Life Insurance Advanced
What is the difference between the Status Clause and the Results Clause as they relate to the military?
The Status Clause excludes all causes of death while the insured is on active duty in the military. The Results Clause only excludes the death benefit if the insured is killed as a result of an act of war
True or False: the beneficiary can withdraw funds at any time from the funds left on deposit with the insurer in Whole Life policies
True Withdrawal provisions are associated with Whole Life insurance policy Settlement Options. Under these provisions, the beneficiary can withdraw funds at any time from the funds left on deposit with the insurer. A typical withdrawal purpose is college funding.
North Carolina insurance regulations require an insurer to allow application for reinstatement of a cancelled (lapsed) life policy for up to ___ years from default in payment of the premium. a. 5 b. 1 c. 4 d. 2
a. 5 This does NOT mean that the insurer is required to reinstate the policy. If conditions with the insured have changed for the worse, the insurer may choose to reject the request for reinstatement or modify the coverage and/or increase the premiums.
Which of the following statements is NOT TRUE about the provision in the life insurance policy referred to as "Automatic Premium Loan"? a. Automatic Premium Loan is available in Whole Life, Endowments and Level Term insurance policies. b. Automatic Premium Loan will keep a policy from being cancelled (lapsed) for non-payment. c. Automatic Premium Loan uses the accumulated cash value in the policy to make the premium payment. d. If there is insufficient cash available in the policy, the premium cannot be paid by the Automatic Premium Loan provision.
a. Automatic Premium Loan is available in Whole Life, Endowments and Level Term insurance policies. Term insurance does not have a cash value. Therefore, there cannot be a "loan" from the policy to pay premiums.
Which of the following provisions of a life insurance policy helps to keep policies temporarily in force if policyowners fail to pay their policy premiums? a. Grace period b. Insuring clause c. Free-look period d. Incontestable clause
a. Grace period The grace period provides a period of 31 days after the premium due date to pay the premiums.
How can the policyowner access the cash value accumulation in the non-forfeitures values in a whole life insurance policy and keep the policy in benefit? a. Request a policy loan b. Request a cash value surrender c. Request a partial cash value withdrawal d. Request a payment of accumulated dividends
a. Request a policy loan A policy loan allows the policyowner to access the cash account while keeping the policy in benefit. If a loan is taken and the insured dies the amount of the unpaid loan and any accumulated unpaid interest is deducted
The life insurance policy and the attached _______ constitute the "entire contract". a. application b. rider c. endorsement d. physical examination
a. application State law requires a copy of the application must be attached to the policy or the contract is not complete.
North Carolina statutes require a "grace period" of__________ from the premium due date to pay the premium and avoid cancellation of the life insurance policy. a. Twenty-one (21) days b. Ten (10) days c. Thirty-one (31) days d. There is no grace period on life insurance
c. Thirty-one (31) days Insurance companies must give at least a 31 day grace period. If an insurance company wants to give a longer period it may do so.
J, age 65, has a straight whole life policy and decides to stop paying premiums and take a paid-up policy for a reduced death benefit. Which type of paid-up policy will he receive? a. Endowment at Age 65 b. Fixed Annuity c. Whole Life d. 10-year Level Term
c. Whole Life When a person requests a paid-up policy the policy will be that same type as the original policy.
_____________ is a type of assignment that uses the life insurance policy benefits as collateral for a debt
collateral assignment
Reinstatement of a life insurance policy requires an insured to do all of the following EXCEPT: a. Provide evidence of insurability b. Pay back interest on any outstanding policy loan c. Pay all past-due premiums d. Make collateral assignment to the insurer
d. Make collateral assignment to the insurer
Which of the following life insurance policy Dividend options would provide the greatest additional immediate death benefit? a. Cash Refund b. Accumulate at Interest c. Paid-up Additions d. One-year Term
d. One-year Term The term insurance for a period of one year increases the death benefit. However, the increase is only for one (1) year
An insured had a life insurance policy for five (5) years and committed suicide. In this situation, the insurance company will: a. Refuse to make payment because suicide is always contestable. b. Refund all premiums with interest and not pay the face amount. c. Pay only the accidental death provision in the policy. d. Pay the face amount because the policy is no longer contestable for suicide.
d. Pay the face amount because the policy is no longer contestable for suicide. State law allows an insurance company to deny a death claim for two (2) years after the policy issue date
Which of the following statements is CORRECT about the Paid-Up Additions in a participating Whole Life policy? a. They are subject to underwriting requirements. b. They do not generate dividends. c. They are considered Decreasing Term insurance. d. They are purchased on an insured's attained age.
d. They are purchased on an insured's attained age. A Paid-up Addition is purchased at the insureds attained age. Depending on the amount of the dividend and the age of the insured a paid-up addition may be smaller as the insured ages
In the life insurance policy, "absolute assignment" means which of the following? a. Naming beneficiaries b. Adding other coverage c. Borrowing the cash value d. Transferring the ownership rights
d. Transferring the ownership rights Once an absolute assignment is made, the original owner loses all rights and values in the policy. The insured is still the insured; that will not change.
Which of the following is NOT one of the five (5) ways a participating life insurance policy dividend payment can be used? a. Cash b. Paid-up additions c. Accumulation at interest d. Two-year Term
d. Two-year Term
In the life insurance policy, which of the following is still contestable after two (2) years? a. Suicide b. Failure at application to reveal having minor surgery in the past. c. Failure to reveal medications taken for a heart condition on the application. d. Understating the applicant's age when applying for the life insurance
d. Understating the applicant's age when applying for the life insurance The insurance company can adjust the benefits on the life insurance policy once the discrepancy is found no matter how long it has been since the policy was issued
An ______________ allows interest that is more than the policy's guaranteed rate of interest to be credited to the cash account
excess interest provision
A reinstatement clause allows the policyowner to restore a lapsed (cancelled) life insurance policy to its original condition when purchased. North Carolina insurance regulations require insurers to allow application for reinstatement up to ________ from the default in payment
five (5) years
When utilizing the _______ method, excess interest is credited in direct relation to the company's earnings on investments. It represents the insurance company's total investments in financial securities such as stocks, bonds and real estate
portfolio
A ______________ clause allows the policyowner to restore a lapsed (cancelled) life insurance policy to its original condition when purchased
reinstatement
Insurers have the right to defer loans or surrenders of cash value up to ________ from its request by the policyowner.
six (6) months
Traditional Life insurance companies are either _______ or a _______ insurer
stock / mutual
This provision gives the policyowner ___________ from the date that the policy is delivered to the policyowner to cancel coverage and receive a full refund of the premium deposit
ten (10) days Insurers may give a longer period than ten (10) days.
If the insured understates his or her age, the death benefit amount will be adjusted to
the amount that could have been purchased with the premiums paid based on the insured's actual age when the policy was issued
If the insured dies during the grace period, __________
the full death benefit will be paid minus any premium owed
Insurers are required to show a cash value accumulation in the policy by the end of the _____ policy year
third
True or False: the beneficiary can withdraw funds at any time from the funds left on deposit with the insurer in Term Life policies
False the beneficiary can withdraw funds at any time from the funds left on deposit with the insurer in WHOLE Life policies
If a policy lapses and the previously insured decides within the 5-year window that they would like to reinstate the policy, the new policy is subject to a new ________ contestable period.
two (2) year
The life insurance policy is incontestable after a period of _____________
two years Misstatement of age or gender allows the insurance company to contest the policy regardless of when it is discovered
True or False: If a policy lapses and the previously insured would like to reinstate the policy, the insurer has the right to verify the health of the insured
True The insured may be required to provide satisfactory evidence of insurability
North Carolina statutes require a grace period of __________________ from the premium due date. The grace period allows the policyowner to pay the premium during this time without a lapse (cancellation) of the policy.
thirty-one (31 days)
In a child's term rider, each child will be insured up to a limiting age as indicated on the Declaration Page (usually _____ to _____ years old)
21 to 25
True or False: a Child's Term rider needs to be purchased for each child the insured intends to add to a policy
False One premium covers an unlimited number of children on this rider. No additional premium is required if more children are added.
What are the two main methods of executing excess interest provisions?
Portfolio Method Index-linked Method
The ____________ only excludes the death benefit if the insured is killed as a result of an act of war.
Results Clause
What are the four non-forfeiture provision options?
(a) make a cash surrender of the policy (b) take a cash value loan from the policy (c) create a paid up reduced death benefit (d) place the policy on Extended Term insurance
The ____________ Rider provides a mechanism for the policyowner to add inexpensive Term Life insurance to the existing life insurance policy
Spouse Term
The __________ excludes all causes of death while the insured is on active duty in the military
Status Clause
Assignment is the transference of the policyowner's rights and benefits in the life insurance policy. What are the two types of assignment?
Absolute assignment Collateral assignment
_______________ is the transference of the policyowner's rights and benefits in the life insurance policy. Rights and benefits can be transferred in part or in whole.
Assignment
In reference to the non-forfeiture provision options, what does making a cash surrender of the policy entail?
If the policyowner exercises the cash surrender option, he or she receives the current accumulated cash value in the contract. Once the cash value is distributed, the life insurance policy is terminated. The now former policyowner has no further rights to the life insurance policy death benefit. There is no income tax on cash surrender unless the surrender amount exceeds the investment.
What is a non-forfeiture table?
Inserted into policy is a chart of the cash values at the end of a policy year. This chart is known as the Non-Forfeiture table
True or False: If a policy lapses and the previously insured would like to reinstate the policy, the insurer has the right to demand the back owed premiums be paid
True
Stock insurance companies issue _____________ policies
Non-Participating (Non-par)
True or False: Term insurance riders can be added to life insurance policies such as Whole Life to add valuable coverage for other persons
True
True or False: If the insured overstates his or her age, the death benefit amount will not be adjusted
True If the insured overstates his or her age, the death benefit amount will not be adjusted. Any overpaid premiums will be refunded to the policyowner.
When a participating (par) policy owner earns dividends and they elect the Accumulation at Interest Option, what happens with the money?
The Dividend is left to accumulate and earn interest. The accumulated amounts, plus interest paid by the insurance company, can be distributed at a future date or paid as part of the death benefit. This could lead to taxation because there will be some earnings over the return of excess premium.
When a participating (par) policy owner earns dividends and they elect the Cash Option, what happens with the money?
The Dividend is paid directly to the policyowner
When a participating (par) policy owner earns dividends and they elect the Premium Payments Option, what happens with the money?
The Dividend is used to pay future policy premiums.
______________ is a type of assignment that transfers all policy rights to another party such as a parent to a grown child
absolute assignment
Which Non-forfeiture Option would allow the policyowner to use the accumulated cash value to purchase a specified amount of life insurance and stop paying future premiums? a. Extended Term b. Reduced Paid-up c. Cash Surrender d. Level Term
b. Reduced Paid-up Reduced Paid-up will lower the death benefit to an amount that the accumulated cash value will purchase for the age and gender of the insured at the time of the request. No future premiums are required.
Which of the five dividend payment options could potentially lead to taxation? a. Cash Option b. Paid-up Additions Option c. Accumulation at Interest Option d. One-year Term Option e. Premium Payments Option
c. Accumulation at Interest Option Dividends are a return of excess premium charged by the insurance company. Because there is no earnings (gain), there are no federal taxes... EXCEPT If the Accumulate at Interest option is used there could be tax because there will be some earnings (gain) over the return of excess premium
Life insurance policyowner's have all of the following rights EXCEPT: a. Naming an irrevocable beneficiary b. Select a settlement option c. Change the grace period d. Take a policy loan
c. Change the grace period Grace periods are set by state insurance regulations.
What action will the insurer take if it is determined an insured had a policy for five (5) years and had overstated his or her age on the application for life insurance and is now deceased? a. Void the contract due to the misrepresentation and refund the premiums. b. Change the death benefits to an amount equal to what the premiums paid would purchase. c. Pay the death benefit to the beneficiary and return the unearned overcharged premiums. d. Pay the death benefit after taking out administrative charges needed to correct the error.
c. Pay the death benefit to the beneficiary and return the unearned overcharged premiums. Insurers are not allowed to keep "unearned" premiums. In this scenario, the "overpaid" premiums must be returned along with the death benefit payment
Conversion of a life insurance policy is allowed under which of the following circumstances? a. Conversion is automatic to protect the insured if the insureds health has changed due to disease b. The insured may request the exchange of a term policy for a whole life policy without evidence of insurability c. The insured may request the exchange of a term policy for a whole life policy without evidence of insurability if the death benefit is the same d. Conversion allows the exchange of a term policy for an endowment policy as long as the new policy does not exceed 110% of the term policy death benefit
c. The insured may request the exchange of a term policy for a whole life policy without evidence of insurability if the death benefit is the same Answer B and C appear to be the same. C is the correct answer because it points out the need for the death benefit to be the same without having to show evidence of insurability. This is an example of choosing the most CORRECT answer.
The policyowner has the right to utilize the Dividends that are applied to the policy. Dividends from Participating (Par) policies can be applied in what five ways?
cash option Paid-up Additions Option Accumulation at Interest Option One-year Term Option Premium Payments Option
When utilizing the ________ method, excess interest earnings are tied to an economic indicator such as the Consumer Price Index.
index-linked
The optional ____________ excludes death claims from members of flight crews killed in aviation-caused or related accidents
Aviation Provision The Aviation Provision in the life insurance policy does not apply to accidental death claims from fare-paying passengers flying on a regularly scheduled airline flight.
The _________ Insurance Rider provides a mechanism to insure the life of a child for a minimal amount of death benefit, typically for $5,000 to $10,000, and to do so very economically
Child's Term
_____________ means that the insurance company may wish to deny or reduce the amount of a claim based on misrepresentation or fraud perpetrated by the policyowner or an insured
Contestable
____________ are essentially refunds that an insurer pays to a policyowner who has a participating policy. Although refunds are called __________, life insurance policy ________ are really a return of a portion of the premium paid into the policy.
Dividends
True or False: If the insured commits suicide, premiums are returned but the death benefit is not paid
False If it is within two years, the insurer will return the premiums paid less any indebtedness to the company. After the first two (2) years, the policy will pay the full death benefit, less any indebtedness (Suicide will not result in any multiple payments such as accidental death).
What is the difference between a stock and mutual insurer?
Mutual insurance companies issue a policy dividend and Stock insurance companies do not
_______________ is the official notice of death issued by the legal authority in the jurisdiction where the death occurred
Proof of death
What are the two main advantages of reinstating a lapsed policy as opposed to applying for a new one?
Reinstatement is often cheaper than purchasing a new policy since a new policy would be based on the insured's current age. Reinstatement allows all values accumulated in the policy to be restored.
When a participating (par) policy owner earns dividends and they elect the One-year Term Option, what happens with the money?
The Dividend is used to purchase a one year Term Life policy. If the insured dies within the term, the additional death benefit will be paid to the beneficiary The one-year term option provides the largest death benefit of all the dividend options for the one year term period.
When a participating (par) policy owner earns dividends and they elect the Paid-up Additions Option, what happens with the money?
The Dividend purchases paid-up life insurance of the same type as the underlying policy. The paid-up addition provides an additional amount of death benefit without requiring evidence of insurability (good health
In reference to the non-forfeiture provision options, what does taking a cash value loan from the policy entail?
The policyowner may exercise the cash value loan option by borrowing funds against the policy. In this case, the policy serves as collateral and the policyowner is charged interest on the borrowed funds. If the policyowner does not pay the interest, it will be capitalized (added to the principal loan balance). If the insured dies, the loan amount and any interest owed will be deducted from the death benefit. Policy loans are essentially non-income taxed withdrawals
In reference to the non-forfeiture provision options, what does placing the policy on Extended Term insurance entail?
This non-forfeiture option allows the policyowner to maintain the full death benefit amount as a Level Term insurance policy instead of the original Whole Life policy. After the term expires, coverage ceases. The length of the term would be based on the insured's age, gender and the policy's current cash value. For example, if J had a $100,000 Whole Life policy and wanted to keep the death benefit unchanged but did not want to pay additional premium, she could use the funds in the cash account to purchase Term Life insurance with an equal death benefit.
In reference to the non-forfeiture provision options, what does creating a paid up reduced death benefit entail?
This option allows the policyowner to reduce the death benefit of the policy to a new amount. The policy will be paid-up requiring no additional premiums. Effectively the new lower death benefit is purchased with the existing cash value in the policy. The new death benefit amount would be based on the insured's age, gender and the policy's current cash value. For example, if J had a $100,000 Whole Life policy, but decided she did not need such a large death benefit and did not want to pay any more premiums, J could elect to take a paid-up policy with a death benefit less than $100,000. There will be a cash value in the new reduced and paid-up policy and the cash value will continue to grow until the policy matures.
True or False: If a policy lapses and the previously insured would like to reinstate the policy, the insurer has the right to increase the rates or deny the reinstatement
True
The Entire Contract Clause states that the contract is NOT complete unless ________________
a photo copy of the policy application is attached to the printed policy. If the application is not with the policy, the contract is not complete
What is absolute assignment?
a type of assignment that transfers all policy rights to another party such as a parent to a grown child. Insurers require that absolute assignment requests be made on the insurer's Assignment form
What is collateral assignment?
a type of assignment that uses the life insurance policy benefits as collateral for a debt. Collateral Assignments are only for the amount of the debt owed at the time of death of the insured and last only for the period of indebtedness. Insurers require that Collateral Assignment requests be on the insurer's designated form. For example, this type of assignment may be used when a bank wishes to have collateral from a borrower.
Insurers issuing life insurance policies are required to show a Table of Non-forfeiture Values for at least a _______period. a. 20-year b. 10-year c. 5-year d. 25-year
a. 20-year
J wishes to obtain a loan from the local savings & loan. The savings & loan requires security for the loan. J has a life insurance policy with cash value amount acceptable as security for the loan. The use of the policy is referred to which of the following? a. Collateral Assignment b. Per Stirpes Assignment c. Absolute Assignment d. Change of Beneficiary
a. Collateral Assignment Collateral Assignment allows a person to assign the benefits temporarily to another party that has a temporary insurable interest. The loan to J gave the savings & loan insurable interest
Which of the following statements about an "Additional Insured Rider" is NOT true? a. The Additional Insured Rider is created using Decreasing Term insurance. b. The rider can cover anyone the primary insured has an insurable interest. c. The rider allows the additional insured to convert his or her coverage at a specified age. d. A business partner can be covered under the rider.
a. The Additional Insured Rider is created using Decreasing Term insurance. The Additional Insured Rider uses Level Term insurance.
Which of the following statements about a "Child's Rider" is NOT true? a. The Child's Rider is created using Decreasing Term insurance. b. The rider can cover more than one child. c. The rider allows the child to convert his or her coverage at a specified age. d. Step Children can be covered under the rider.
a. The Child's Rider is created using Decreasing Term insurance.
The entire contract clause states that the contract is NOT complete unless a photo copy of the________________ is attached to the printed policy a. policy application b. medical report c. absolute assignment d. credit report
a. policy application The policy application is a legal part of the contract and must be include in the policy.
The entire contract clause states that the contract is NOT complete unless a photo copy of the________________ is attached to the printed policy. a. policy application b. medical report c. absolute assignment d. credit report (incorrect)
a. policy application The policy application is a legal part of the contract and must be include in the policy.
Which of the following statements is CORRECT when contrasting "absolute assignment" and "collateral assignment" in the life insurance policy? a. Absolute and Collateral assignment are the same provision. b. Absolute Assignment transfers all rights to the policy permanently and Collateral Assignment for a stated period of time. c. Absolute Assignment will last for a maximum period of five (5) years. d. Insurable interest is not required when making an assignment of a policy.
b. Absolute Assignment transfers all rights to the policy permanently and Collateral Assignment for a stated period of time.
Which Non-forfeiture Option is automatic if the policy is cancelled (lapsed) for non-payment of premiums? a. Cash loan b. Extended (term) insurance c. Paid-up (incorrect) d. Automatic premium loan
b. Extended (term) insurance The Extended (term) Insurance is automatically activated if the policy lapses for nonpayment of premiums unless a different option has been chosen and assuming there is sufficient cash value to pay the cost of the insurance. If a policy has no cash value, the Extended (Term) Insurance is not available
J purchased a life insurance policy five (5) years ago. When J applied for the life insurance policy he was asked about any avocations he participated in including piloting an airplane. He answered no, but actually he had a pilot's license that he rarely used. How would the insurance company handle a claim from J's beneficiary if J were killed while piloting an aircraft? a. The insurance company would pay a claim since the two (2) year contestable period for a misstatement on the application is over. b. If the policy has an Aviation exclusion on the policy, the insurer will not pay a benefit. c. The policy would pay since Aviation in the life insurance policy applies only to commercial pilots. d. The insurance company would pay the death benefit, but subtract the additional premium that should have been paid to cover Aviation.
b. If the policy has an Aviation exclusion on the policy, the insurer will not pay a benefit. Exclusions do not fall under the 2 year contestable period. Keep in mind that Aviation could be endorsed onto the policy for an extra premium.
An insured had a heart condition and denied it on the application for a life insurance policy and the misrepresentation was NOT discovered during underwriting. The insured died of a heart attack six (6) years later and the misrepresentation was discovered. In this situation, the insurance company will take what action? a. Refuse to pay the claim b. Pay the claim in full c. Refund the premiums d. Pay the claims less the amount owed for the higher risk
b. Pay the claim in full State law allows an insurance company to refuse to pay a death claim if the individual misrepresented his or her health on the application for a period of two (2) years beginning on the policy issue date. After two (2) years, the claim would be paid.
In life insurance, the reinstatement clause provides for which of the following? a. Reinstatement of the full-face amount after a policy loan b. Reinstatement of a lapsed policy as originally purchased c. Reinstatement of a policy when a premium is paid during the grace period d. Replacing existing life insurance with a new insurer's life insurance coverage
b. Reinstatement of a lapsed policy as originally purchased An advantage of reinstating a lapsed policy is recouping all the accumulated values in life insurance contracts such a Whole Life policy.
E died at the age of 75. E had a $25,000 Endowment life policy. It was realized when the death claim was made that E was two years older than the age shown on the policy at issue. How will the insurance company pay the claim? a. The insurance company will refuse payment due to the misstatement b. The insurer will decrease the death benefit to the amount the premiums would have purchased c. The insurer will pay the death benefit if the beneficiary pays the back premium d. The insurance company will allow the beneficiary to decide on what payment should be paid
b. The insurer will decrease the death benefit to the amount the premiums would have purchased The insurance company will reduce the death benefit to the premiums paid.
The "entire contract" clause states that the life insurance contract is NOT complete unless a photo copy of the policy _________is attached to the printed policy. a. premium payment schedule b. application c. producer's report d. medical report
b. application
E owned a $100,000 whole life policy that had a $75,000 cash value when she died at the age of 75. The amount paid by the insurance company as a death benefit was; a. $25,000 b. $75,000 c. $100,000 d. $175,000
c. $100,000 The whole life policy pays the death benefit listed on the declarations page of the policy. The developed cash value does not play a part in the death benefit paid.
In the Free Look (Return of Premium) provision, the policyowner has a minimum of ____ days from the date a life insurance policy is delivered to the policyowner to cancel coverage and receive a full refund of the premium deposit. a. 8 b. 6 c. 10 d. 25
c. 10 This is the minimum period of time allowed by statute. Insurers are free to give longer periods if they wish
The life insurance contract states that the policy is no longer contestable after _____ for untrue or incorrect statements made by the applicant in the policy application. a. 6 months b. 1 year c. 2 years d. 5 years
c. 2 years North Carolina law gives the insurance company two (2) years to find any untrue or incorrect statements by the applicant.
Insurers are required to show a cash value in the life insurance policy by the end of the _____ policy year. a. 1st. b. 2nd. c. 3rd. d. 4th.
c. 3rd.
E purchased a life insurance policy on her granddaughter when the child was six (6) years old. When the granddaughter turned 18, E wanted to give the policy to her granddaughter. This could be accomplished by which of the following? a. Collateral Assignment b. Per Capita Assignment c. Absolute Assignment d. Change of Beneficiary
c. Absolute Assignment When the policy was issued E was the owner of the policy. When the granddaughter came of legal age E could pass the ownership. Absolute assignment transfers all legal rights.
Suicide in a life insurance policy is no longer excluded ________________. a. 90 days from the date of issue b. 2 years from the date of policy delivery c. 1 year from the date of policy delivery d. 2 years from the date of the policy issue
d. 2 years from the date of the policy issue The two (2) years suicide contestable period starts when the life insurance policy is issued; not delivered.
In a life insurance policy, the ___________ indicates that in return for the premiums paid, the insurer will pay to the designated beneficiary a sum of money as indicated on the Declarations Page of the contract when proper proof of death of the insured is received.
insuring agreement
