Individual Life Insurance Contract - Provisions and Options
How long will the beneficiary receive payments under the single life settlement option? A For a specified period of time B Until the insured's age 100 C Until the beneficiary's death D Until the insured's death
Until the beneficiary's death
An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy? A $0 B $200 C $9,800 D $10,000
$9,800
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy? A The Consideration Clause B Assignment Rights C Owner's Rights D The Entire Contract Provision
Owner's Rights
All of the following are beneficiary designations EXCEPT A Specified. B Tertiary. C Contingent. D Primary.
Specified.
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in A Automatic lapse. B Recession of the policy. C Adjustment in the amount of death benefit. D No change whatsoever.
Adjustment in the amount of death benefit.
The Ownership provision entitles the policyowner to do all of the following EXCEPT A Set premium rates. B Receive a policy loan. C Assign the policy. D Designate a beneficiary.
Set premium rates.
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.
The beneficiary must have insurable interest in the insured.
Under an extended term nonforfeiture option, the policy cash value is converted to A A higher face amount than the whole life policy. B The same face amount as in the whole life policy. C The face amount equal to the cash value. D A lower face amount than the whole life policy.
The face amount equal to the cash value.
What happens when a policy is surrendered for its cash value? A The policy can be reinstated by paying back all policy loans and premiums. B The policy can be converted to term coverage. C Coverage ends and the policy cannot be reinstated. D Coverage ends but the policy can be reinstated at any time.
Coverage ends and the policy cannot be reinstated.
Which two terms are associated directly with the premium? A Fixed or variable B Term or permanent C Renewable or convertible D Level or flexible
Level or flexible
Which settlement option provides a single beneficiary with income for the rest of his/her life? A Single Life B Fixed Amount C Lump Sum D Retained Assets
Single Life
Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death? A The wife of the deceased insured B The former wife of the deceased insured C A minor son of the insured D A business partner of the insured
A minor son of the insured
An insured and his wife are both involved in a head-on collision. The husband dies instantly, and the wife dies 15 days later. The company pays the death benefit to the estate of the insured. This indicates that the life insurance policy had what provision? A Second-to-Die B Common Disaster C Accidental Death D Survivor Life
Common Disaster
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. B Reinstatement clause. C Insuring clause. D Misstatement of Age clause.
Incontestability clause.
Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy? A It is optional on all life insurance policies. B It begins when the policy is delivered. C It begins when the application is signed. D It applies only to term life insurance policies.
It begins when the policy is delivered.
Which of the following is true if the policyowner exercises his/her right to surrender his/her life insurance policy for its current cash value? Assume that the policyowner and insured are the same person. A The insured is no longer covered under the surrendered policy. B The insured is still covered under the policy, but the death benefit is reduced. C The beneficiary can sue the policyowner for the cash value of the surrendered policy. D The beneficiary automatically receives the cash value of the policy.
The insured is no longer covered under the surrendered policy.
An individual purchased a life insurance policy on his life naming his wife as primary beneficiary, and their daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit? A The primary and contingent beneficiaries share death benefits equally B With the primary beneficiary's written consent C If the insured dies from an accident D If the primary beneficiary predeceases the insured
If the primary beneficiary predeceases the insured
If an insured under a variable life insurance policy dies, how will the insurer respond to outstanding policy loans? A The loan amounts are deducted from the death benefit. B The policy is withheld until payments are met. C The loan amount is charged to the beneficiaries. D The loans are waived.
The loan amounts are deducted from the death benefit.
The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose? A Interest only option B Life income with period certain C Joint and survivor D Fixed amount option
Interest only option
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? A The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. B The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies. C One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. D The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy? A It ensures the policy proceeds will be split between the primary and contingent beneficiaries. B It requires that someone who is not the primary beneficiary handles the estate. C It determines who receives policy benefits if the primary beneficiary is deceased. D It allows creditors to receive payment out of the proceeds.
It determines who receives policy benefits if the primary beneficiary is deceased.
California law requires an insurance company's dividends be credited A To all reduced paid-up policies on the anniversary date of the policy provided all premiums are current. B To policyholders of policies issued by stock companies. C To participating policies on the anniversary date of the policy provided all premiums are current. D To extended term policies on the anniversary date of the policy provided all premiums are current.
To participating policies on the anniversary date of the policy provided all premiums are current.
What type of account will most likely be established for a minor? A Annuity B Credit life C Estate planning D Trust
Trust
The termination of marital property rights may be reversed for all of the following reasons EXCEPT A The spouse was named as beneficiary by class. B The divorce or annulment decree or judgment is not recognized as valid. C The spouse named as beneficiary has obtained or consented to a final decree or judgment of an annulment, divorce or separation. D The beneficiary can prove the couple were living together as husband and wife or planning to remarry.
The spouse named as beneficiary has obtained or consented to a final decree or judgment of an annulment, divorce or separation.
An insured wants to change from an annual premium mode to a monthly premium mode. Which of the following is true? A The insurer will need to terminate the current policy and issue a new one. B The insured can make this change at any time, without any penalty. C This change can only be made on the policy's anniversary. D It is only possible to change from a monthly premium mode to an annual premium mode.
This change can only be made on the policy's anniversary.
A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? A Waiver of premium B Incontestability period C Assignment D Automatic premium loan
Automatic premium loan
The paid-up addition option uses the dividend A To reduce the next year's premium. B To accumulate additional savings for retirement. C To purchase a smaller amount of the same type of insurance as the original policy. D To purchase a one-year term insurance in the amount of the cash value.
To purchase a smaller amount of the same type of insurance as the original policy.
Items stipulated in the contract that the insurer will not provide coverage for are found in the A Benefit Payment clause. B Consideration clause. C Exclusions clause. D Insuring clause.
Exclusions clause.
J applied for a life insurance policy on January 10. The policy was issued on January 31. J's agent was vacationing at the time the policy was issued, so J did not receive the policy until February 18. J decides that he does not want the policy. When would J need to return the policy to the insurer in order to receive a full refund of premium paid? A The time varies from one policy to another. B It was already too late when J received the policy because the 10-day free-look period had expired. C Anytime, because the agent did not deliver the policy promptly. D February 28th, or 10 days after the time the policy is delivered.
February 28th, or 10 days after the time the policy is delivered.
If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select? A Interest only B Fixed period C Life with period certain D Fixed amount
Fixed period
If a settlement option is not chosen by the policyowner or the beneficiary, which option will be used? A Fixed amount B Lump sum C Life income D Fixed period
Lump sum
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 One-year term purchase. B Accumulation at interest. C Reduction of premiums. D Paid-up additions.
Paid-up additions.
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A The interest is credited at a rate specified by the policy. B The policyholder has the right to withdraw the accumulations at any time. C The interest is not taxable since it remains inside the insurance policy. D The annual dividend is retained by the company.
The interest is not taxable since it remains inside the insurance policy.
What is the advantage of reinstating a policy instead of applying for a new one? A The cash values have gained interest while the policy was lapsed. B The original age is used for premium determination. C Proof of insurability is not required. D The face amount can be increased.
The original age is used for premium determination.
When a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy? A It is increased when extra premiums are paid. B It decreases over the term of the policy. C It remains the same as the original policy, regardless of any differences in value. D It is reduced to the amount of what the cash value would buy as a single premium.
It is reduced to the amount of what the cash value would buy as a single premium.
When a life insurance policy stipulates that the beneficiary will receive payments in specified installments or for a specified number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments? A Accelerated benefit provision B Loan provision C Spendthrift provision D Settlement option
Spendthrift provision
Which of the following information will be stated in the consideration clause of a life insurance policy? A The time period allowed for the payment of premium B The conditions for insurability C The amount of premium payment D The parties to the contract
The amount of premium payment
If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? A The policy beneficiary takes over the loan payments. B The policy is rendered null and void. C The balance of the loan will be taken out of the death benefit. D The policy beneficiary receives the full death benefit.
The balance of the loan will be taken out of the death benefit.
In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to A The insurance company. B The contingent beneficiary. C The insured's spouse. D The policyowner.
The contingent beneficiary.
The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years? A 1 year B 2 years C 5 years D 7 years
2 years
An insured receives an annual life insurance dividend check. What term best describes this arrangement? A Cash option B Reduction of Premium C Annual Dividend Provision D Accumulation at Interest
Cash option
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? A Fixed period B Life income period certain C Extended term D Fixed amount
Fixed amount
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? A Life income period certain B Extended term C Fixed amount D Fixed period
Fixed amount
All of the following are dividend options EXCEPT A Reduction of premium. B Paid-up additions. C Fixed-period installments. D Accumulated at interest
Fixed-period installments.
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 will receive the lump sum, plus interest. B The primary beneficiary will receive the death benefit and the secondary beneficiaries will share the interest payments. C The beneficiary will only receive payments of the interest earned on the death benefit. D The beneficiary must pay interest to the insurer.
The beneficiary will only receive payments of the interest earned on the death benefit.
What limits the amount that a policyowner may borrow from a whole life insurance policy? A Cash value B Premiums paid C Amount stated in the policy D Face amount
Cash value
When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called A Revocable designation. B Irrevocable designation. C Stirpes designation. D Class designation.
Class designation.
Which of the following statements is TRUE concerning irrevocable beneficiaries? A They may be changed at any time. B They can never be changed. C They may be changed only on the anniversary date of the policy. D They can be changed only with the written consent of that beneficiary.
They can be changed only with the written consent of that beneficiary.
Which of the following is true regarding the spendthrift clause in life insurance policies? A It is only used when the beneficiary is a minor. B It is the same as irrevocable settlement clause. C It can protect the policy proceeds from creditors of the beneficiary. D It allows the beneficiary to select a different settlement option.
It can protect the policy proceeds from creditors of the beneficiary.
Which of the following is true regarding a single life settlement option? A Payments continue until the entire principal is exhausted. B Proceeds are paid out in a lump sum. C It provides income for a specified period of time. D It provides income the beneficiary cannot outlive.
It provides income the beneficiary cannot outlive.
Which of the following statements is TRUE about a policy assignment? A It is the same as a beneficiary designation. B t permits the beneficiary to designate the person to receive the benefits. C It authorizes an agent to modify the policy. D It transfers rights of ownership from the owner to another person.
It transfers rights of ownership from the owner to another person.
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the A Accelerated endowment. B Paid-up additions. C One-year term option. D Paid-up option.
One-year term option.
When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called A Irrevocable designation. B Stirpes designation. C Class designation. D Revocable designation.
Class designation.
Which type of beneficiary is changeable at any point? A Primary B Irrevocable C Revocable D Contingent
Revocable
Which of the following is NOT typically excluded from life policies? A Self-inflicted death B Death that occurs while a person is committing a felony C Death due to war or military service D Death due to plane crash for a fare-paying passenger
Death due to plane crash for a fare-paying passenger
Which is TRUE about the cash surrender nonforfeiture option? A After the cash surrender, the insured is covered for a grace period of one month. B The policy remains active for some time after the policyholder opts for cash surrender. C The policyholder receives the original cash value of the policy. D Funds exceeding the premium paid are taxable as ordinary income.
Funds exceeding the premium paid are taxable as ordinary income.
Which of the following is TRUE about nonforfeiture values? A They are required by state law to be included in the policy. B They are optional provisions. C A table showing nonforfeiture values for the next 10 years must be included in the policy. D Policyowners do not have the authority to decide how to exercise nonforfeiture values.
They are required by state law to be included in the policy.
What is the name of a clause that is included in a policy that limits or eliminates the death benefit if the insured dies as a result of war or while serving in the military? A Hazardous occupation B War or military service C Limited benefit D Aviation
War or military service
Which of the following is TRUE about a class designation? A It is not allowed. B It determines the succession of beneficiaries. C Beneficiaries are not identified by name. D Beneficiaries must be part of the insured's immediate family.
Beneficiaries are not identified by name.
If an insured continually uses the automatic premium loan option to pay the policy premium, A The insurer will increase the premium amount. B The policy will terminate when the cash value is reduced to nothing. C The face amount of the policy will be reduced by the automatic premium loan amount. D The cash value will continue to increase.
The policy will terminate when the cash value is reduced to nothing.
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
To provide a guaranteed income for a certain amount of time
A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible? A Collateral assignment B Insurable interest C Modification clause D Ownership provision
Collateral assignment
An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had misstated information during the application process. What can they do? A Pay a decreased death benefit B Sue for the right to not pay the death benefit C Pay the death benefit D Refuse to pay the death benefit because of the misstatement on the application
Pay the death benefit
An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe? A Reduction of Premium B Accumulation at Interest C Cash option D Flexible Premium
Reduction of Premium
When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value? A Outstanding loans and interest B The face amount C Mortality costs D The cash surrender amount
Outstanding loans and interest
What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident? A Spendthrift Clause B Settlement Clause C Nonforfeiture Clause D Common Disaster Clause
Common Disaster Clause
According to the entire contract provision, what document must be made part of the insurance policy? A Buyer's Guide B Agent's report C Outline of coverage D Copy of the original application
Copy of the original application
When a life insurance policy was issued, the policyowner designated a primary and a 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? A The insurance company B The insured's estate C The primary beneficiary's estate D The insured's contingent beneficiary
The insured's contingent beneficiary
All of the following are true regarding insurance policy loans EXCEPT A The amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies. B The policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. C Policyowners can borrow up to the full amount of their whole life policy's cash value. D Policy loans can be made on policies that do not accumulate cash value.
Policy loans can be made on policies that do not accumulate cash value.
Using a class designation for beneficiaries means A Not naming beneficiaries. B Naming an estate as the beneficiary. C Naming each beneficiary by his or her name. D Naming beneficiaries as a group.
Naming beneficiaries as a group.
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? A Pay a reduced death benefit B Pay the full death benefit C Pay nothing; there was a misrepresentation on the application D Pay the full death benefit and refund excess premium
Pay a reduced death benefit
Which nonforfeiture option provides coverage for the longest period of time? A Extended term B Paid-up option C Accumulated at interest D Reduced paid-up
Reduced paid-up
How does an insured typically decide which settlement option to choose for his/her beneficiary? A He/she usually decides based on how many beneficiaries he/she has chosen to receive benefits. B He/she typically decides based on the advice of the insurer. C He/she decides based on the amount of the death benefit. D He/she typically decides by determining if the beneficiary will need one payment or a "steady stream" of income.
He/she typically decides by determining if the beneficiary will need one payment or a "steady stream" of income.
The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? A Cash option B Reduction of premium C Paid-up addition D Accumulation at interest
Reduction of premium
The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say? A The proceeds will be split evenly between the two beneficiaries. B The policyowner can specify the way proceeds are split in the policy. C The way proceeds are split between beneficiaries is decided by which type of policy is chosen. D Life insurance policies may have only one beneficiary.
The policyowner can specify the way proceeds are split in the policy.
Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? A Fixed-amount B Life income with period certain C Joint and survivor D Single life
Life income with period certain
A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the A Revocable beneficiary. B Secondary beneficiary. C Contingent beneficiary. D Irrevocable beneficiary.
Revocable beneficiary.
A fee charged to the insured when a policy or annuity is exchanged for its cash value is A Surrender charge. B Policy cancellation fee. C Premature distribution penalty. D Maturation fee.
Surrender charge.
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to A The insured's estate. B Probate. C The state. D The beneficiary's estate.
The insured's estate.
Life income joint and survivor settlement option guarantees A Income for 2 or more recipients until they die. B Payment of interest on death proceeds. C Payout of the entire death benefit. D Equal payments to all recipients.
Income for 2 or more recipients until they die.
When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A The same as the original policy minus the cash value B Equal to the original policy for as long as the cash values will purchase. C In lesser amounts for the remaining policy term of age 100. D Equal to the cash value surrendered from the policy
Equal to the original policy for as long as the cash values will purchase.
An absolute assignment is a A Transfer of some ownership rights in a policy. B Change of beneficiary. C Change of insurer. D Transfer of all ownership rights in a policy.
Transfer of all ownership rights in a policy.
Which of the following settlement options in life insurance is known as straight life? A Fixed amount B Life income C Single life D Life with period certain
Life income
The insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insured's death, he chose the life income settlement option. The amount of payments will be determined by taking into account all of the following EXCEPT A Projected interest rates. B Face amount of the policy. C The insured's age at death. D The beneficiary's life expectancy.
The insured's age at death.
When a life insurance policy was issued, the policyowner designated a primary and a 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? A The insured's estate B The primary beneficiary's estate C The insured's contingent beneficiary D The insurance company
The insured's contingent beneficiary
Which of the following best describes fixed-period settlement option? A The death benefit must be paid out in a lump sum within a certain time period. B Income is guaranteed for the life of the beneficiary. C Both the principal and interest will be liquidated over a selected period of time. D Only the principal amount will be paid out within a specified period of time.
Both the principal and interest will be liquidated over a selected period of time.