Finance Quiz #2 - C12

T/F Evidence of insurability must be demonstrated to purchase additional life insurance under a guaranteed purchase option

False

T/F Interest is not required on life insurance policy loans

False

T/F Failure to pay a life insurance premium by the due date automatically results in a policy lapse

False, grace period

T/F All ownership rights in a policy are transferred through a collateral assignment

False, limited assignment designed to provide security for a loan

All of the following are dividend options except: dividend accumulations, fixed-period option, paid-up additions, reduction of premiums

Fixed-period option

Divided options: alternative methods of using policyowner (_____) dividends

participating

Absolute assignment

transfers all interests in the policy

Ned purchased a life insurance policy on his own life. He was concerned that he might not be able to pay premiums if he became disabled. He added a provision to his policy that relieved him from paying premiums if he becomes totally disabled before a specified age. This provision is called

waiver-of-premium provision

Suicide clause

first two years of policy, insurer must only refund the premiums

Incontestable clause

insurer cannot deny claims after the policy has been in force for two years

Collateral assignment

limited to amount of the outstanding debt

Barb purchased a whole life policy on her own son, Tom, twelve years ago. She named herself the beneficiary. Tom, now age 19, would like to take out a policy loan to help fund the purchase of a sports car. Barb does not believe that Tom has the right to take out a policy loan. Which contractual provision supports Barb's position?

ownership clause

Rod committed suicide four months after purchasing a $100,000 life insurance policy. Her insurer must pay

a refund of the premiums paid

Entire Contract clause

application and the policy constitute the complete agreement between the parties

Misstatement of Age Clause

misstatement, not misrepresentation, insurance proceeds are adjusted

Reinstatement clause

permits policyowner to reinstate lapsed policy, insurability must be established

Assignment clause

policy rights may be fully or partially transferred through an assignment

T/F The purpose of the suicide clause is to reduce adverse selection against the insurer

True

T/F Under a waiver-of-premium provision, if the insured becomes totally disabled before a stated age, all premiums coming due during the period of disability are waived

True

Settlement options are available for

all policies

Which statement is true with regard to the incontestable clause? I) It protects the beneficiary if the insurer attempts to deny payment of the death claim more than two years after the policy was purchased. II) It allows the insurer to deny a death claim during the first two years of coverage on the basis of concealment or misrepresentation by the applicant

both I and II

Policy loan provision

can borrow cash value at interest

Waiver of premium rider

disabled, don't have to pay premium

Grace Period

policyowner has 31 days to pay overdue premium

Ownership clause

policyowner makes major decisions, not the insured or beneficiary

Beneficiary designation

policyowner selects the beneficiary

Beneficiaries may be

primary or contingent, revocable or irrevocable, specific or class

Nonforfeiture options

reduced paid-up insurance, cash, extended term insurance

T/F A change-of-plan provision permits the policyowner to exchange his/her present policy for a different life insurance contract

True

T/F Cash value life insurance contracts include nonforfeiture options

True

Settlement options

cash, fixed amount, interest ("parking"), fixed period, life income

Accidental death (double indemnity) rider

2 times the face value will be paid to beneficiary, illogically

Christine has paid-up $50,000 whole life policy. She would like to transfer all ownership rights in the policy to her favorite charity. Christine can accomplish the transfer through a(n)

absolute assignment

Mary is concerned that inflation will reduce the purchasing power of her life insurance proceeds when she dies. To provide protection against this risk, she added a rider to her policy that allows her to purchase one-year term insurance equal to the cumulative change in the consumer price index from the issue date of the policy. This provision is called a

cost-of-living rider

Nonforfeiture Options: alternatives for the cash value if a life insurance policy is ____

surrendered

Nonforfeiture options only for

cash value policies

Dividend options

cash, apply to premium, accumulate at interest, paid-up additions, one-year term insurances

T/F If a policy loan has not been repaid by the time the insured dies, the amount paid to the beneficiary is reduced by the amount of the debt

True

T/F Settlement options are available on all insurance contracts

True

T/F Reduced paid-up insurance is a divided option

False, nonforfeiture option

All of the following are settlement options except: fixed period, interest option, extended term insurance, life income

extended term insurance

Tom was just diagnosed with an inoperable brain tumor. According to his doctor, Tom has less than three months to live. A life insurance premium notice just arrived. Tom purchased his whole life policy over 40 years ago. Tom does not want to pay the premium. Which nonforfeiture option should Tom exercise?

extended term insurance

Which statement is true with regard to the options available in life insurance contracts? I) All life insurance policies provide dividend options. II) All life insurance policies provide nonforfeiture options.

neither I or II, participating get dividends, cash value provide nonforfeiture