LIFE INSURANCE, POLICY PROVISIONS, OPTIONS AND RIDERS
Spendthrift Clause
when included in a life insurance policy, protects beneficiaries from the claims of their creditors. The clause applies to the benefits that are paid in a fixed-period or fixed-amount installments.
Disability income benefit
with this rider, in the event of disability the insurer will waive the policy premiums and pay a monthly income to the insured. The amount paid is normally based on a percentage of the face amount of the policy.
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 7% as a result. What is the name of the provision that caused this change?
Cost of living rider
Which rider, when attached to a permanent life insurance policy, provides an amount of insurance on every family member?
Family term rider
If Tom's policy allow him to make periodic additions to the face amount at standard rates, without proving insurability, his policy includes a
Guaranteed insurability option
What type of insurance would be used for a Return of Premium rider?
Increasing Term
COLLATERAL ASSIGNMENT
Involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction.
Per Stirpes
Means by the bloodline, distributes the benefits of a beneficiary who died before the insured to the beneficiary's heirs.
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.
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
Which of the following determines the length of time that benefits will be received under the Fixed-Amount settlement option?
Size of each installments
FALSE statement regarding the accumulation at interest option
The interest credited under this option is not taxable since it remains inside the insurance policy. THIS IS TAXABLE WHETHER OR NOT THE POLICY OWNER RECEIVES IT.
Reinstatement provision
allows a lapsed policy to be put back in force. The maximum time limit for reinstatement is usually 3 years after the policy has lapsed. Will be required to pay back all back premiums plus interest, and may be required to repay any outstanding loans and interest. All values will be restored!
The life-income option
also known as straight life, provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death.
ABSOLUTE ASSIGNMENT
involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.
Per Capita
means by the head, evenly distributes benefits among the living named beneficiaries.
life income joint and survivor
option guarantees an income for two or more recipients for as long as they live. Most contractsprovide that the surviving recipient will receive a reduced payment after the first recipient dies.
Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have dies or become disabled?
payor benefits
Exclusions
types of risks the policy will not cover. Certain exclusions are standard for all policies, while others are attached to the policy as an exclusion rider. Aviation, hazardous occupation and war and military service are the most common.
Which of the following statements is true concerning the Accidental Death Rider?
It will pay double or triple the face amount.
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
Which of the following riders would NOT cause the Death Benefits to increase?
Payor Benefit Rider
Because of financial obligations, John felt that he needed more insurance that the insurer was willing to issue. John's insurance producer told him that he could maximize the death benefits without increasing the face amount by the use of?
Return of premium rider- the policy will pay benefits equal to the face amount plus an amount equal to all the premiums paid on the contract.
Children's rider attached to whole life policies are usually issued as what type of insurance?
Term
Which is true about a spouse term rider?
The rider is usually level term insurance
What is the purpose of a fixed-period settlement option?
To provide a guaranteed income for a certain amount of time
single life option
can provide a single beneficiary income for he rest of his/her life. Upon the death of the beneficiary, the payments stop.
Premium Mode
is the manner or frequency that the policyowner pays the policy premium. Most policies allow for annual, semi-annual, quarterly or monthly payments. If the insured selects a premium mode other than annual, there will be an additional charge to offset the loss of earnings since the company does not have the entire premium at once, and there are additional administrative costs associated with more frequent billing.
Grace Period
is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapse. (usually 30-31 days)
Beneficiary
is the person or interest to which the policy proceeds will be paid upon the death if the insured.
Suicide Provision
protects the insurers from individuals who purchase life insurance with the intention of committing suicide. The policy will not pay death benefits if the insured committed suicide within the first 2 years of the policy being written. If it happens after the insurer will pay the normal death benefits.
Accelerated Benefits or Living Needs Rider
provided for an early payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years or has other qualifying conditions.
Entire Contract
provision stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract. No statement made before the contract was written can be used to alter the contract.
Which nonforfeiture option provides coverage for the longest period of time?
reduced paid-up
Waiver of premium
rider waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until the insured is able to return to work.
