Life Policy Provisions, Options and Riders
During partial withdrawal from a universal life policy, which portion will be taxed?
Interest
The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the
One-year term option.
The Ownership provision entitles the policyowner to do all of the following EXCEPT
Set premium rates.
The clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the
Spendthrift clause.
How long will the beneficiary receive payments under the single life settlement option?
Until the beneficiary's death
Which of the following is true regarding the spendthrift clause in life insurance policies?
It can protect the policy proceeds from creditors of the beneficiary.
Which is true about a spouse term rider?
The rider is usually level term insurance.
An insured purchased a life insurance policy on his life naming his wife as primary beneficiary, and his daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?
If the primary beneficiary predeceases the insured
An individual purchased a life insurance policy on his life naming his wife as primary beneficiary, and their daughter as contingent beneficiary. Under what circumstances could the daughter collect the death benefit?
If the primary beneficiary predeceases the insured
What is the other term for the cash payment settlement option?
Lump sum
If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
Guaranteed insurability rider.
If a beneficiary 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 select?
Fixed period
If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?
Policyowner
All of the following are TRUE statements regarding the accumulation at interest option EXCEPT
The interest is not taxable since it remains inside the insurance policy.
What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy?
It determines who receives policy benefits if the primary beneficiary is deceased.
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
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
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
Using a class designation for beneficiaries means
Naming beneficiaries as a group.
Which nonforfeiture option provides coverage for the longest period of time?
Reduced paid-up
The paid-up addition option uses the dividend
To purchase a smaller amount of the same type of insurance as the original policy.
Which of the following is TRUE about a class designation?
Beneficiaries are not identified by name.
An absolute assignment is a
Transfer of all ownership rights in a policy.
When a policyowner designates a group of individuals as the beneficiary of a life insurance death benefit without specifically naming the individuals, this is called
Class designation.
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.
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.
The Waiver of Cost of Insurance rider is found in what type of insurance?
Universal Life
What required provision protects against unintentional lapse of the policy?
Grace period
The owner of a life insurance policy wishes to name two beneficiaries for the policy proceeds. What will the soliciting insurance producer say?
The policyowner can specify the way proceeds are split in the policy.
An 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
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
Which of the following is true about the premium on the children's rider in a life insurance policy?
It remains the same no matter how many children are added to the policy.
What type of account will most likely be established for a minor?
Trust
An insured owns a life insurance policy. To be able to pay some of her medical bills, she withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insured most likely have?
Universal life
Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?
A minor son of the insured
Which of the following statements is TRUE about a policy assignment?
It transfers rights of ownership from the owner to another person.
Which of the following statements about a suicide clause in a life insurance policy is TRUE?
Suicide is excluded for a specific period of years and covered thereafter.
Which nonforfeiture option has the highest amount of insurance protection?
Extended Term
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.
Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium?
Automatic premium loan
Children's riders attached to whole life policies are usually issued as what type of insurance?
Term
What is the benefit of choosing extended term as a nonforfeiture option?
It has the highest amount of insurance protection.
When an insured under a life insurance policy died, the designated beneficiary received the face amount of the policy as well as a refund of all of the premiums paid. Which rider is attached to the policy?
Return of premium
Which of the following describes attachments made to policies that either add or modify coverage?
Riders
An insured misstates her age at the time the life insurance application is taken. This misstatement may result in
Adjustment in the amount of death benefit.
All of the following are dividend options EXCEPT
Fixed-period installments.
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.
Nonforfeiture values guarantee which of the following for the policyowner?
That the cash value will not be lost
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.
All of the following are Nonforfeiture options EXCEPT
Interest only
What is the name of a 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
An insured receives an annual life insurance dividend check. What term best describes this arrangement?
Cash option
All of the following are true regarding insurance policy loans EXCEPT
Policy loans can be made on policies that do not accumulate cash value.
If a life insurance policy has an irrevocable beneficiary designation,
The beneficiary can only be changed with written permission of the beneficiary.
What is the waiting period on a Waiver of Premium rider in life insurance policies?
6 months
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
Which of the following is NOT true of life settlements?
The seller must be terminally ill.
Which of the following is TRUE about nonforfeiture values?
They are required by state law to be included in the policy.
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 receive payments of the interest earned on the death benefit.
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 under a life insurance policy has been diagnosed with a terminal illness and has 6 months to live. The insured knows that his financial state will worsen even more with the upcoming medical expenses. What option could the insured utilize?
Viatical settlement
If an insured withdraws a portion of the face amount in the form of accelerated benefits because of a terminal illness, how will that affect the payable death benefit from the policy?
The death benefit will be smaller.
Which of the following is TRUE about the 10-day free-look period in a Life Insurance policy?
It begins when the policy is delivered.
J applied for a life insurance policy on January 10. The policy was issued on 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 the policy 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.
