CH.5 Life Insurance
Which of the following is not a living benefits option for using cash value in a life insurance policy?
1035 policy exchange
This type of assignment is voluntary and involves a voluntary transfer of all ownership rights of a life insurance policy to another party.
Absolute
Judith unintentionally misstates her age on her policy application. The insurer discovers the mistake 15 years later, while Judith is still alive. What will the insurer do?
Adjust the premium to the correct amount for Judith's correct age
Gail has no children and has decided to make a gift of her life insurance to her alma mater. This type of assignment is voluntary and also usually absolute and complete. Specifics of this type of assignment include:
All of the above
If a life insurance policy lapses, it can be reinstated if which of the following conditions is met?
All of the above
Per specifications in the entire contract clause, who can amend the life policy?
Authorized officer of the insurer
All of the following life insurance provisions are considered exclusions, EXCEPT:
Cash loan
What would an insurance company do if an insured commits suicide within the contracts contestable period?
Deny the claim due to the suicide clause
Randy drives race cars and scuba dives in his spare time. Will he be able to purchase life insurance with these types of hobbies?
He will be able to purchase life insurance but his premiums will be higher.
The aviation clause excludes all of the following accidents, EXCEPT:
Individual who dies while flying in a commercial aircraft as a fare-paying passenger
Which of the following is a situation where the insurance company refunds premiums paid?
Insured commits suicide during the suicide clause period
This provision identifies the named insured, type, and amount of coverage provided by the policy:
Insuring clause
Which provision in a life insurance policy provides the insurer with the right of medical examination and autopsy?
Medical examination and autopsy
Marcella purchases a modified life insurance policy at the age of 31. Thinking she could get a slightly better rate on her policy, she lists her age as 21. If the insurance company discovers the error upon Marcella's death, what action will the insurance company take? Select one:
Pay the death benefit based on Marcella's actual age
Barney dies during the grace period of a life insurance policy. The insurer will:
Pay the death benefit minus the overdue premium
Megan dies during the grace period. What will the insurance company do?
Pay the death benefit, but deduct the premium due
An insured commits suicide while the suicide clause is in effect. What will the insurer do?
Return all premiums to the beneficiary
The stipulated period of time, allotted by the insurance company, to allow a policyholder to make an overdue payment while the policy remains in force and coverage is provided is called the _____________.
The correct answer is: Grace period
What happens if an insured commits suicide 3 years after the policy inception?
The death benefit is paid.
The insuring clause is best described as:
The insurance company's promise to pay benefits
The applicant's statements in the application are considered ______________ and not _____________, unless fraudulent.
representations; warranties
Eddie wants to use a nonforfeiture option. Which of the following may Eddie not use?
Accumulation at interest
There are many different riders that can be added to a life insurance policy. Which of the following statements pertain to riders?
All of the above
All of the following are life insurance settlement options, EXCEPT:
Automatic premium loan
Which life insurance dividend option does not increase a policy's cash value?
Cash payment
Which of the following nonforfeiture options does not allow the insured to reinstate the policy:
Cash surrender
All of the following statements are false regarding who may make modifications to a life insurance policy, EXCEPT:
Changes to the policy can only be implemented by an executive officer of the insurer.
Hank wants to understand his rights as the owner of a life insurance policy. All of the following are rights under the owners' rights provision, EXCEPT:
Changing the grace period
Which type of assignment is partial and temporary?
Collateral
The ____________ clause states that the insurance coverage is in place on application and the payment of the first premium.
Consideration
What nonforfeiture option permits the policyowner to use the cash values to purchase paid-up term life insurance coverage?
Extended term
A long-term care rider is a type of:
The correct answer is: Accelerated benefit
Another term that means rider is:
The correct answer is: Endorsement
The automatic dividend option is:
The correct answer is: Paid-up additions
Which life insurance rider pays the policy's cash value?
The correct answer is: Return of cash value
When a juvenile covered by a payor rider reaches the specified age, what happens to the ownership of the policy?
The correct answer is: The juvenile can assume ownership of the policy.
Which life insurance rider allows the policyowner to waive premium payments during a disability, while keeping the policy in force?
Waiver of premium rider
Paul buys a $50,000 whole life insurance policy. After some time, he has $20,000 cash value in the policy. The interest rate on his policy is 7%. Paul decides to take out a policy loan in the amount of $10,000 on January 1, and decides to prepay the interest that would be due on the loan. That year he does not repay the loan. If Paul dies on December 31 of that year, what is the most his beneficiary will receive?
$40,000
Richard's agent delivered his new life insurance policy to him for a free look. The free look provision may vary from state to state and for the type of policy. What is the minimum amount of time allowed for a free look on a newly issued life insurance policy?
10 days
How long is the loan period on STOLI arrangements?
2 years
In most states, the period of contestability for material misrepresentations made on a life insurance application is:
2 years
The appropriate rider allows premium payments to be waived in the event of disability. What is the normal waiting period for premiums to be waived?
3 or 6 months
IOLI is a:
: STOLI
A policyholder has the right to examine the policy purchased. If the policy owner returns the policy to the insurer within the specified time, to be cancelled, he/she can expect:
A full refund
The principal sum of a AD&D rider attached to a life insurance policy pays:
A principal sum if the insured loses both arms
Which of the following best describes which individual(s) are permitted to choose the settlement option for a life insurance policy?
Both the beneficiary and the policyowner
Which nonforfeiture option is the "automatic" option?
Extended term option
What life insurance settlement option permits the insurer to retain the policy proceeds, which become principal, and pays out only the growth on the principal to the beneficiary on a regular basis?
Interest only
Which settlement option pays the growth on the principal in installments?
Interest-only
This dividend option provides additional permanent coverage:
Paid-up additions
What nonforfeiture option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the policy's existing cash value?
Reduced paid-up insurance
Which of the following is not a dividend option?
Reduced paid-up insurance
Which dividend option allows the policyowner to use the dividend to offset the cost of a future premium payment?
Reduction of premium payments
If a policy loan is unpaid, the automatic premium loan provision has the effect of deducting the amount of the loan with interest from the death benefit. What should the policyowner do to avoid this reduction in the death benefit?
Repay the loan with interest
Mr. Brown committed suicide during the suicide clause of his insurance policy. The insurance company will:
Return all premiums to the beneficiary
Rick is planning on getting married next month. He currently has a $100,000 whole life participating policy. Because he is planning a family, he wants to increase his life insurance while keeping his costs down. Which of the following options would best suit his needs?
Rick could use the dividends to purchase paid-up additions.
All of the following are ownership rights, EXCEPT:
Right to make changes to the policy
_______________ allow the policy proceeds to be retained by the insurer and paid out gradually.
Settlement options
All of the following are true regarding the period certain life insurance settlement option, EXCEPT:
Shorter payment periods result in lower payments.
Extended term is another option of the nonforfeiture provision. If Clarice opts to no longer pay the premiums on her $100,000 whole life policy and exchanges it for an extended term policy, what will be the face value of the term insurance policy?
The correct answer is: $100,000
Julie has been disabled for three years. The insurance company has waived $4,000 worth of premiums on her $100,000 life insurance policy. If Julie dies, how much will her beneficiary receive?
The correct answer is: $100,000
Abe has a $200,000 whole life insurance policy with double indemnity from an AD&D rider. If Abe dies from cancer, how much will his beneficiary receive?
The correct answer is: $200,000
How long is the waiting period for the waiver of premium rider in life insurance policies?
The correct answer is: 3 to 6 months
A long-term care rider provides qualifying individuals with funds to pay long-term expenses while the insured is still alive. What is the typical maximum percentage of the death benefit that can be paid by this rider?
The correct answer is: 80%
Which life insurance rider is also referred to as the living benefit rider and allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness?
The correct answer is: Accelerated benefit rider
All of the following are nonforfeiture options, EXCEPT:
The correct answer is: Accumulate at interest
The face amount of the substitute insured rider remains the same for a new employee. The premium however, will be refigured. ______ and ________ are both required in order for the premium to be refigured for the new employee.
The correct answer is: Age, health
Life insurance policies that pay dividends are referred to as "participating policies". Participating policies pay dividends to policyholders. Which of the following is a true statement about dividends?
The correct answer is: All of the above
The accelerated benefit rider is also called a living benefit rider. Which of the following is true about the accelerated benefit rider?
The correct answer is: All of the above
Which of the following statements is true about the guaranteed insurability rider (GIR)?
The correct answer is: All of the above
All of the following statements are true regarding the waiver of premium rider for a life insurance policy, EXCEPT:
The correct answer is: All waived premiums must be repaid if the policyowner recovers from the disability.
Which life insurance rider affecting the policy's death benefit protects against the chance of depleting income during prolonged life?
The correct answer is: Annuity rider
If used, this nonforfeiture option does not allow the policyowner to reinstate the original policy:
The correct answer is: Cash surrender value
What nonforfeiture option allows the policyowner to receive the policy's cash value?
The correct answer is: Cash surrender value
Marie wants a year of extra term life insurance protection valued at $10,000. How should she use her dividend?
The correct answer is: Choose the one-year term option
Which of the following is not true about the accumulation of interest dividend option?
The correct answer is: Dividends left to accumulate at interest are part of the policy's cash value.
When the extended term option is used, the face amount is:
The correct answer is: Equal to the original coverage
Which rider allows the named insured to be changed in a life insurance policy?
The correct answer is: Exchange privilege rider
The automatic nonforfeiture option is:
The correct answer is: Extended term
Which life insurance rider covers the insured's spouse and three children in one rider ?
The correct answer is: Family term rider
Which rider allows the policyowner to purchase additional amounts of whole life insurance at certain points in the future?
The correct answer is: Guaranteed insurability rider
Mr. George will soon receive a dividend payment on his life policy from the insurer. Which of the following is NOT an option available to Mr. George pertaining to receipt of his dividend?
The correct answer is: He may apply the dividends to overdue premiums from past years.
Under what conditions will the waiver of premium rider pay benefits?
The correct answer is: If the insured is totally and permanently disabled
Which of the following explanations best describes the purpose of the waiver of premium provision of a life insurance policy?
The correct answer is: It waives the insured's premiums if the insured is totally disabled before a specified age.
Some riders can affect the death benefit of a life insurance policy. Which of the following riders can decrease the death benefit?
The correct answer is: Long-term care rider
The Guaranteed Insurability Rider, or GIR, allows the insured to buy:
The correct answer is: More insurance coverage at specified points in the future, without proof of insurability
Which of the following provisions allows a life insurance policy to continue beyond the grace period when a premium is overdue and not paid?
The correct answer is: Nonforfeiture option
Life insurance policies that build cash value have certain guarantees, required by law, if the policyholders discontinue payment of premiums. The provision to access the cash value of the policy is called the:
The correct answer is: Nonforfeiture provision
Which dividend option allows the policyowner to use the dividend as a single premium to purchase additional face amounts of permanent coverage?
The correct answer is: Paid-up additions
Of the following life insurance policy riders, which does not alter the amount of the death benefit?
The correct answer is: Payor
Jacqueline has purchased life insurance policies for her sons, ages 10 and 14. Which of the following riders can she purchase to waive the premiums on her son's policies if she were to become disabled?
The correct answer is: Payor rider
Which disability income rider is typically attached to a juvenile life insurance policy?
The correct answer is: Payor rider
Charlotte decides to exercise a nonforfeiture option. Which option is not available to her?
The correct answer is: Reduce premium payment
Jenny has a rated whole life insurance policy. Which nonforfeiture option(s) may she select?
The correct answer is: Reduced paid-up or cash
Which life insurance rider pays an amount equal to the total premiums paid as long as the insured dies during a certain time period, as stated in the policy?
The correct answer is: Return of premium
Which of the following riders pays back the premiums paid into a life insurance policy as long as the insured dies within the time as specified in the policy?
The correct answer is: Return of premium
What is the term for a policy element that adds or takes away coverage?
The correct answer is: Rider
Sometimes an insurance rider is needed for a non-family member such as a key employee in an organization. Which of the following riders would be used in this circumstance?
The correct answer is: Substitute insurance rider
Which of the following best describes the benefit provided by a payor benefit rider?
The correct answer is: Temporary waiver of the policy premium
All of the following statements are true about the accidental death benefit (ADB), EXCEPT:
The correct answer is: The amount paid is one half of the face amount of the life insurance policy.
Some policies offer the policyholder the opportunity to purchase additional insurance when they get married, or have children. What is the factor that determines the rate of the additional coverage?
The correct answer is: The attained age of the insured when the additional insurance is purchased
The definition of what constitutes accidental death is defined in each policy. The accidental death benefit usually excludes deaths from accidents that occur while committing a crime, non-commercial aviation, and acts of war. How long does the accidental death benefit remain part of the policy?
The correct answer is: The benefit expires when the insured reaches a certain age, usually 65.
Mr. Johnson has decided to surrender his whole life policy, and has chosen the reduced paid-up nonforfeiture policy option. How will this decision affect the cash value of his new policy?
The correct answer is: The cash value will continue to increase.
Jon's life insurance policy contains a disability income benefit that will pay him a periodic income in the event he becomes disabled. What factor determines the amount of the benefit?
The correct answer is: The face amount of the policy
Jill and Jessie are debating whether to add certain riders to their life insurance policy. What is the main benefit of the guaranteed insurability rider (GIR) on a policy?
The correct answer is: The insured in not required to provide proof of insurability when the option is exercised.
If an insured opts to use the accelerated death benefit on their life insurance policy, what is the net effect on the face value of the policy?
The correct answer is: The policy face value will be lowered based on the accelerated amount paid.
Jack is a fighter pilot in the Air Force and flies F16 jets. There are exclusions in his life insurance policy for death or injury related to war. What happens to the accidental death and dismemberment benefits of his life insurance policy if he loses his vision in both eyes in a car accident while home on leave?
The correct answer is: The policy pays because the accident was not war related.
All of the following are true regarding the reduced paid-up insurance nonforfeiture option for life insurance policies, EXCEPT:
The correct answer is: The reduced paid-up insurance option allows the policyowner to purchase paid-up term coverage at a reduced face amount based on the amount of the policy cash value.
Which of the following best describes the return of premium rider
The correct answer is: The return of premium rider pays the total amount of premiums paid into the policy as long as the insured dies within a certain time period specified in the policy.
Accelerated benefits fall into the same category as death benefits. Which of the following is NOT true about the accelerated death benefit?
The correct answer is: There is no deduction from the death benefit.
What type of life insurance policy is the waiver of cost of insurance rider used for?
The correct answer is: Universal life
Of the following, which is not a term rider?
The correct answer is: Variable income rider
Which of the following is not a life insurance rider that affects the policy's death benefit?
The correct answer is: Waiver of cost of insurance
Riders covering additional insureds can be added to life policies. A popular rider is the children's term rider. All of the following can be covered by the children's term rider, EXCEPT:
The correct answer is: Younger siblings of the policyholder
When Dakota's life insurance policy was written, it stated on the policy that Dakota was male. However, Dakota is female. On average, women tend to live several years longer than men. When Dakota died this misstatement was discovered. How did this impact the policy?
The death benefit was increased.
James is past due on his life insurance premium by 5 days. His policy has a 30 day grace period. If James dies on day 15 of his grace period, what would the beneficiary receive?
The full face amount, minus any past due premium
Which of the following does NOT happen if an insured dies during the grace period of a policy?
The insurance company is relieved of any responsibility to pay a benefit.
Which of the following best describes the automatic premium loan provision of a life insurance policy?
The insurer will automatically use the policy cash value to pay an overdue premium.
Which of the following is not part of the entire contract provision in a life insurance policy?
The insurer's promise to pay benefits contingent on premium payments
Dianne's life policy lapsed due to unpaid premiums. Which of the following statements is not true about conditions to reinstate a policy?
The policy has not been expired for more than 1 year.
What is the purpose of the hazardous occupation clause?
To exclude losses if the insured dies as a result of a hazardous occupation or hobby
The transfer of some or all of a policyowner's legal rights to another party is called an assignment. Which of the following is NOT a type of assignment utilized to transfer rights?
Total unconditional assignment
How long is the suicide clause typically in effect?
Two years from the policy effective date
When Julie is choosing a payment option for her life insurance premium, which of the following is NOT normally an option?
Weekly
Jennifer is trying to add her insurance premium payments to her budget. All of the following are accepted payment mode options, EXCEPT:
When she feels like it
All of the following statements are true of the modifications provision in a life insurance policy, EXCEPT:
insurance producers can make any policy change.
What are the two types of war/military service exclusions?
Status clause and results clause
Helen was trying to quit smoking, so when she filled out her life insurance application, she listed herself as a nonsmoker. What will happen if the insurer discovers that she is still smoking one year after the policy was written?
The policy is voided.
What happens if a policyowner does not specify a settlement option for their life insurance policy?
The policy proceeds default to lump-sum payment.
To prevent individuals intending to commit suicide from purchasing life insurance, policies include a suicide clause. How long is the suicide clause in effect.
2 years
A policyholder can request an automatic premium loan (APL) provision on their cash value life policy to protect against an unintended lapse in coverage due to nonpayment of premium. All of the following are true statements regarding the automatic premium loan provision, EXCEPT:
: The automatic premium loan does not reduce the death benefit of the policy.
Which of the following policies allows partial withdrawals or surrenders?
:Variable universal
Which of the following best describes the cash loan provision in a life insurance policy?
A policy loan in an amount up to the current cash value, less any existing indebtedness, may be made.
Why are STOLI arrangements ethical dilemmas?
Because the investor/stranger does not have an insurable interest in the insured
Which clause states that the policy owner must pay something of value for the insurer's promise to pay benefits?
Consideration clause
In addition to being a commercial pilot, Michael also flies his own private small plane. What will most likely happen when he applies for life insurance?
He will be charged a higher premium to compensate for the added risk.
Chuck is in the military. How does this affect payment of the death benefit on his life policy?
His policy excludes death while on active military service.
Withdrawals or partial surrenders can be made on the cash value of a universal life policy. Which of the following is specified in the policy?
How much can be withdrawn
Which of the following is false regarding the period certain life insurance settlement option?
If the recipient dies before the period ends, the remaining balance is forfeited.
What part of the insurance contract contains the insurer's consideration?
Insuring clause
A settlement option that would leave the proceeds of the insurance policy with the insurer and the insurer would pay interest to the beneficiary on an installment basis is called:
Interest only option
Of the following life insurance settlement options, which pays only the interest earned on the principal in periodic payments?
Interest-only
Which of the following settlements of a life insurance policy is taxable?
Interest-only
This annuity provides a husband and wife with lifetime income while either spouse is alive:
Joint and survivor annuity
Which of the following best describes the automatic premium loan provision?
Keeps the policy in force by using the policy cash value to pay unpaid premiums
Of the following settlement options for life insurance, which can result in the insurer paying more in benefits than the principal plus interest?
Life income
Once a life insurance policy has been in force for two years, the incontestable clause prevents the insurer from denying a claim or canceling the policy for anything other than nonpayment of premiums. Which of the following is NOT a reason for voiding a policy during the contestable period?
Misstatement of age
Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Modifications
Which of the following is a guarantee that is required by law to be a part of life insurance polices that build cash value?
Nonforfeiture option
Which of the following best describes what a policyowner must do to reinstate a lapsed life insurance policy?
Pay all back due premiums with interest and provide proof of insurability
George bought a $300,000 whole life policy when he was employed as a bank teller. Four years later, he changes jobs and begins working in a coal mine. If he is killed while working in the mine, what will the insurer do?
Pay the claim
What will the insurance company do if an insured commits suicide after the suicide clause expires?
Pay the death benefit
Which life insurance settlement option uses an annuity to pay policy proceeds to the beneficiary for a set number of years?
Period certain
The entire contract clause of a life policy provides all of the following, EXCEPT:
Permission for producer to make changes to the policy
What is the primary purpose of the entire contract provision in a life insurance policy? Select one:
Provide assurance that the policyholder has all necessary policy documents in their possession
Of the following individuals, who has the right to change the beneficiary designations in a life insurance policy?
The policyowner
Who may choose the settlement option for a life insurance policy?
The policyowner and the beneficiary
If no beneficiary is named in the insuring clause of a life policy, what happens to the benefit proceeds?
The proceeds go to the estate of the insured.
A fixed period option pays policy proceeds in equal installments over a period of months or years. Which of the following is NOT considered when determining the amount of the installment?
The relationship of the beneficiary to the insured
The automatic premium loan provision is best described by the following:
Uses the cash value to pay unpaid premiums, thereby keeping the policy in force
Which provision prevents the insurer from making changes to a contract by citing documents not included in the policy itself?
Entire Contract provision
Julie applies for a health insurance policy. Her consideration consists of:
Statements made on the application and initial premium
All of the following are part of the entire contract provision, EXCEPT:
States that the insurer's promise to pay benefits is contingent upon the policyowner's premium payments
Gerry forgets to pay his life insurance premium, and the policy lapses. If he is within the reinstatement period and decides to reinstate his policy, he will be required to take all of the following actions, EXCEPT:
Surrender or cancel the policy within 10 years of the reinstatement date
All of the following statements are true regarding the APL provision in a life insurance policy, EXCEPT:
The APL is unlike other policy loans, and if not repaid, it will not reduce the death benefit by the amount of the premium loan with interest.
The insuring clause of a policy includes all of the following, EXCEPT:
The amount of the policy premium
Annie was a beneficiary on her aunt's life policy. After Annie's aunt died, the insurer discovered that her aunt's age had been misstated on the original life insurance application. The aunt was actually 5 years older than what was stated on the policy. What affect does this have on the policy benefits?
The death benefit would be lowered.
Transfer of ownership rights from one person to another is described by the:
Assignment clause
All of the following is true regarding lump-sum payment of life insurance policy proceeds, EXCEPT:
Distribution is taxed.