Chapter 3: quiz

All of the following are true regarding insurance policy loans EXCEPT A The policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. B Policyowners can borrow up to the full amount of their whole life policy's cash value. C Policy loans can be made on policies that do not accumulate cash value. D The amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies.

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

What is the benefit of choosing extended term as a nonforfeiture option? A It matures at age 100. B It allows for coverage to continue beyond maturity date. C It can be converted to a fixed annuity. D It has the highest amount of insurance protection.

D. 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.

An absolute assignment is a A Transfer of some ownership rights in a policy. B Change of beneficiary. C Change of insurer. D Transfer of all ownership rights in a policy.

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

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called A. Reduction of premiums. B. Paid-up additions. C. One-year term purchase. D. Accumulation at interest.

B. Paid-up additions. 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 is TRUE concerning the Accidental Death Rider? A. This rider is only available to insureds over the age of 65. B. It is only available in group insurance. C. It will pay double or triple the face amount. D. It is also known as a triple indemnity rider.

C. The Accidental Death Rider pays 2 or 3 times the face amount if death is the result of an accident as defined in the policy and occurs within 90 days of such an accident

What happens when a policy is surrendered for its cash value? A. The policy can be converted to term coverage. B. Coverage ends and the policy cannot be reinstated. C. Coverage ends but the policy can be reinstated at any time. D. The policy can be reinstated by paying back all policy loans and premiums.

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

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? A. Nonforfeiture options B. Guaranteed insurability option C. Dividend options D. Guaranteed renewable option

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

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to A Pay back all premiums owed plus interest. B Receive payments for a fixed amount. C Purchase a single premium policy for a reduced face amount. D Purchase a term rider to attach to the policy.

C. 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.

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

D. In most states, if death results from suicide within a certain period, the insurer is not obligated to pay the death benefit.

Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean? A. The beneficiary must pay interest to the insurer. B. The beneficiary will receive the lump sum, plus interest. C. The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. D. The beneficiary will only receive payments of the interest earned on the death benefit.

With the Interest Only settlement option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually).

Which of the following settlement options in life insurance is known as straight life? A Single life B Life with period certain C Fixed amount D Life income

D. The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. It pays the benefit while the beneficiary is alive; however, the payments stop at the beneficiary's death.

Question 9 of 15 The insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? A$0 B$50,000 (50% of the policy value) C$100,000 D$300,000 (triple the amount of policy value) Incorrect! 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. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

C. 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. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

What is the purpose of a fixed-period settlement option? A. To provide a guaranteed income for life B. To provide a guaranteed amount of money each month C. To provide a guaranteed income for a certain amount of time D. To settle the insurance company's liability

C. To provide a guaranteed income for a certain amount of time When the fixed-period installments option is selected, the insurer agrees to pay the proceeds in equal installments over a specified period of time.

What type of insurance would be used for a Return of Premium rider? A.Level Term B.Decreasing Term C.Annually Renewable Term D.Increasing Term

D.Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

Which of the following premium payment modes will incur the lowest overall payment? A Annual B Semi-annual C Quarterly D Monthly

A. Annual premiums are the only modes of payment that do not result in service fee, so the overall payment will be lower.

Nonforfeiture values guarantee which of the following for the policyowner? A That the policy premiums will never increase B That the cash value will not be lost C That the dividends will be paid annually D That the death benefit will be paid in a lump sum

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

Under which of the following circumstances would an insurer pay accelerated benefits? A. An insured is looking for a way to put her daughter through college. B. A couple wants to build a house and would like to make a larger down payment. C. An insured is diagnosed with cancer and needs help paying for her medical treatment. D. A couple is nearing retirement and needs a steady stream of income.

C. An insured is diagnosed with cancer and needs help paying for her medical treatment. Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

Which is NOT true about beneficiary designations? A. Trusts can be valid beneficiaries. B. The beneficiary must have insurable interest in the insured. C. The beneficiary may be a natural person. D. The policy does not have to have a beneficiary named in order to be valid.

B. The beneficiary must have insurable interest in the insured. A beneficiary is the person or interest to whom the policy proceeds will be paid upon the death of the insured. Beneficiaries do not have to have an insurable interest in the policyholder.

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

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.

An insured receives an annual life insurance dividend check. What term best describes this arrangement? A Reduction of Premium B Annual Dividend Provision C Accumulation at Interest D Cash option

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

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

D. It remains the same no matter how many children are added to the policy. The premium does not change on the inclusion of additional children; it is based on an average number of children.

If an insured continually uses the automatic premium loan option to pay the policy premium, A. The cash value will continue to increase. B. The insurer will increase the premium amount. C. The policy will terminate when the cash value is reduced to nothing. D. The face amount of the policy will be reduced by the automatic premium loan amount.

C. The policy will terminate when the cash value is reduced to nothing. This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

All of the following are true regarding the guaranteed insurability rider EXCEPT A The insured may purchase additional insurance up to the amount specified in the base policy. B It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. C This rider is available to all insureds with no additional premium. D The insured may purchase additional coverage at the attained age.

The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? A Interest only option B Life income with period certain C Joint and survivor D Fixed amount option

A. With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Life income joint and survivor settlement option guarantees A. Payment of interest on death proceeds. B. Payout of the entire death benefit. C. Equal payments to all recipients. D. Income for 2 or more recipients until they die.

D 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 Nonforfeiture options EXCEPT A Reduced paid-up B Interest only C Cash surrender D Extended term

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

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? A Fixed-amount B Life income with period certain C Joint and survivor D Single life

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

The type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called A Joint and survivor. B Fixed period. C Fixed amount. D Joint life.

A. A joint and survivor option pays while either beneficiary is still living.