Chapter 4 pt 2-Policy Provisions, Options, and Riders
L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will
Adjust the death benefit to a reduced amount.
A whole life insurance policy Does Not have the right to?
Answer: Change the Grace Period
In a life insurance policy which feature states that the policy will not cover certain risks?
Answer: Exclusion
Which of the following nonforfeiture options offer the highest death benefit?
Answer: Extended Term
B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes?
Answer: Interest only
Which of these are not an example of a nonforfeiture option?
Answer: Life Income
All of these statements concerning settlement options are true, Except?
Answer: Only the beneficiary may select
In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy?
Answer: Owner's Rights
which of the following is an example of a nonforfeiture option
Answer: Reduced Paid - Up option
What is the suicide provision designed to do?
Answer: safeguard the insurer from an applicant who is contemplating suicide
Which of these statements about a Guaranteed Insurability Option Rider is Not True?
Evidence of insurability is required when the option is exercised.
The incontestable clause allows an insurer to:
contest a claim during the contestable period, usually 2 years.
The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and:
Answer : The initial premium
K pays on a $20,000, 20 -year Endowment Policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
Answer: $20,000 death benefit.
S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?
Answer: $50,000
T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?
Answer: $50,000
P purchases a $50,000 term life insurance policy in 2005. One of the questions on the application ask if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?
Answer: $50,000 minus any outstanding policy loans.
A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?
Answer: 20-Pay Life accumulates cash value faster than Straight LIfe.
An insurer may normally delay of a cash value loan or surrender value for up to?
Answer: 6 months.
Which rider provides coverage for a child under a parent's life insurance policy?
Answer: A child term rider
P is blinded in a industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?
Answer: Accidental Death and Dismemberment Clause(AD+D).
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called:
Answer: Accidental Death and Dismemberment Rider (AD+D)
A policyowner may generate taxable income from which of the following dividend options?
Answer: Accumulation of interest
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
Answer: Additional whole life coverage at specified times.
The Consideration clause of an insurance contract includes
Answer: Amount of premium payments and when they are due
Which action can a policyowner take if an application for a bank loan requires collateral?
Answer: Assign policy ownership to the bank.
S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?
Answer: Automatic Policy Loan
Which action will an insurer make if an interest payment on a policy loan is not made on time?
Answer: Automatically add the amount of interest due to the loan balance
The accidental death and dismemberment provision in a life insurance policy would pay additional benefits if the insured?
Answer: Becomes blind in an accident
P died 5 years after purchasing a life insurance policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?
Answer: Beneficiary will be paid the death benefit.
S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT
Answer: Beneficiary's Age
Variable whole life insurance can be described as?
Answer: Both an insurance and securities product.
A policy loan is made possible by which of these life insurance policy features?
Answer: Cash value Provision
Whose life is covered on a life insurance policy that contains a payor benefit clause?
Answer: Child
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
Answer: Claim will be denied.
How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?
Answer: Claims are denied under the Suicide Clause of the policy.
Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?
Answer: Collateral assignment
Which statement regarding the Misstatement of age provision is considered to be true?
Answer: Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered.
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?
Answer: Decreasing Term Policy
Additional coverage can be added to a Whole Life policy by adding a(n)
Answer: Decreasing term rider
How are surrender charges deducted in a life policy with a rear-end loaded provision?
Answer: Deducted when the policy is discontinued.
What provision in a life insurance policy states that the application is considered part of the contract?
Answer: Entire Contract Provision
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself?
Answer: Entire Contract Provision
D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?
Answer: Ex-wife
N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?
Answer: Exclusion
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n)
Answer: Exclusion
D owns a Whole life insurance policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which nonforfeiture option will the insurer likely proceed with?
Answer: Extended Term
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?
Answer: Full Face Amount minus any past due premiums.
The purpose of the____ period clause is to avoid an unintentional lapse in a life insurance policy?
Answer: Grace Period
All of these statements about the waiver of premium provision are correct, Except?
Answer: Insured must be eligible for Social Security disability for claim to be accepted
The agreement in a life insurance policy that states a specific sum of money will be paid to a designated person upon a insured's death is called a ?
Answer: Insuring Agreement
In a life insurance contract, an insurance company's promise to pay stated benefits is called the?
Answer: Insuring Clause
All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT
Answer: Interest Only
How are policyowner dividends treated in regards to income tax?
Answer: Interest on accumulations is taxed
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT
Answer: K will forfeit the right to use the automatic loan provision upon reinstatement
The accelerated death benefit provision in a life insurance policy is also known as?
Answer: Living Benefit
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
Answer: Long-term Care
Which of these is Not considered to be a right given to a policyowner?
Answer: Modify a provision in the insurance contract.
Which of the following statements are correct about accelerated death benefits?
Answer: Must have a terminal illness to qualify
K owns a whole life policy. If K wants a increasing death benefit to protect against inflation which dividend option should she chose?
Answer: Paid-up Additional Insurance
Which statement is TRUE in regards to a policy loan?
Answer: Past due interest on a policy loan is added to the total debt.
All of the following statements are true regarding a policy's Grace Period, Except:
Answer: Past due premiums are waived.
M had an annual life insurance premium payment due January 1. She died on January 10 without making her premium payment. Which action will the insurer take?
Answer: Pay face amount minus past due premium.
B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will
Answer: Pay the amount that the premium would have purchased at the correct age
Which life insurance rider typically appears on a Juvenile life insurance policy?
Answer: Payor Benefit Rider
Which of the following provisions guarantees that premiums will be waived if a Juvenile life policyowner becomes disabled?
Answer: Payor Clause
What benefit does the Payor clause on a Juvenile Life policy provide?
Answer: Premiums are waived if the payor becomes disabled.
Which of these Nonforfeiture Options continue a build-up of cash value?
Answer: Reduced Paid-Up
The provision that can be used to put an insurance policy back in force after it has lapsed due to non payment is called?
Answer: Reinstatement
Which of these provisions require proof of insurability after a policy has lapsed?
Answer: Reinstatement
J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?
Answer: Reinstatement provision
S buys a $10,000 whole life policy in 2003 and pays an annual premium of $100.00. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include in on the policy?
Answer: Return of Premium Rider
Typically a life insurance death benefit is paid by a lump-sum payment. A(n) __________ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment.
Answer: Settlement
Which of the following statements about accumulated interest earned on dividends from an insurance policy is True?
Answer: Taxed as ordinary income.
A_____rider may be used to include coverage for children under their parent's life insurance policy.
Answer: Term Rider
Which of these life insurance riders allows the applicant to have excess coverage?
Answer: Term Rider
D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive?
Answer: The Full Face Amount
The _______has the right to change a life insurance policy's beneficiary.
Answer: The Policy Owner
The___ is authorized to assign a life insurance policy as collateral for a loan?
Answer: The policyowner
A life insurance policyowner would like to take out a policy loan against his Whole Life Policy. The interest rate applied to this loan may vary over time. This is referred to as a ___ rate loan?
Answer: Variable
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
Answer: Variable Life
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?
Answer: Variable Universal Life
When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?
Answer: Void the policy only if it is discovered during the contestable period and proven to be material.
A life insurance policy which insures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
Answer: Waiver of premium
A return of premium life insurance policy is?
Answer: Whole life and Increasing term
A cost of living rider gives the insured?
Answer: additional death benefits
What does the insuring agreement in a life insurance contract establish?
Answer: an insurer's basic promise
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
Answer: at future dates specified in the contract with no evidence of insurability required.
The automatic premium loan provision is designed to?
Answer: avoid a policy lapse
A Nonforfeiture clause gives the policyowner
Answer: guaranteed values even if the policy has lapsed
A long- term care rider in a life insurance policy pays a daily benefit in the event of which of the following?
Answer: inability of the insured to perform more than 2 activities of daily living.
Dividends paid from a life insurance policy are:
Answer: issued by the insurer
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the?
Answer: policy loan provision
M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the
Answer: policy proceeds
The advantage of reinstating an original life policy is
Answer: the premiums are based on a younger age
The Free- look provision begins:
Answer: upon receipt of the policy by the policyowner.
When is the face amount of a whole life policy paid?
Answer: when the insured dies or at the policy's maturity date, whichever happens first.
What does the ownership clause in a life insurance policy state?
Answer: who the policyowner is and what rights the policyowner is entitled to
A Term Life rider offers the insured
Answer; additional life coverage
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?
P will still receive declared dividends.