Insurance Policies - Provisions, riders, and options
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?
Owners rights
Which of these life insurance riders allows the applicant to have excess coverage?
Term Rider
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?
$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?
$50,000 minus any outstanding policy loans
Which type of life policy contains a monthly mortality charge as well as self-directed investment choices? A - Variable Universal Life B - Universal Life C - Adjustable Life D - Joint Life
A - Variable Universal Life
The Consideration clause in a life insurance contract contains what pertinent information? A - amount of premium payments and when they are due B - summary of benefits C - Entire Contract D - offer and acceptance
A - amount of premium payments and when they are due
The automatic premium loan provision is designed to A - avoid a policy lapse B - provide a course of revenue to the insurance company C - allow a policyowner to request a policy loan D - allow a policyowner to take out additional coverage without evidence
A - avoid a policy lapse
All of these statements about the Waiver of Premium provision are correct except: A - insured must be eligible for Social Security disability for claim to be accepted B - insured must be totally disabled to qualify C - Waiver of premium is available on both permanent and term insurance policies D - A waiting period must pass before becoming eligible for benefits
A - insured must be eligible for Social Security disability to claim to be accepted
Which of the following statements about accumulated interest earning on dividends from an insurance policy is TRUE? A - it is tax deductible B - it is taxed as ordinary income C - it is taxed as capital gains D - it is not taxed
A - it is taxed as ordinary income
M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take? A - Pay face amount minus the past due premium B - Subtract past due premium from cash value C - deny the claim D - collect premium from M's estate
A - pay face amount minus the past due premium
A Return Of Premium life insurance policy is A - Whole life and increasing term B - a nonforfeiture option C - Variable life D - interest sensitive
A - whole life and increasing term
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n) A - exclusion B - limitation C - elimination D - exception
A -exclusion
S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy? A - Return of premium rider B - Accelerated death benefit rider C - Family income rider D - Term rider
A -return of premium rider
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called?
Accidental Death and Dismemberment (AD&D) rider
Which of the following Dividend options results in taxable income to the policyowner? A - cash B - Accumulation of interest C - Paid-up additions D - reduced premium
B - Accumulation of interest
Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE? A - coverage can be added at specific events such as marriage or having a child B - Evidence of insurability is required when the option is exercised C- Evidence of insurability is not required when the option is excersied D - Coverage can be added at a specific age
B - Evidence of insurability is required when the option is excerised
J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions? A - Automatic Premium Loan provision B - Reinstatement provision C - Payor clause D - Waiver of Premium
B - Reinstatement provision
A Return of Premium life insurance policy is A - a nonforfeiture option B - whole life increasing term C - Variable life D - interest sensitive
B - Whole life increasing term (Whole life insurance with a death benefit rider of increasing term insurance equal to the amount of premiums paid)
A policy loam is made possible by which of these life insurance policy features? A - extended term provision B - cash value provision C - consideration clause D - Owner's rights provision
B - cash value provision
All of these statements about the Waiver of Premium provision are correct EXCEPT A - Waiver of Premium is available on both permanent and term insurance policies B - Insured must be eligible for Social Security disability for claim to be accepted C - Insured must be totally disabled to qualify D - A waiting period must pass before becoming eligible for benefits
B - insured must be eligible for social security disability for claim to be accepted
In a life insurance contract, an insurance company's promise to pay stated benefits is called the A - consideration clause B - insuring clause C - entire contract D - owner's rights
B - insuring clause
The Accelerated Death Benefit provision in a life insurance policy is also known as a(n): A - inter vivos gift B - living benefit C - 1035 exchange D - nonforfeiture option
B - living benefit
The Consideration Clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and A - agreeging to a physical examination B - the initial premium C - disclosure of any medical conditions D - delivery of policy
B - the initial premium
What action can a policyowner take if an application for a bank loan requires collateral? A - name a bank as beneficiary B - utilize accelerated benefits provision C - assign policy ownership to the bank D - borrow against policy cash value and use as a down payment
C - Assign policy ownership to the bank
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? A - claim will be paid in full B - claim will be partially paid C - Claim will be denied D - Claim will be decided be an arbitrator
C - Claim will be denied
What benefit does the Payor clause on a Juvenile Life policy provide? A - premiums are waived if juvenile becomes disabled B - allows payor to increase face amount without providing evidence C - Premiums are waived if payor becomes disabled D - allows payor to assign ownership in the event payor becomes disabled
C - Premiums are waived in payor becomes disabled
Which of these Nonforfeiture Options continue a build-up of cash value? A - Cash surrender B - waiver of premium C - reduced paid up D - extended term
C - Reduced paid up
Variable Whole Life Insurance can be described as A - an insurance product only B - the insurance company assumes the investment risk C - both an insurance and securities product D - a securities product only
C - both an insurance and securities product
Whose life is covered on a life insurance policy that contains a payor benefit clause? A - spouse B - parent C - child D - beneficiary
C - child
Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it? A - 20-pay life B - endowment C - Decreasing Term D - Modified whole life
C - decreasing term
How are surrender charges deducted in a life policy with a rear-end loaded provision? A - deducted when assigned to another policyowner B - deducted from the death benefit C - deducted when the policy is discontinued D - deducted from the policy's cash value
C - deducted when the policy is discontinued
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? A - Misrepresentation B - concealment C - Exclusion D - Collateral Assignment
C - exclusion
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? A - refund of all premiums paid, plus interest B - refund of all premiums paid C - Full face amount minus any past due premiums D - full face amount
C - full face amount minus and past due premiums
How are policyowner dividends treated in regards to income tax? A - taxed as ordinary income B - taxed as capital gains C - interest on accumulations is taxed D - dividends are not taxable
C - interest on accumulations is taxed
All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT A - Life income B - Fixed Amount C - Interest Only D - Fixed Period
C - interest only
which of the following statements is CORRECT about accelerated death benefits? A - the full face amount is available as an accelerated benefit B - those on social security disability automatically qualify for this benefit C - Must have a terminal illness to qualify D - this provision is usually provided with an increase in premium
C - must have a terminal illness to qualify
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 A - cash value B - nonforfeiture value C - policy proceeds D - estate of the insured
C - policy proceeds
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached? A - cost of living B - return of premium C - waiver of premium D - Accelerated benefits
C - waiter of premium
A young, married teacher has two children and owns a whole life policy. If the teacher wants an increasing Death Benefit to protect against inflation, the teacher should select which of the following Dividend options? A - Accumulate at interest B - reduced premiums C - Paid up Additional insurance D - cash
C- Paid up Additional insurnace
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? A - Split equally between the ex-wife and current wife B - Current wife C - Estate D - Ex-wife
D - Ex-wife (she is still the beneficiary, new wife is the owner of policy)
Which of these is NOT considered to be a right given to a policyowner? A - Change the beneficiary, if revocable B - Surrendering the policy's cash value C - Assignment of ownership D - Modify a provision in the insurance contract
D - Modify a provision in the insurance contract
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability? A - P cannot assign ownership of the policy while premiums are being waived B - P will have to pay income taxes on the amount of premiums waived C - P cannot borrow against the policy's cash value while disabled D - P will still receive declared dividends
D - P will still receive declared dividends
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 A - pay the death benefit in full B - adjust the death benefit to an increased amount C - deny the claim D - adjust the death benefit to a reduced amount
D - adjust the death benefit to a reduced amount
What does the insuring agreement in a life insurance contract establish? A - an insurer's required reserve amount B - the obligations of the beneficiary C - the insurance policy's grace period D - an insurer's basic promise
D - an insurer's basic promise
A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following? A - terminal illness B- inability of the insured to maintain insurance premiums due to unemployment C - Critical illness D - inability of the insured to preform more than 2 Activities of Daily Living (ADL's)
D - inability of the insured to preform more than 2 Activities of Daily Living (ALD's)
The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits it the insured: A - dies of natural causes B - becomes chronically ill C - becomes critically ill D - is blinded in an accident
D - is blinded in an accident
Which of these are NOT examples of a Nonforfeiture option? A - extended term B - Cash surrender C - reduced Paid-up D - life income
D - life income
All of these statements concerning Settlement Options are true, EXCEPT A - rapid depletion of proceeds can be avoided B - Proceeds can be administered be the insurance company C - increased proceeds can be provided through accumulation of interest D - Only the beneficiary may select
D - only the beneficiary may select
Additional coverage can be added to a Whole Life policy by adding a(n)
Decreasing term rider
Which provision prevents an insurer from changing the terms of the contract with the policyowner be referring to documents not found within the policy itself?
Entire contract provision
What does the ownership clause in a life insurance policy state?
Who the policyowner is and what rights the policyowner is entitled to
The incontestable clause allows an insurer to
contest a claim during the contestable period
