Arkansas Insurance Exam for Life & Health: Policy Provisions, Riders, & Options

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to APurchase a single premium policy for a reduced face amount. BPurchase a term rider to attach to the policy. CPay back all premiums owed plus interest. DReceive payments for a fixed amount.

A When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

Items stipulated in the contract that the insurer will not provide coverage for are found in the AExclusions clause. BInsuring clause. CBenefit Payment clause. DConsideration clause.

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

Which of the following is NOT typically excluded from life policies? ADeath that occurs while involved in a felony BDeath due to war or military service CDeath due to plane crash for a fare-paying passenger DSelf-inflicted death

C Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called ASupplemental add on. BCost of living. CGuaranteed insurability. DWaiver of cost of insurance.

C Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

Which type of beneficiary is changeable at any point? APrimary BIrrevocable CRevocable DContingent

C Revocable beneficiaries can be changed at any point. Irrevocable beneficiaries must give permission to the policyowner in order for the beneficiary to be changed. The terms "primary" and "contingent" refer to succession of beneficiaries.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? ABeneficiary clause BConsideration clause CInsuring clause DEntire contract clause

C The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

What is the benefit of choosing extended term as a nonforfeiture option? AIt allows for coverage to continue beyond maturity date BIt can be converted to a fixed annuity CIt has the highest amount of insurance protection DIt matures at age 100

C 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.

Which of the following riders provides for a waiver of premium when the policyowner and the insured are NOT the same person? AWaiver of premium BWaiver of the cost of insurance CConditions for payment DPayor benefit

D The payor benefit waives the premium of the owner when the owner becomes disabled and is a person other than the insured.

What is the other term for the cash payment settlement option? APrincipal amount BFace amount CProceeds DLump sum

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

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to ASpouse. BPolicyowner. CTertiary beneficiary. DContingent beneficiary.

D A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

What is the term that most accurately describes the provision designed to relieve life insurance premium payment for minors whose parents have died or become disabled? AJumping Juvenile BJuvenile Premium Provision CWaiver of Premium DPayor Benefit

D Under the Payor Benefit, if the guardian of a child dies or becomes disabled, the child will be exempt from premium payment until a certain age, usually 21.

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? AMedical exam and parents' medical history BProof of insurability is not required. CMedical exam DHer parents' federal income tax receipts

B If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

If a life insurance policy has an irrevocable beneficiary designation, AThe beneficiary can only be changed with written permission of the beneficiary. BThe beneficiary cannot be changed for at least 2 years. CThe owner can always change the beneficiary at will. DThe beneficiary cannot be changed.

A If a policy has an irrevocable beneficiary designation the beneficiary can only be changed with written permission of the beneficiary.

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 AIncontestability clause. BReinstatement clause. CInsuring clause. DMisstatement of Age clause.

A If an insurer wishes to contest any statements on an application, they must do so within the first two years.

All of the following statements concerning dividends are true EXCEPT ALower insurance company costs generate higher dividends. BThey stem from favorable underwriting experience. CFavorable investment results generate higher dividends. DDividend amounts are guaranteed in the policy.

D Dividends cannot be guaranteed.

Which is true about the cash surrender nonforfeiture option? AFunds exceeding the premium paid are taxable as ordinary income. BAfter the cash surrender, the insured is covered for a grace period of 1 month. CThe policy remains active for some time after the policyholder opts for cash surrender. DThe policyholder receives the original cash value of the policy.

A The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

Which of the following applies to the free look privilege? AIt can be waived only by the insurance company. BIt is granted only at the option of the agent. CIt permits the insured to reject the policy with a full refund. DIt allows the insured 10 days to pay the initial premium.

C A policyowner may return a policy, for any reason, during the free look period and receive a full refund.

The two types of assignments are AComplete and partial. BComplete and proportionate. CAbsolute and collateral. DAbsolute and partial.

C Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.v

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? AWaiver of premium provision BIncontestable clause CGrace period DReinstatement provision

D A lapsed policy may be reinstated within three years by paying back premiums, with interest, and proving insurability.

Which two terms are associated directly with the premium? AFixed or variable BTerm or permanent CRenewable or convertible DLevel or flexible

D A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

Who controls changes in premium payments, face value, loans, and policy plans? AInsurer BBeneficiary CAgent DPolicyowner

D Mandatory provisions give these rights to the policyowner.

The paid-up addition option uses the dividend ATo purchase a one-year term insurance in the amount of the cash value. BTo reduce the next year's premium. CTo accumulate additional savings for retirement. DTo purchase a smaller amount of the same type of insurance as the original policy.

D With the paid-up additions option, the dividends are used to purchase a single premium, additional permanent policy.

All of the following are dividend options EXCEPT AFixed period installments. BAccumulated at interest CReduction of premium. DPaid-up additions.

A Fixed period installments option is not one of the dividend options.

Which of the following is NOT typically excluded from life policies? ADeath due to plane crash for a fare-paying passenger BSelf-inflicted death CDeath that occurs while involved in a felony DDeath due to war or military service

A Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

What document must be made part of the insurance policy entire contract? ACopy of the original application BBuyer's Guide CShopping Comparison Guide DOutline of summary

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

A business owner went to the bank to obtain a loan in order to fund the purchase of a doughnut shop, but the bank needed more in trade than she had expected. Since the business owner has a $250,000 life insurance policy, she decided to use it to secure the loan. Which provision makes this possible? ACollateral assignment BInsurable Interest CModification clause DOwnership provision

A The business owner could make a collateral assignment of his or her life insurance policy to the bank.

What is the other term for the cash payment settlement option? AFace amount BProceeds CLump sum DPrincipal amount

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

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT AThe policyholder has the right to withdraw the accumulations at any time. BThe interest credited under this option is not taxable since it remains inside the insurance policy. CThe annual dividend is retained by the company. DThe interest is credited at a rate specified by the policy.

B The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

What is the advantage of reinstating a policy instead of applying for a new one? AThe cash values have gained interest while the policy was lapsed BThe original age is used for premium determination CProof of insurability is not required DThe face amount can be increased

B The reinstatement provision allows the policyowner an opportunity to put a lapsed policy back in force, subject to proving continued insurability. If the policyowner elects to reinstate the policy, as opposed to purchasing a new policy, the reinstated policy is restored to its original status.

Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members? AAccidental death and dismemberment rider BGuaranteed insurability rider CChange of insured rider DTerm rider

D Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.

What is the term that most accurately describes the provision designed to relieve life insurance premium payment for minors whose parents have died or become disabled? AWaiver of Premium BPayor Benefit CJumping Juvenile DJuvenile Premium Provision

B Under the Payor Benefit, if the guardian of a child dies or becomes disabled, the child will be exempt from premium payment until a certain age, usually 21.

Sam has a life insurance policy from a participating company and receives quarterly dividends. Sam has instructed the company to apply his dividends to the policy to increase the death benefit. The dividend option that Sam has chosen is called AReduction of premiums. BPaid-up additions. COne year term purchase. DAccumulation at interest.

B When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

Which of the following statements best describes the effect the Accelerated Benefit provision would have on the benefits paid to the beneficiary? AIt will reduce the benefits by 70%. BIt will increase the benefits paid to the beneficiary. CIt will decrease the benefits paid to the beneficiary. DIt will not affect the benefits paid to the beneficiary.

C Accelerated Benefit provision allows the early payment of some portion of the death benefit if the insured becomes terminally ill or is confined to a long-term care facility. The face amount of insurance is therefore reduced, which will decrease the benefits paid to the beneficiary.

Z falls from the roof of his house while fixing it and damages his spinal column enough to render him disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will Z receive? APayments for life BYearly premium waiver and income CMonthly premium waiver and monthly income DPercentage of medical costs paid by the insurer

C The Disability Income Benefit rider waives the policy premiums, just like the Waiver of Premium rider. Unlike the Waiver of Premium rider, it also allows the insured to receive a weekly or monthly income during the disability period.

Which of the following applies to the free look privilege? AIt allows the insured 10 days to pay the initial premium. BIt can be waived only by the insurance company. CIt is granted only at the option of the agent. DIt permits the insured to reject the policy with a full refund.

D A policyowner may return a policy, for any reason, during the free look period and receive a full refund.

When an insured dies, who has first claim to the death proceeds of the insured life insurance policy? AContingent beneficiary BEstate CPolicyowner DPrimary beneficiary

D The death benefit of a life insurance policy is paid to the primary beneficiary, if living.

What required provision protects against unintentional lapse of the policy? AAssignment BPayment of premiums CReinstatement DGrace period

D The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.

Which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insured, and to whom the benefits will be paid? AEntire contract clause BBeneficiary clause CConsideration clause DInsuring clause

D The insuring clause states that the insurer agrees to provide life insurance for the named insured which will be paid to a designated beneficiary when proof of loss is received by the insurer. It states the party to be covered by the policy and names of the beneficiary who will receive the policy proceeds in the event of the insured's death. If no beneficiary is named, the policy proceeds will be paid to the insured's estate.

Which of the following factors determines the amount of each installment paid in a Life Income Option arrangement? AProjected income BRecipient's health and death benefits CProjected life insurance and health insurance DRecipient's life expectancy and amount of principal

D The recipient's life expectancy and the amount of principal determine the amount of each installment paid in the Life Income Option arrangement.

If a settlement option is not chosen by the beneficiary or policyowner, which option will be used? ALife income BFixed period CFixed amount DLump sum

D Upon the death of the insured, or endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses an optional mode of settlement.

An insured receives an annual life insurance dividend check. What term best describes this arrangement? ACash option BReduction of Premium CAnnual Dividend Provision DAccumulation at Interest

A The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

An insured is involved in an accident. He is informed by his insurance company that he will receive the principal amount due to his accidental death and dismemberment rider on his life insurance policy. For what losses could the insured generally receive the principal amount of the policy? ALoss of use of the primary hand of the insured BLoss of vision in 1 eye CLoss of vision in both eyes DLoss of the primary hand of the insured

C The dismemberment portion of the AD&D rider will usually pay the principal (face) amount for loss of two hands, two arms, two legs or the loss of vision in both eyes. The capital amount, usually limited to half the face value, is payable in the event of the loss of one hand, arm, leg, or eye. The dismemberment can be defined as actual severance of the limb. Some insurance companies require only loss of use.

Life income joint and survivor settlement option guarantees AIncome for 2 or more recipients until they die. BPayment of interest on death proceeds. CPayout of the entire death benefit. DEqual payments to all recipients.

A 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.

All of the following are features and requirements of the Living Needs Rider EXCEPT ADiagnosis must indicate that death is expected within 3 years. BIt is usually available at no additional charge. CThe remainder of the policy proceeds is payable to the beneficiary at the insured's death. DIt provides funds for medical and nursing home expenses to a terminally ill insured.

A The Living Needs Rider provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years.

Walter purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. Walter was severely injured in an auto accident, and after 10 weeks of hospitalization, he died from the injuries. What amount would his beneficiary receive as a settlement? A$200,000 B$100,000 plus the total of paid premiums C$0 D$100,000

A The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

M is the owner of a $225,000 life policy with a triple indemnity rider for accidental death. When M is killed in a car accident, it is determined that the accident was his fault and that he was intoxicated at the time of the accident. The triple indemnity rider in M's policy specifies that the death must not be contributed to by the insured in any manner. In this case, the beneficiary will receive A$225,000. B$675,000 (triple the amount of policy value). C$0. D$112,500 (50% of the policy value).

A 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 by any other factors and must occur within 90 days of the accident. Since M contributed to his death, the triple indemnity rider is void, but the beneficiary will still receive the policy's face amount.

Regarding the free-look provision, the insurance company AMust allow the policyowner to return the policy for a full refund. BCannot charge a premium after 10 days. CMust issue a free policy for 30/31 days. DMust issue a free policy for 10 days.

A This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.

Under an extended term insurance policy, the policy cash value is converted to AA lower face amount than the whole life policy BA higher face amount than the whole life policy CThe same face amount as in the whole life policy DThe face amount equal to the cash value

C 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.

According to the Entire Contract provision, a policy must contain AA declarations page with a summary of insureds. BBuyer's guide to life insurance. CListing of the insured's former insurer(s) for incontestability provisions. DA copy of the original application for insurance.

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

Children's riders attached to whole life policies are usually issued as what type of insurance? AIncreasing term BAdjustable life CWhole life DTerm

D Children's term riders provides term insurance with coverage expiring when the minor reaches a certain age.

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? AProof of insurability is not required. BMedical exam CHer parents' federal income tax receipts DMedical exam and parents' medical history

A If a Children's Term rider is attached to a life insurance policy, children can be covered under the policy until they reach the maximum age stated in the policy. At that point, they can convert their coverage to a new policy without having to issue proof of insurability.

Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner? ACash surrender BReduced paid-up CPaid-up options DExtended term

A Once the cash surrender value is paid, the contract is over.

When an insured dies, who has first claim to the death proceeds of the insured life insurance policy? AEstate BPolicyowner CPrimary beneficiary DContingent beneficiary

C The death benefit of a life insurance policy is paid to the primary beneficiary, if living.

An employer provides a group life plan for its employees; it is $50,000 of term to age 65. When one of the employees was hired 10 years ago, he misstated his age and told the employer he was 50, when in fact he was 56 years old. The insured employee died last week. His beneficiary will receive ANothing, due the insured's reaching the maximum age. BThe amount of death benefit the premium would have purchased at his correct age. CNothing, due to the misstatement of age. D$50,000.

A If the applicant has misstated his or her age on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age would have otherwise purchased. In this case, the coverage would have ceased when the insured reached the maximum age stated in the policy.

What is the term that most accurately describes the provision designed to relieve life insurance premium payment for minors whose parents have died or become disabled? APayor Benefit BJumping Juvenile CJuvenile Premium Provision DWaiver of Premium

A Under the Payor Benefit, if the guardian of a child dies or becomes disabled, the child will be exempt from premium payment until a certain age, usually 21.

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? AGrace period BReinstatement provision CWaiver of premium provision DIncontestable clause

B A lapsed policy may be reinstated within three years by paying back premiums, with interest, and proving insurability.

Which of the following is guaranteed to the policyowner through nonforfeiture values? AThe premiums on their policy will never increase. BThe cash value in a policy belongs to the insured even if the policy lapses or is surrendered. CDividends on the policy are paid yearly. DA beneficiary has the right to choose a settlement option.

B Because permanent life insurance policies have cash values, there are certain guarantees built into the policy that cannot be forfeited by the policyowner. Nonforfeiture values give the insured the right to the cash value even if the policy lapses or is surrendered.

All of the following are Nonforfeiture options EXCEPT AReduced paid-up BInterest only CCash surrender DExtended term

B Nonforfeiture values include cash surrender, extended term and reduced paid-up. Interest only is a settlement option.

All of the following statements concerning Waiver of Premium riders are correct EXCEPT AOnce activated, the Waiver of Premium will continue until the insured's recovery or the maturity of the policy, whichever occurs first. BAn insured who has recovered from a disabling injury will be required to repay the insurer for any premiums that were waived. CWaiver of Premium riders require that disablement needs to last for a certain period of time. DThere is a maximum age limit for the Waiver of Premium rider to activate.

B Premiums which are waived under the rider do not require repayment upon the insured's recovery.

Which of the following information will be stated in the consideration clause of a life insurance policy? AThe conditions for insurability BThe amount of premium payment CThe parties to the contract DThe time period allowed for the payment of premium

B The consideration clause states that the value offered by the insured is the premium and statements made in the application, so it will include the information about the amount and frequency of premium payments.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the APaid-up additions. BOne-year term option. CPaid-up option. DAccelerated endowment.

B The dividend is utilized to purchase one year term insurance.

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? APay the full death benefit and refund excess premium BPay a reduced death benefit CPay the full death benefit DPay nothing; there was a misrepresentation on the application

B The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. However, it does not apply to statements relating to age, sex and identity.

A rider attached to a life insurance policy that provides coverage on the insured's family members is called the APayor rider. BOther-insured rider. CChange of insured rider. DJuvenile rider.

B The other-insureds rider is useful in providing insurance for more than one family member. The type of insurance offered by this rider is usually term insurance, with the right to convert to permanent insurance.

Which of the following riders provides for a waiver of premium when the policyowner and the insured are NOT the same person? AConditions for payment BPayor benefit CWaiver of premium DWaiver of the cost of insurance

B The payor benefit waives the premium of the owner when the owner becomes disabled and is a person other than the insured.

Which of the following is true about the premium on the children's rider in a life insurance policy? AIt decreases when an adopted child is added to the policy. BIt remains the same no matter how many children are added to the policy. CIt decreases when the oldest child reaches the age of 21. DIt increases when a newborn baby is added to the policy.

B The premium does not change on the inclusion of additional children; it is based on an average number of children.

M is the owner of a $225,000 life policy with a triple indemnity rider for accidental death. When M is killed in a car accident, it is determined that the accident was his fault and that he was intoxicated at the time of the accident. The triple indemnity rider in M's policy specifies that the death must not be contributed to by the insured in any manner. In this case, the beneficiary will receive A$112,500 (50% of the policy value). B$225,000. C$675,000 (triple the amount of policy value). D$0.

B 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 by any other factors and must occur within 90 days of the accident. Since M contributed to his death, the triple indemnity rider is void, but the beneficiary will still receive the policy's face amount.

Which two terms are associated directly with the premium? ATerm or permanent BRenewable or convertible CLevel or flexible DFixed or variable

C A level premium is one in which the premium payment never changes. A flexible premium is found in Universal life policies where the insured changes their premium payment.

When may an insurance company use suicide as a defense against paying a death claim? AAt any time suicide can be proven BAt no time CWhen death occurs within a specified period of time after the policy was issued DOnly when there was a witness to the event

C An insurance company can deny a claim if the death of the insured was by suicide and occurred within a time specified in the policy.

What document must be made part of the insurance policy entire contract? AShopping Comparison Guide BOutline of summary CCopy of the original application DBuyer's Guide

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

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? AFlossie, the present wife of the deceased BWilma, the former wife of the deceased CWilliam, Jr., minor son of the insured DFred, a business partner of the insured

C Because a minor does not have the legal capacity to release the insurer from further obligation, benefits normally have to be passed through a guardian or trustee.

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 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to ABoth children who share equally on a per-capita basis. BThe insurance company. CThe insured's estate. DThe insured's firstborn child.

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

Unlike the dividend itself, the interest earned on dividends is ATax deductible. B40% taxable, similar to a capital gain. CTaxable. DNontaxable.

C Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.

When a policy is surrendered for its cash value AIt can be reinstated by paying back all policy loans and premiums BIt can only be reinstated as a term policy CCoverage ends and the policy cannot be reinstated. DCoverage ends but the policy can be reinstated at anytime

C Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

If Tom's policy allows him to make periodic additions to the face amount at standard rates, without proving insurability, his policy includes a AConversion option. BNonforfeiture option. CGuaranteed insurability option. DGuaranteed renewable option.

C The Guaranteed Insurability option allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

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? A$20,000 B$25,000 C$50,000 DThe face amount will be determined by the insurer.

C The face of the term policy would be the same as the face amount provided under the whole life policy.

An insured purchases a policy in 2000 and dies in 2005. The insurance company discovers at that time that the insured concealed information during the application process. What can they do? APay a decreased death benefit BSue for the right to not pay the death benefit CPay the death benefit DRefuse to pay the death benefit because of the fraud

C The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years, even on the basis of a material misstatement of facts or concealment of a material fact.

The Ownership provision entitles the policyowner to do all of the following EXCEPT AAssign the policy. BDesignate a beneficiary. CSet premium rates. DReceive a policy loan.

C The insurer sets premium rates based upon underwriting considerations.

Which nonforfeiture option provides coverage for the longest period of time? APaid-up option BAccumulated at interest CReduced paid-up DExtended term

C The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

Which is true about a spouse term rider? AThe rider is decreasing term insurance. BCoverage is allowed up to age 75. CThe rider is level term insurance. DCoverage is allowed for an unlimited time.

C 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.

Regarding the free-look provision, the insurance company AMust issue a free policy for 30/31 days. BMust issue a free policy for 10 days. CMust allow the policyowner to return the policy for a full refund. DCannot charge a premium after 10 days.

C This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.

Which of the following best describes fixed-period settlement option? AThe death benefit must be paid out in a lump sum within a certain time period. BIncome is guaranteed for the life of the beneficiary. CBoth the principal and interest will be liquidated over a selected period of time. DOnly the principal amount will be paid out within a specified period of time.

C Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

The rider that allows the company to forgo collecting the premium if the insured is disabled is called AWaiver of cost of insurance. BPayor benefit. CWaiver of premium. DGuaranteed insurability.

C Waiver of premium rider allows waives the premium if the insured owner has been totally disabled for a predetermined period. The payor benefit provides for an owner other than the insured and the waiver of cost of insurance is found in Universal Life.

A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy? AA refund of premiums BNothing, since the insured was killed as a result of a war CThe full death benefit DThe policy's cash value

C War or Military Service Clause specifically excludes or limits the insurer's liability for losses caused by war or active military service. If a life insurance policy does not have that exclusion, the benefits are paid to the beneficiary, as if the insured died of any other cause.

The paid-up addition option uses the dividend ATo reduce the next year's premium. BTo accumulate additional savings for retirement. CTo purchase a smaller amount of the same type of insurance as the original policy. DTo purchase a one-year term insurance in the amount of the cash value.

C With the paid-up additions option, the dividends are used to purchase a single premium, additional permanent policy.

Bonnie wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. Bonnie should have her husband named as the ASecondary beneficiary. BTertiary beneficiary. CIrrevocable beneficiary. DRevocable beneficiary.

D If her husband is named as the revocable beneficiary, Bonnie would be the policyowner and could make changes to the contract. Her husband would receive the death benefit.

A father purchases a life insurance policy on his teenage daughter and adds the Payor Benefit rider. In which of the following scenarios will the rider waive the payment of premium? AIf the father is disabled for at least a year BIf the daughter is disabled for more than 3 months CIf the daughter is disabled for any length of time DIf the father is disabled for more than 6 months

D Payor benefit only pays if the owner, the father in this example, is disabled for at least 6 months.

Julie pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. Julie has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? ADividend-to-Premium option BAccumulation at interest CCash option DReduction of Premium option

D 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.

A provision in a life insurance policy that provides for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness or injury is called AViatical Settlement provision. BAutomatic premium loan provision. CWaiver of maturity provision. DAccelerated Benefit provision.

D The accelerated payment can be made in a lump sum or in monthly installments over a special period of time. This provision is given without an increase in premium. Some companies, however, deduct an interest charge from the proceeds paid out to make up for their loss earnings.

An insured receives an annual life insurance dividend check. What term best describes this arrangement? AReduction of Premium BAnnual Dividend Provision CAccumulation at Interest DCash option

D The cash option allows an insurer to send the policyholder an annual, nontaxable dividend check.

Which is true about the cash surrender nonforfeiture option? AAfter the cash surrender, the insured is covered for a grace period of 1 month. BThe policy remains active for some time after the policyholder opts for cash surrender. CThe policyholder receives the original cash value of the policy. DFunds exceeding the premium paid are taxable as ordinary income.

D The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? AThe beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. BThe beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. COne of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. DThe surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.

D When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

If Tom's policy allows him to make periodic additions to the face amount at standard rates, without proving insurability, his policy includes a AGuaranteed insurability option. BGuaranteed renewable option. CConversion option. DNonforfeiture option.

A The Guaranteed Insurability option allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

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 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to AThe insurance company. BThe insured's estate. CThe insured's firstborn child. DBoth children who share equally on a per-capita basis.

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

Which of the following riders would NOT cause the Death Benefit to increase? AAccidental Death Rider BPayor Benefit Rider CGuaranteed Insurability Rider DCost of Living Rider

B Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

What required provision protects against unintentional lapse of the policy? AReinstatement BGrace period CAssignment DPayment of premiums

B The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.

Walter purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. Walter was severely injured in an auto accident, and after 10 weeks of hospitalization, he died from the injuries. What amount would his beneficiary receive as a settlement? A$100,000 plus the total of paid premiums B$0 C$100,000 D$200,000

D The beneficiary would most likely receive twice the face value of the policy, since his fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

Cameron is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he feels he can afford at this time, he wants to be sure that additional coverage will be available in the future. He should include in this policy a AConversion option. BGuaranteed renewable option. CNonforfeiture option. DGuaranteed insurability option.

D The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT AThe annual dividend is retained by the company. BThe interest is credited at a rate specified by the policy. CThe policyholder has the right to withdraw the accumulations at any time. DThe interest credited under this option is not taxable since it remains inside the insurance policy.

D The interest credited under this option is TAXABLE, whether or not the policyowner receives it.