Chapter 4 - Life Policy Provision and Options

A client purchases a life insurance policy and receives the policy from the insurer 45 days after application. Upon receipt of the policy, the client typically has ______days to review and return the policy to receive a full refund for any reason.

10

Which of the following is TRUE regarding payment of premium?

The more frequent the payment, the greater the overall cost

Which of the following is responsible for paying the premiums due on a life insurance policy?

The policyowner

What is the primary purpose of the reinstatement provision?

To put a policy back in force as if it had never lapsed

Which of the following policies allow for a partial withdrawal or partial surrender?

Universal Life

Contractual provisions explain all of the following, except:

Where the premium is going to come from

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

$20,000

An insured has a $25,000 annual renewable term life policy, originally purchased on her birthday, April 1st of last year. She forgot to pay the $250 renewal premium, and dies in an accident on April 15. The beneficiary will receive:

$25,000 less the earned premium due

Tom elects the Life Income with 10-year Period Certain settlement option. Tom dies in year 6. The beneficiary receives payments for _______.

4 years-With Life Income Period Certain, payments are guaranteed for the lifetime of the recipient or a specified period of time, whichever is longer. If the recipient dies prior to the end of the period certain, the payments continue to another beneficiary until the end of the period certain.

The entire contract typically consists of all of the following, except:

A copy of the cancelled check and receipt

Which of the following is the overall least expensive premium mode?

ANNUALLY

Sylvia was the insured and owner of a policy that named her husband as the beneficiary. Upon her husband's death, she decided to change the beneficiary designation to her best friend since she has no close living relatives. The insurance company will:

Accept the beneficiary change

What will cause the time period of the fixed amount settlement option to be extended?

An increase in interest credited

Dividends if declared are paid __________.

Annually Unlike corporate stock which pays dividends typically on a quarterly basis policy dividends if declared are paid out on an annual basis.

Alice is the insured, Bill is the primary beneficiary, and Claire is the contingent beneficiary. Alice dies, so who receives the policy proceeds?

Bill

Mona let her permanent policy lapse. She discovered there was $2,498 in cash value remaining in the policy and decided to pay off some of her credit card debt. She exercised which Nonforfeiture Option?

Cash Surrender

The nonforfeiture option that, if exercised, terminates all coverage is:

Cash Surrender

The bank may require its borrowers to have a life insurance policy to secure a loan in the event of the borrower's death. Which provision gives the bank proportional protection but not control of the policy?

Collateral Assignment-Under the law, an assignment is a transfer of a right to another person or entity of rights by the owner of such rights. Collateral Assignment simply creates a lien against the death benefit but does not affect the owner's rights.

The ______________ clause is the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the policy is in force.

Insuring

All of the following are common exclusions, except:

Driving

Once issued, if the application is attached to the policy itself, it then becomes part of the ___________.

Entire contract

Which individual policy standard provision stipulates the conditions under which the insurer will not pay a claim while the policy was in force at the time of death of the insured?

Exclusions

Jamie has a $200,000 permanent policy and cannot continue making the premium payments. She still, however, wants the peace of mind of being covered for the same $200,000 in death benefit although it may be for an abbreviated period of time. The Nonforfeiture Option Jamie should choose is:

Extended Term

The nonforfeiture option that provides coverage for the shortest duration is:

Extended Term

All of the following are Dividend Options, except:

Extended term

All of the following are situations in which a life insurance company can legally get out of paying a death claim after the insured has died, except:

Five years after the policy was issued, the insurer discovered that the insured was actually older than was stated on the application

If the insured dies while the _______ period is in effect, the death benefit paid is the face amount, minus the premiums due.

Grace

The only way a death benefit can be 100% income tax-free is to be paid out __________.

In a lump sum

Which of the following beneficiary designations prevents a policyowner from assigning the policy, taking a policy loan, or surrendering the policy without the beneficiaries consent?

Irrevocable

All of the following are TRUE about the Automatic Premium Loan (APL) Provision, except:

It is available on any type of life insurance policy

A married couple is interested in an annuity settlement option that will guarantee them both an income for as long as they live, an amount which reduces to 2/3 of that initial amount after one of them dies. What should they select?

Life Income Joint and Survivor

What is the additional premium cost to have the automatic premium loan provision included in a permanent policy?

Nothing

The insuring clause is found:

On the first page of the policy

What is a material misstatement?

One which would have caused the insurer to not issue the policy had it been known

Frank has a life insurance policy in which he chooses to have the dividends increase the death benefit. Which Dividend Option did he select?

Paid-Up Additions

Lucy uses her dividends to purchase single premium additional permanent benefits at her attained age. Which Dividend Option is Lucy exercising?

Paid-up Additions

Which of the following is the proper sequence of beneficiaries?

Primary, contingent, tertiary

All of the following are Settlement Options, except:

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

Most often, life policies pay death claims in a single lump sum. The options that allow benefits to be paid other than lump sum are called _____________.

Settlement Options