Life Insurance Policy Provisions, Options and Riders.
A policy owner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will it affect the death benefit to the beneficiary?
The amount of the loan will be subtracted from the death benefit.
According to the entire contract provision, what document must be made part of the insurance policy?
Copy of the original application.
Under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
Cash Surrender
Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?
Cash surrender
What settlement options are available in life insurance policies?
Lump-sum/Cash, Life income, Interest only, Fixed period, Fixed amount
What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
Collateral assignment.
What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?
Reinstatement
Under an extended term nonforfeiture option, the policy cash value is converted to?
The same face amount as in the whole life policy.
What required provision protects against unintentional policy lapse?
Grace period.
What type if insurance would be used for a Return of Premium rider?
Increasing Term.
What dividend option is automatically selected by the company if not chosen by the policyowner?
Paid-up additions.
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
A copy of the original insurance application.
Who can make changes to policy once it is in effect?
An executive officer of the insurer.
What type of beneficiary is next in line after the primary beneficiary?
Contingent Beneficiary.
What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?
Entire Contract.
Which of the following is true of a children's rider added to an insured's permanent life insurance policy?
It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age.
Which of the following statements is TRUE concerning the Accidental Death Rider?
It will pay double or triple the face amount.
Which of the following explains the policyowner's right to change beneficiaries, choose options, and receive proceeds of a policy?
Owner's Rights.
All of the following are beneficiary designations EXCEPT?
Specified.
An absolute assignment is a?
Transfer of all ownership rights in a policy.
When will a contingent beneficiary receive death benefit from a life insurance policy?
When the primary beneficiary dies before the insured.
Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
Payor Benefit.
What are policy dividends?
Return of unused premiums.
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?
The insured's contingent beneficiary.
What does the term double indemnity mean?
The insurer will pay a benefit of twice the face amount.
In the fixed-period settlement option, how will the number of installments of the death benefit proceeds determine the amount of the installments?
The longer the period selected, the smaller each installment will be.
After a back injury, an insured is disabled for a year. His insurance policy carries a Disability Income Benefit rider. Which of the following benefits will he receive?
Monthly premium waiver and monthly income.
What is the waiting period on a Waiver of Premium rider in Life insurance policies?
6 months.
If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?
Lump-sum payment.
An insured has a continuous premium whole life policy. She would like to use the policy dividends to pay off her policy sooner than would have been possible otherwise. What dividend option could she use?
Paid- up option.
A policyowner fails to pay the premium due in his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision?
Automatic premium loan.
When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option?
Fixed amount
Is the beneficiary required to have insurable interest in the insured?
No. Beneficiaries do not have insurable interest in the insured.
With the interest only settlement option, what happens to the policy's death benefit?
Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary.
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
The proceeds are paid to the insured's estate.
Which nonforfeiture option has the highest amount of insurance protection?
Extended Term.
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
Primary beneficiary.
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 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.
When a life insurance policy stipulates that the beneficiary will receive payments in specific installments or for a specific number of years, what provision prevents the beneficiary from changing or borrowing from the planned installments?
Spendthrift provision.
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
The death benefit will be adjusted to the amount that the insured could obtain for her correct age.
What is the purpose of a free-look period?
To allow the insured to return the policy with a full refund.
What is the purpose of settlement options in life insurance policies?
To determine how the death benefit will be paid to the beneficiary.
If a beneficary 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=y select?
Fixed period.
An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?
Pay a reduced death benefit.
With the reduction of premium dividend option, how is the dividend used?
The dividend is applied to the next year's premium. (it reduces the next year's premium)
When can an insurance company use suicide as a defense against paying a death claim?
When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)
The rider in a whole life policy that allows the company to forgo collecting the premium in the insured is disabled is called ?
Waiver of premium.
What provision in a life insurance policy extends coverage beyond the premium due date?
Grace period
What dividend option can increase the death benefit of the existing life policy?
Paid-up additions.
What type of beneficiary can be changed at any point by the policyowner?
Revocable
A provision in a life or health insurance policy, that may assist an insurance company in determining the cause of death of an insured is called?
Autopsy.
What are the three nonforfeiture options in life insurance policies?
Cash surrender, reduced paid-up, and extended term
What are the dividend options in life insurance policies?
Cash, reduced premium, accumulation at interest, paid-up additions, paid up option, one year term, and acceleration of endowment
An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had concealed information during the application process. What can they do?
Pay the Death benefit.
What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?
Policy premium in a reinstated policy will be set according to the insured's original age.
If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?
Policyowner.
The automatic premium loan provision is activated at the end of the?
Grace period.
What provisions in a life insurance policy extends coverage beyond the premium due date?
Grace period.
A 40 year old man buys a whole life policy and names his wife as his only beneficiary. His wife dies 10 years later. He never remarries and dies at age 61, leaving 2 grown-up children. Assuming he never changed the beneficiary, the policy proceeds will go to?
The insured's estate.
What is the purpose of the Automatic Premium Loan provision?
To prevent the unintentional lapse of a policy because of nonpayment of the premium.
What are the most common exclusions in life insurance policies?
War and military service, hazardous occupation, and aviation.
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 ti the life insurance premiums?
The insured's premiums will be waived until she is 21.
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
Absolute assignment.
Who has the right to the cash value of a life insurance policy?
Policyowner
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?
It will be paid it the insured's estate.
A policyowner who is also the insured wants to name her husband as the beneficiary of her policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the ?
Revocable beneficiary.
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?
Settlement options
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
Waiver of premium.
What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
Incontestability.
The accelerated benefits provision will provide for an early payment of the death benefit when the insured?
Becomes terminally ill.
What is the name for a life insurance policy rider that provides coverage on the insured's family members?
Other-insured rider
A long stretch of national hardship causes a 7% rate inflation. A policyowner notices that the face value of her life insurance policy has been raised 7% as a result. Which policy rider caused this change?
Cost of Living Rider.
The provision which states that both the policy and a copy of the application form the contract between the policyowner and the insurer is called the?
Entire contract.
A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the benenficiary?
The amount of the loan will be subtracted from the death benefit.
What happens to a policy's cash value under an extended term nonforfeiture option?
The cash value is converted to the same face amount as in the whole life policy.
Who does the common disaster clause protect?
The contingent beneficiary.
What is the advantage of reinstating a policy instead of applying for a new one?
The original age is used for premium determination.
