Life Insurance Policy Provisions, Options, and Riders

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Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Absolute Assignment

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

The accelerated benefits provision will provide for an early payment of the death benefit when the insured

Becomes terminally ill

Under what nonforfeiture option does the company pay the policy's surrender value and have no further obligations to the policyowner?

Cash surrender

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 endowmet

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Collateral Assignment

What type of beneficiary is next in line after the primary beneficiary?

Contingent Beneficiary

To meet the requirement of the entire contract policy provision, an insurance policy must contain what?

Copy of the original insurance application

A long stretch of national economic hardship causes a 7% rate of inflation. Devonne notices that the face value of her life insurance policy has been raised 7% as a result. What is the name of the provision that caused this change?

Cost of Living Rider

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

What life policy provision states that both the policy and a copy of the application form the contract between the policyowner and the isnurer?

Entire contract

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Extended term

j applied for a life insurance policy on January 10. the policy was issued 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 to the insurer in order to receive a full refund of premium paid?

February 28th, or 10 days after the time the policy is delivered

What provision in a life insurance policy extends coverage beyond the premium due date?

Grace Period

What provision in an insurance policy extends coverage beyond the premium due date?

Grace Period

What required provision protects against unintentional policy lapse?

Grace period

Which rider allows an insured to purchase additional coverage without evidence of insurability?

Guaranteed Insurability Rider

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

During partial withdrawal from a universal life policy, which portion will be taxed?

Interest

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 to the insured's estate

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

What settlement options are available in life insurance policies?

Lump-sum/cash, fixed period, fixed amount, life income, interest only

After a back injury, and 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

Is the beneficiary required to have insurable interest in the insured?

No. Beneficiaries do not have insurable interest in the insured

What is the name for a life insurance policy rider that provides coverage on the insured's family members?

Other-insured rider

What dividend option can increase the death benefit of the existing life policy?

Paid-up additions

What dividend option is automatically selected by the company if not chosen by the policyowner?

Paid-up additions

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

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at the time that the insured had misstated information during the application process. What can they do?

Pay the death benefit

What is the advantage of reinstating a life insurance policy opposed to applying for a new one?

Policy premium in a reinstated policy will be set according to the insured's original age

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

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Policyowner

Who has the right to the cash value of a life insurance policy?

Policyowner

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 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

What nonforfeiture option provides coverage for the longest period of time?

Reduced paid-up

What provision allows the Policyowner to reactive a lapsed life insurance policy within a specified period of time with proof of insurability?

Reinstatement

What are policy dividends?

Return of unused premiums

What type of beneficiary can be changed at any point by the policyowner?

Revocable

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured's death?

Settlement options

What settlement option provides a single beneficiary with income for the rest of his/her life?

Single Life

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 beneficiary?

The amount of the loan will be subtracted from the death benefit

What happens to a police'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

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

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)

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 for the death benefit proceeds determine the amount of the installments?

The longer the period selected, the smaller each installment will be

What constitutes the entire contract?

The policy and a copy of the application, along with any riders or amendments, form the entire contract.

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

Under an extended term nonforfeiture option, the policy cash value is converted to

The same face amount as in the whole life policy

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

What is the purpose of the Automatic Premium Loan provision?

To prevent the unintentional lapse of a policy because of nonpayment of the 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 life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Waiver of premium

What are the most common exclusions in life insurance policies?

War and military service, hazardous occupation, and aviation

When can an insurance company use suicide as a defense against paying a death claim?

When a suicide is committed within a specific period of time after the policy is purchased (usually 2 years)

When will a contingent beneficiary receive death benefit from a life insurance policy?

When the primary beneficiary dies before the indured

What are the 3 nonforfeiture options?

cash surrender, reduced paid-up insurance, extended term insurance

Who does the common disaster clause protect?

contingent beneficiary


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