace period, EXCEPT:
Past due premiums are waived
Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?
Payor clause
S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?
Return of premium rider
Which of the following types of permanent life insurance policies offers the highest initial cash value?
Single Premium
T would like to be assured $10,000 is available in 10 years to replace a roof on his house. What kind of $10,000 policy should T purchase?
Ten-Year Endowment
A(n) _______ rider may be used to include coverage for children under their parents' life insurance policy.
Term
What kind of life insurance product covers children under their parent's policy?
Term Rider
Which of these life insurance riders allows the applicant to have excess coverage?
Term rider
Whole Life insurance is sometimes referred to as "Straight Life". What does the word "Straight indicate when using this phrase?
The duration of premium payments
What does the ownership clause in a life insurance policy state?
Who the policyowner is and what rights the policyowner is entitled to
What kind of life policy either pays the face value upon the death of the insured or when the insured reaches age 100?
Whole Life
What type of insurance offers permanent life coverage with premiums that are payable for life?
Whole life
Y purchased $100,000 worth of permanent protection on himself and $50,000 worth of 10-year Term coverage for his wife on the same policy. Which of these policies did Y purchase?
Whole life policy with an Other Insured Rider
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional Whole Life coverage at specified times
The incontestable clause allows an insurer to:
contest a claim during the Contestable Period
A Universal Life policy is sometimes referred to as an unbundled Life Policy because the owner can see the interest earned, expense charges, and the
cost of insurance
A(n) ________ term life policy is normally used when covering an insured's mortgage balance
decreasing
A Universal Life policy is sometimes referred to a an unbundled Life Policy because the owner can see the interest earned, cost of insurance, and the
expense charges
What kind of premium does a Whole Life policy have?
level
Whole Life insurance policies are contractually guaranteed to provide each of the following, EXCEPT:
partial withdrawal features beyond a surrender charge period
B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will
pay the amount that the premium would have purchased at the correct age
The _______ has the right to change a life insurance policy's beneficiary.
policyowner
The _______ is authorized to assign a Life Insurance policy as collateral for a loan
policyowner
Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?
policyowner
A Limited-Pay Life policy has:
premium payments limited to a specified number of years
A limited-pay life policy has:
premium payments limited to a specified number of years
The most important factor to consider when determining whether to convert term insurance at the insured's attained age or the insured's original age is:
the cost
When is the face amount paid under a Joint Life and Survivor policy?
upon death of the last insured
A term life insurance policy matures:
upon the insured's death during the term of the policy
Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?
Collateral assignment
All of these statements about the Waiver of Premium provision are corrected, EXCEPT:
Insured must be eligible for Social Security disability for claim to be accepted
The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n):
Insuring Agreement
All of these insurance products require an agent to have proper FINRA securities registration in order to sell them, EXCEPT for:
Modified Whole Life
K buys a policy where the premium stays fixed for the first 5 years. The premium then increases in year 6 and stays level thereafter, all the while the death benefit remains the same. What kind of policy is this?
Modified Whole Life
Which of these life products is NOT considered interest-sensitive?
Modified Whole Life
Which of these life products is NOT considered interest-sensitive?
Modified Whole life
The Cash value in a(n) _____ life policy may fluctuate to reflect changing assumptions regarding mortality cost, interest, and expense factors.
Universal
Which of the following Life insurance policies combine term insurance with an investment element?
Universal Life
D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive?
The full face amount
