Life Insurance - Chapter 3 - Policy Provisions, Riders and Options
This is NOT TRUE about Non-Forfeiture options?
Interest Only
Lump Sum =
Payment of the entire benefit in one sum
Life income joint and survivor settlement option guarantees?
Income for 2 or more recipients until they die
When a policy is surrendered for it's cash value?
Coverage ends and the policy cannot be reinstated
Items stipulated in the contract that the insurer will not provide coverage for are found in the?
Exclusions Clause
Which nonforfeiture option has the highest amount of insurance protection?
Extended Term
if a settlement option is not chosen by the beneficiary or the policyowner, which option will be used?
Lump Sum
The ownership provision DOES NOT ask the policyowner to?
Set premium rates
Which rider, when attached to a permanent life insurance policy, provide an amount of insurance on every family member?
Family Term Rider
This is NOT a dividend option?
Fixed-period Installments
At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called?
Guaranteed Insurability
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 as a single premium
This is TRUE concerning the Accidental Death Rider?
It will pay double or triple the face amount
Consideration =
Something of value that each party gives to the other (binding force in any contract)
The interest earned on policy dividends is?
Taxable
Children's riders attached to whole life policies are usually issued as what type of insurance?
Term
Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?
Term rider
What will be stated in the Consideration Clause of a life insurance policy?
The amount of premium payment
This is NOT TRUE about beneficiary designations?
The beneficiary must have insurable interest in the insured
Upon the death of the insured, the primary beneficiary discovers that the insured chose the interest only settlement option. What does this mean?
The beneficiary will only received payments of the interest earned on the death benefit
Principal =
The face value of the policy; the original amount invested before the earnings
The insured had his wife named as 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?
The insured's age at death
Under an extended term nonforfeiture option, the policy cash value is converted to?
The same face amount as in the whole life policy
An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiary?
The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
What is TRUE about non-forfeiture values?
They are required by state law to be included in the policy
It is TRUE concerning Irrevocable beneficiaries?
They can be changed only with the written consent of that beneficiary
This is NOT TRUE regarding the guaranteed insurability rider?
This rider is available to all insureds with not additional premium
The rider in a whole life policy that allows the company to forgo collecting the premium if the insured is disabled is called?
Waiver of Premium
What is the waiting period on Waiver of Premium rider in life insurance policies?
6 months
Indemnity =
A principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss
What best describes the Fixed-Period settlement option?
Both the principal and interest will be liquidated over a selected period 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?
Collateral Assignment
According to the entire contract provision, what document must be made part of the insurance policy?
Copy of the original Application
The provision that state that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the?
Entire contract
The automatic premium loan provision is activated at the end of the?
Grace Period
What settlement option allows the insurer to retain the face amount but pay some income based on gain on the proceeds to the beneficiary at regular intervals?
Interest Only
Which statement option allows the insurer to retain the face amount but pay some income based on gain on the proceeds to be beneficiary at regular intervals?
Interest Only
This IS TRUE about the 10-day FREE-Look period in a Life Insurance policy?
It begins when the policy is delivered
When a life insurance policy is cancelled and the insured has selected the extended term non-forfeiture option, the cash value will be used to purchase term insurance that has a face amount?
Equal to the original policy for as long a period of time that the cash values will purchase
This is TRUE about the cash surrender non-forfeiture option?
Funds exceeding the premium paid are taxable as ordinary income
This is TRUE about a Privacy Assignment?
It transfers rights of ownership from the owner to another person
What is the term for how frequently a policyowner is required to pay the policy premium?
Mode
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!
Reduction of premium
What determines the amount of each installment paid in a Life Income Option arrangement?
Recipient's life expectancy and amount of principal
An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?
$50,000
If an insured receives accelerated death benefits, what is the least amount of the original death benefit that the beneficiary would receive after the insured's death?
0% (they may have spent it all)
Which of the following would be deducted from the death benefit paid to a beneficiary, if a partial accelerated death benefit had been paid while the insured was still alive?
Amount paid with the accelerated benefit, plus the earnings lost by the insurance company in interest income from the accelerated 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?
Interest only option
What explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?
Owner's Rights
Which non-forfeiture option provides coverage for the longest period of time?
Reduced paid-up (pays till the insured reaches 100)
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 years premium, thus reducing it to $900. What option does this describe?
Reduction of Premium
A father owns a life insurance policy on his 15-year-old daughter. The policy contains the optional Payor benefit rider. If the father becomes disabled, what will happen to the life insurance premiums?
The insured's premiums will be waived until she is 21
What is NOT TRUE regarding the accumulation at interest option?
The interest credited under this option is not taxable since it remains inside the insurance policy
In an insured continually uses the automatic premium loan option to pay the policy premium?
The policy will terminate when the cash value is reduced to nothing
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?
Incontestability clause
What is TRUE about a Reinstatement Policy?
It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated.
And insured purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. What amount would his beneficiary receive as a settlement?
$200,000
Which option is being utilized when the insurer accumulates dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early?
Paid-up Option
An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the dividends to increase the death benefit. The dividend option that the insured has chosen is called?
Paid-up additions
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
What Benefit allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
Payor Benefit
If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?
Policyowner
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to?
Purchase a single premium policy for a reduced face amount
A couple owns a life insurance policy with a Children's Term rider. Their daughter is reaching the maximum age of dependent coverage, so she will have to convert to permanent insurance in the near future. Which of the following will she need to provide for proof of insurability?
Proof of insurability is not required
Assignment =
Transfer of rights of policy ownership
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
What is the name of the 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?
Military service or war
NAIC =
National Association of Insurance Commissioners, and organization composed of insurance Commissioners from all states ad jurisdictions formed to resolve insurance regulatory issues
The dividend option in which the policyowner uses dividends to purchase a term policy of one year is referred to as the?
One-year term option
A rider attached to a life insurance policy that provides coverage on the insured's family members is called the?
Other-Insured rider
An insured committed suicide one year after his life insurance policy was issued. The insurer will?
Refund the premiums paid
An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?
Reinstatement Provision
A policy owner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all the rights of ownership. The policy owner should have her husband named as the?
Revocable Beneficiary
This is TRUE about a spouse term rider?
The rider is usually level term insurance