Chapter 3: quiz

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.

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.

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 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.

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 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.

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 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.

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.

Incorrect! 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.

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.

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.

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.

Correct! 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).