Chapter: Life Insurance Policy Provisions, Riders, and Options

The life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the

A Incontestability clause. If an insurer wishes to contest any statements on an application, they must do so within the first two years.

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

Adjustment in the amount of death benefit. If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.

Under which of the following circumstances would an insurer pay accelerated benefits?

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 must request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

What best describes fixed-period settlement option?

Both the principle and interest will be liquidated over a selected period of time. Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient, both the principal and interest are liquidated together over the selected period of time.

What type of insurance would be used for a Return of Premium rider?

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.

When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?

It is reduced to the amount of what the cash value would buy it as a single premium. In a reduced paid-up policy, the original policy's cash value is used as a single premium to pay for a permanent policy with a reduced face amount from the original, hence the name. The new policy accumulates in cash value until it's maturity or the insured's death.

After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive?

Monthly premium waiver and monthly income. The disability income Benefit rider waives the policy premiums, just like the waver of Premium rider. unlike the waiver of premium rider, it also allows the insured to recieve a weekly or monthly income during the disability period.

An insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. He is killed in an automobile accident, and it is discovered that he is actually 45 years old, and not 43, as stated on the application. What will the company do?

Pay a reduced death benefit The incontestability clause prevents an insurer from denying a claim due to statements in an application after the policy has been in force for 2 years. however, it does not apply to statements relating to age, sex, and identity.

When a life insurance policy was issued, the policyowner designated a primary and contingent beneficiary. Several Years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first, which of the following would receive the death benefit?

The insured's contingent beneficiary. Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated.

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy 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

What is the purpose of a fixed-period settlement option?

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.

The paid up addition uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy. The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.

An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?

Universal Life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited.

What protects the insured from an unintentional policy lapse due to a nonpayment of premium?

automatic premium loan Automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Which of the following is true of a children's rider added to the insured's permanent life insurance policy?

it is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.