A.D. Bankers Life/Health Insurance - Chapter 4 - Jon

Suicide Clause

2-year time limit from the policy issue before death due to suicide is covered

K needs funds and needs to maintain the life insurance she has at the same time. Which of the following should K do with her traditional whole life policy? A. Take out a policy loan B. Make a cash surrender C. Elect the interest only settlement option D. Elect reduced paid-up insurance

A - A policy loan may be madue policy once there is sufficient cash value to borrow against. In most policies, cash value must be made available to borrow against after 3 years.

Misstatement of Age

Benefits will be adjusted according to what premiums paid would have purchased at correct age or sex

When is the earliest a beneficiary designation can be made A. At time of clain B. Upon policy renewal C. Upon policy delivery D. At the time of policy application

D - Beneficiaries are indicated for the first time when the application for life insurance is completed for submission to the home office of the insurer

Paid-Up Additions Paid-up Option Premium Reduction Cash Are examples of which option:

Dividend Options

Free Look

Insured may return policy for a full refund typically within 10 days of receipt of policy

Assignment

Transfer of ownership rights

List statements that occur while the application is going through the underwriting process,

1. MIB report may be requested 2. Insurability is determined 3. Classification risk and rating

Which of the following statements about policy dividends is True? A. There are several dividend options to choose from B. Dividends are guaranteed and taxable as income when received C. Dividends can only be withdrawn at certain specified intervals D. Nonparticipating policies are eligible for dividends.

A - Dividends are declared under participating polices. The are not guaranteed, and if received, the dividend itself is generally not taxable. The can be withdrawn anytime there is an accumlation.

Alice finds she no longer is able to pay premiums on her $50,000 Whole Life Policy, but needs that amount of protection for her family. Which Nonforfeiture Option provides this protection? A. Extended Term B. Paid-up Option C. Reduced Paid-Up D. Fixed Amount

A - Extended Term would allow the present cash value of the policy to buy a single premium term policy of the same face amount for the time period stated in the policy's nonforfeiture talble. Fixed Amount is Settlement Option, and Paid-Up Option is a dividend Option

No assignment of a policy will be binding on the insurer, unless: A. It is in writing and received at the insurer's home office. B. Sworn affidavits accompany the request C. It is accompanied by supporting legal documentation D. It is determined to be a valid by the insurer

A - No assignment of policy will be binding on the unless it is in writing and received at the insurer's home office. The insurer is not responsible for determining the validity of the assignment

Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mond of being covered for the same $200,000 in death benefit although it may be for an abbreviated perod of time. The Nonforfeiture Option Jamie should choose is: A. Extended Term B. One-year Term C. Paid-Up Additions D. REduced Paid-Up

A - One-Year Term and Paid-U[ Additions are dividend options not nonfeiture options. Since Jamie's concern is to sustain a like amount of death benefit, she should choose Extended Term

Lucy uses her dividends to purchase single premium additional permeanent benefits at her attained age. Which Dividend Option is Lucy exercising? A. Paid-up Additions B. Paid-up Option C. One-year term D. Reduced Paid-up

A - Only Paid=up Additions, Paid-up Option and One Year Term are dividend options. Reduced Paid-Up is a nonforfeiture option. Lucy wanted additional permanent benefits so she should choose Paid-up Additions.

What is the primary purpose of the reinstatement provision? A. To put a policy back in force as if it had never lapsed B. To help the insurer recoup back premiums C. For insurers to profit on the interest charge D. To protect beneficiaries rights to future claims

A - Reinstatements are designed to put policy back in force as if the lapse never occurred. Upon reinstatement, a new. Incontestability clause takes effect, since a new application is required.

An insured purchased an ordinary life policy 15 years ago, and at the time listed her husband as the only beneficiary. Her husband died 2 years ago but she never changed the beneficiary. She dies, leaving one surviving adult child. Who receives the death benefits? A. The insurer's estate B. The probate court C. The state treasury D. The insured's trust

A - Since there were no other beneficiaries named, the death benefit would default to the insured's estate. The probate court would distribute the proceeds according to law

Some traditional whole life policies offer a(n) ____ feature to keep the policy in force if there are sufficient cash value to do so. A. Automatic premium loan B. Collateral C. Cash surrender D. Bank loan

A - Some policies offer an automatic premium loan feature to keep the policy in force if there are sufficient cash values to do so.

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, Except: A. It is available on any type of life insurance policy B. It can be cancelled at any time by the policyowner C. It becomes effective, if elected, at the end of the gracy period D. It must be elected by the policyowner

A - The Automatic Premium Loan Provision is available on cash value policies only

The provision that limits the amount of time an insurer has to challenge a claim and void the contract upon proof oa a material misstatement is called the ____clause. A. Incontestability B. Insuring C. Entire Contract D. Consideration

A - The incontestability clause limits the period of time during which the insurer has the right to contest a claim and void the contract upon proof of a material misstatement.

When a life insurance policy's ownership is changed from the original owner to a new owner without payment, this is known as a(n): A. Collateral assignment B. Absolute assignment C. Life settlement Viatical settlement

A - When a life insurance policy's ownership is changed from the original owner to a new owner, this is known as an absolute assignment when no money is involved

A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy's named beneficiary received? A. $90,000 B. $70,000 C. %50,000 D. $100,000

A = The collateral assignee, the bank, will take a priority claim on the policy's death benefit limited to the amount of the loan's outstanding at the time of death, the name beneficiary will received the the balance. In this case $90,000 ($100,000 - $10,000)

The nonforfeiture option tht provides the most amount of coverage is: A. Extended Term B. Cash surrender value C. Reduced Paid-Up D. Automatic Premium Loan

A. Extended term provides the most of coverage for the least amount of time, whereas reduced paid-u[ provides the least amount of coverage for the longest period of time

What is the primary purpose of the reinstatement provision? A. To put a policy back in force as if it had never lapsed B. For insurers to profit on teh interest charge C. To help the insurer recoup back premiums D. To protect beneficiaries rights to future claims

A. Reinstatements are designed to put a policy back in force as if the lapse never occurred. Upon reinstatement, a new incontestability clause takes effect, since a new application is required.

Taxation applies to any _____on cash value paid out as a withdrawal of a Universal Life policy. A. Interest B. Capital gain C. Refund of premium D. Dividend

A. Taxation applies to any interest on the cash value paid out as a withdrawal. In other words, any amount paid in excess of the premium is subject to taxation.

If an applicant for life insurance misstates his age on the application, what would be the consequence if/when it is discovered? A. Death benefit will be what the premium paid would have purchased at issuance at the correct age. B. Premiums refunded with interest no dealth benefit paid C. Real age divided by actual age, multiplied by death benefit D. The policy will be voided

A. The Misstatement of Age or Sex Provision prevents the policy from automatically being voided, but protects the insurer's right to protect its interests by adjusting the death bnefit based on what the actual premiums paid would have purchased had the correct age been known

When a policy lapses due to nonpayment of premium, which nonforfeiture option is the automatic option? A. Extended term B. Reduced paid-up C. Cash surrender value D. Automatic premium loan

A. The automatic nonforfeiture option is extended term. Automatic premium loan is a policy provision whicch must be elected by the policyowner in advande of the policy lapsi

If overdue premiums are not paid by the end of the grace period, a traditional Whole Life policy will automatically. A. Become extended term B. Be canceled with no value C. Be reduced in face amount by the amount of the overdue prem D. Be cash surrendered

A. The automatic option at the end of the grace period for a traditional Whole Life policy is the extended term nonforfeiture option. This will keep the original face amount in place for a certain number of years and days as indicated on the table inside the policy

The provision that limits the amount of time an insurer has to challenge a claim and void the contract upon prooff of a material misstatement is called ____clause. A. Incontestability B. Insuring C. Entire Contract D. Consideration

A. The incontestability clause limits the period of time during which the insurer has the right to contest a claim and void the contract upon proof of a materidal misstatement.

For which of the following reasons may an insured return the policy for a full refund within the Free Look Period? A. Any reason B. Increase in premium C. Death of the agent D. Decline in financial rating of the insurance company

A. The insureed/owner has the right to examine the policy for 10 days after delivery. If returned within the period, a full refund of premium is granted. It is the insurer's responsibility to prove the date of delivery.

What is the additional premium cost to have the automatic premium loan provision included in a permanent policy> A. It varies by insurer and type of policy. B. Nothing C. 10% of the face amount D. 10% of the base policy premium

B - the Automatic Premium Loan provision is available on cash value policies only and does not require an additional premium

If the beneficiary is concerned about a particular amounf of cash flow each month, the ______ settlement option should be selected. A. Life with Period Certain B. Fixed Amount C. Fixed Period D. Interest Only

B - Fixed Amount Payments are for a specified dollar amount paid monthly until the benefirs along with interest are exhausted. An increase in declared interest will extend the time period in which the benefits are paid.

A policyowner who wishes to maintain all rights in the policy should designate a(n): A. Primary beneficiary B. Revocable beneficiary C. Irrevocable beneficiary D. Contingent beneficiary

B - In order to maintain all rights in the policy, a policyowner should name a revocable beneficiary. An irrevocable beneficiary would have to provide consent for certain changes to a policy. Primary, contingent, and tertiary beneficiaries can be named as either revocable or irrevocable.

A beneficiary wants a guarantee that benefits will be paid for a period of 10 years orr life whichever time period is greater. Which of the following option should the beneficiary select? A 10-year Period Certain B. Life with 10-year Period Certain C. Joint Life Income D. Fixed Amount

B - Life with 10-year Period Certain pays out for greater of 19 years or life.

An insured with a participating life insurance policy receives annual dividends, She has opted for the insurer to use these funds to increase her overall amount of insurance. This would refer to which option. A. Premium Reduction B Paid-up Additions C. One-Year Term D. Reduced Paid-UP

B - Paid-UP Additions is a Dividend Option that buys small amounts of life insurance with a single premium and increase both the death benefit and cash value of the policy. Each addition's cash value is separate from the cash value of the base policy. Reduced Paid-UP is a Nonforfeiture Option.

Which provision allows an insurer to borrow from the cash value of a policy in order to pay premiums due and prevent a lapse in coverage? A. Reinstatement B. Automatic Premium C- Partial Withdrawal D. Spendthrift

B - The Automatic Premium Loan Provision enables the insurer to borrow automatically from the policy's cash valuld, at the end of the grace period. to cover a premium payment to prevent the policy from lapsing

If a life insurance policy lapses due to nonpayment of premium, then reinstatement requires A. The payment of the next annual premium in full and in advance B. Proof of insuabilibty only C. The payment of back premuims only D. The payment of back premiums, plus interest, and proof of insurability.

B - To reinstate a lapse policy, the insured must provide evidence of insurability and all back premiums plus interest must be paid.

How long, typically, is the grace peroin on a $500,000 level term life insurance policy? A. One quarter B. One month C. One year D. One week

B - Typcally, the grace period runs one month (30 or 31 days) from the premium due date

Generally, an insurer may defer the granting of a policy loan for up to ______ months A. 9 B. 3 C. 6 D. 12

C - An insurer by law can defer granting a policy loan for up to 6 months.

K has a loan of $5, 000 outstanding against her $25,000 traditional whole life policy. If K dies, how much will her beneficiaries receive? A. $25,000 B. $5,000 C. $20,000 D. $30,000

C - Any outstanding loans will be deducted from the face amount at the time of claim,or from the cash values upon surrender, along with any interest due.

All of the following are excusions, except: A. Aviation B. Hazardous occupation C. Driving D. Hazardous hobbies

C - Driving is not considered in and of itself an exclusion

Failure to repay a loan or loan interest will void a life insurance policy: A. After the insurer calls in the loan with 30-day advance notice B. After the loan has been outstanding for more than 5 years C. If the total amount due equals or exceeds the policy's cash values D. If interest rates increase by the more than 3% in any 1 year

C - Failing to repay a loan or loan interest will not void a policy until the total amount due become greater than the policy's cash value.

Life insurance benefits are usually paid _________. A. In installment over a specified perod of time B. In specified amounts over time C In a lump sum D. Until the beneficiary dies

C - Life insurance benefits are usually paid an a lump sum, unless another mode of settlement has been selected.

All of the following are Settlement Options, except: A. Fixed amount B. Life income joint and survivor C. Reduced Paid-Up D. Fixed Period

C - Reduced Paid-Up is a Nonforfeiture Option, not a Settlement Option

When a policy lapss due to nonpayment of premium, which nonforfeiture option is the automatic option? A. Automatic premium loan B. Cash surrender value C. Extende term D. Reduced paid-up

C - The automatic nonforfeiture option is extended term. Automatic premium loan is a policy provision which must be elected by the policyowner in advance of the policy lapsing.

Which Settlement Option pays a specified dollar amount until benefits are exhausted? A. Life Income B. Paid Up Option C. Fixed Amount D. Life income with Period Certain

C - The fixed Amount option pays benefits at a specified dollar amount (such as $1,000/month) until the bnefits are exhausted.

All of the following are situations in which the insurer is obligated to pay out a death benefit after the insured has died, except: A. The insurer discover the gender of the insured was misstated B. The insured was an experienced pilot who died in a plane crash but had a policy issued with an avation rider for an additional premium C. The premiums have not been paid and have been overdue for 3 years D. An insured commits suicide 7 years after the policy was issued

C - The insuring clause states that the policy must be in force. A policy that has overdue premiums unpaid will cause the policy to lapse which mans no coverge was in effect.

If an insured dies during the policy's grace period, the insurer will: A. Deny the claim B. Pay the death bnefit after the beneficiary paid the premium due C. Pay the death benefit, less the amount of premium due. D Pay the death benefit and waive the premium due.

C - The policy is in force during the grace period and if death occurs during the grace period, the insurer pays the death benefit, minus any premiums or loan due.

The ______ provision specifies what an insured must do, if a policy has lapsed, in order to pout it back in force. A. Reinsurance B. Reconsideration C. Renewal D. Reinstatement

D - A policy lapse occurs at the expiration of the grace period. The Reinstatement Provision permits the policy to be put back into force if proof of insurability can be provided and all past due premiums and interest are paid. Any outstanding policy loan may also have to be paid or reassumed.

What is the purpose of nonforfeiture values? A. Federal insurance law requires them B. It is a way for the insurance company to charge extra for this optional benefit C. The NAIC mandates nonforfeiture values. D, Without them,any cash values would be retained by the insurer when the policy lapses due to non-payment of premium

D - Nonforfeiture Options (Guaranteed Values) are found in policies that accumlate cash values and protect the policyowner against total loss of benefits if the policy should lapse due to nonpayment of premium

A _____ Option protects the policyowner against total loss of benefits in the event of a lapsed policy. A. Dividend B. Settlement C. Spendthrift D. Nonforfeiture

D - Nonforfeiture Options are found in life insurance policies that generate a cash value, and protect the owner against total loss of that cash value, if the policy should lapse or is cancelled

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Bill dies, then Alice dies, so who receives the policy proceeds? A. The treasury fo the state where Alice lives B. Bill C. Alice's estate D. Claire

D - Since Claire outlived Bill and Alice, then Claire is next in line to receive the policy proceeds.

What provision establishes that if both the insured and the primary beneficiary die in the same acident and it cannot be determned who died first, the insured will be presumed to have survived the beneficiary and proceeds will paid to a named contingent beneficiary of the insured, or to the insured's estate? A. Insuring Clause B. Consideration Clause C. Spendthrift D. Common Diaster Clause

D - The common Diaster Clause is designed to rule i n such situation. If a contingent beneficiary is named and is alive, he or she receives the proceeds. Otherwise the are paid to the insured's estate.

What is the intent of the suicide clause? A. To be able to pay out claims to beneficiaries whenever such a tragic even occurs B. To distinguish between sane and actions C. To pay out claims only if and when suicides are committed whild sane D. To discourage individuals from purchasing an insurance policy while contemplating suicide

D - The intent of the suicide clause is to discourage individuals from purchasing an insurance policy while complemplating suicide

The technical name of the person who makes a policy assignement is the : A. Assignee B. New owner C. Old owner D. Assignor

D - The orignal owner (the assignor) will name a new owner of the policy (the assignee)

All of the following are True of Policy Loan Rate provisions, except: A. The policy loan amount cannot exceed the available cash value B. Policies with adjustable loan interest rate have a maximum interest rate based upon Moody's corporate bond yield average C. Interest if not paid when due, is added to the total debt D. Policies with fixed interest loan rates have a macimum interest rate of 10%

D - The policies with fixed interest loan rates usually have a maximum interest rate of 8%

When can a policyowner make a change in the policy's coverage or other benefits if an irrevocable beneficiary has been named? A. After obtaining the insurer's consent B. After obtaining a court order C. At any time D. After the irrevocable beneficiary dies

D - The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable befeficiary is named, the owner may not make changes to the policy that affext the coverage or benefits without consent of the beneficiary.

Interest only, life income with period certain, lump sum, and life income only are all forms ofd which of these life insurance policy options? A. Beneficiary options B. Dividend options C. Nonforfeiture options D. Settlement options

D - These are all examples of death benefit settlement options - how the beneficiary will receive the policy proceeds.

Contractual provisions explain all of the following, except: A. What the contract consist of B. How the policy works C. The duties and responsibilities of the parties to the contract D. Where the premium is going to come from

D. Contractual provisions explain what the contract consists of, what duties and responsibilities the parties to the contract have, how the policy works, and basically spell out the agreement between the policyowner and the insurance company

Incontestability

Insurer cannot contest statements (errors, misstatements, fraud) in application after 2 years 2 years

Reduce Paid-up Cash Surrender Extended Term Are examples of which option:

Nonforfeiture Options

Ownership Provision

Party who has all rights to cash, loan values, dividends and other benefis.

Consideration Clause

Payment that is made in exchange forthe contract, something of value

Entire Contract

Policy, riders, copy of appication must be in writing and attached

Life Income Only Interest only Fixed Amount Joint Life Are examples of which option:

Settlement Options

Mode of Premium Payment

The frequency of premium payments

List statements that occur while the application is being completed

1. Conditional receipt may be issued 2. Required signatures 3. Formal request for the insurer to issue a policy

List statements that occur when the policy is being delivered

1. Constructive delivery 2. Producer explains rating, premiums, coverages, and policy benefits 3. Statement of Good Health

What is the primary purpose of the reinstatement provision? A. To put a policy back in force as if it had never lapsed. B. To protect beneficiaries rights to future claims C. To help the insurer recoup back premiums D. For insurers to profit on the interest charge

A - Reinstatement are designed to put a policy back in force as if the lapse never occurred. Upon reinstatment, a new incontestability clause takes effect, since a new application is required.

The interest earned on dividends is: A. Tax deductible B. TAxable C. Nontaxable D. Tax deferred

A - The dividends themselves are generally not taxable, but any interest earned on the dividends is taxable.

Reinstatement

Allows the owner to bring the policy up to date if it has lapsed due to nonpayment

If the beneficiary is concerned about a particular amount of cash flow each month the ___ settlement option should be selected. A. Life with Period Certain B. Fixed Amount C. Fixrd Period D. Interest Only

B - Fixed Amount Payments are for a spedified dollar amount paid monthly until the benefits along with interest are exhausted. An increase in declared interest will extend the time period in which the benefits are paid

If the insured dies while the ___ period is in effect, the death benefit paid is the face amount, minus the premiums due. A. Settlement B. Grace C. Reinstatement D. Incontestability

B - If the insured dies during the grace period, the death benefit of the policy is payable to the beneficiary, minus any premiums

If the insured outlives all of the beneficiaries named in the policy and then dies, by default who receives the death benefit? A. The state Guaranty Association B. The insured's estate C. The treasury of the state where the insured resided D. A tertiary trust

B - When no named beneficiaries are alive at the time the insured dies, the estate of the insured the death benefit.

John is the insured. His wife Mary is the primary beneficiary. Their three children are the contingent beneficiaries, John and Mary are killed in a ommon accident. The proceeds of JOhn's policy would be paid to: A. Mary' estate B. John's parents C. John's estate D. The children

D - Contingent beneficiaries receive the policy proceeds in the absence of the primary beneficiary. The common disaster clause assumes the primary beneficiary died before the insured if both are killed in the same accident.

B's policy had a $1,000 annual premium. B has not paid it for 2 years and wants to put the policy back in force. The insurer charges 10% interest on overdue premiums. What does B have to pay in order to reinstate their policy? A. 2 years of premiums, a reinstatement fee, and interest. B. 2 years of premiums C. One month's premium. plus a reinstatement fee specified in the policy D. 2 years of premiums, plus interest due on overdue premiums amounts.

D - In order to reinstate the policy, the insured must provide evidence of insurability and the owner must pay all back premiums from the date of lapse plus interest. This means B needs to pay 2 years of unpaid premiums, plus the interest charged for overdue premiums. There is no additional reinstatement fee needed.

What is rhe purpose of nonforfeiture values? A. Federal insurance law requires them B. It is a way for the insurance company to charge extra for this optional benefit. C. The NAIC mandetes nonforteiture values. D. Withour them, any cash values would be retained by the insurer when the policy lapses due to non-payment if premium

D - Nonforfeiture Options (Guaranteed Values) are found in polices that accumulate cash vallues and protect he policyowner against total loss of benefits if the policy should lapse due to nonpayment of premium.

Which of the following statements regarding life insurance policy exclusions is TRUE? A. Hazardous occupations are usually covered at a reduced benefit if death is the result of an insured's occupation B. The war clause states coverage is provided if death is the result of war C. The status clauses states that coverage is provided to individuals with miltary status D. Generally, aviation is excluded, except for fare-paying passe gers on a commerical flight

D - Without an Aviation Rider on the policy, death as a result of aviation is excluded, except for a fare-paying passenger on a regularly scheduled commercial flights.

An insured has a $175,000 permanent life insurance policy and is having difficulty keeping up with premium payments. Which Nonforfeiture Option would allow him to forego the premiums and retain the same face amount until the cash surrender value is exhausted? A. Premium Reduction B. REduced Paid-Up C. Cash Surrender D. Extended Term

D. CAsh Surrender is a Nonforfeiture Option that terminates the policy. Extended Term continues the same coverage until the cash value from which the premium is paid is exhausted.

Policy loan provision include all of the following except: A. Interest is charged annually B. Outstanding loans will be deducted fom the face amount at time of claim C. Unpaid interest is added to the value of the loan. D. The death benefit of a policy is authomatically reduced when a loan is requested

D. Policy loans do not authomatically reduce the death benefit in a policy. If an outstanding loan exists at the time of death, the amount of the loan will then reduce the benefit paid to the beneficiary.

Insuring Clause

This provision identiflies the parties, perils, and promises of the contract

Grace Period

Time period after the premium due date before the policy lapses