Life Quiz - 04

According to the entire contract provision, what document must be made part of the insurance policy? a. Copy of the original application b. Buyer's Guide c. Agent's report d. Outline of coverage

a. Copy of the original application An insurance contract must contain a copy of the original application.

A long stretch of national economic hardship causes a 7% rate of 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? a. Cost of Living Rider b. Value Adjustment Rider c. Return of Premium Rider d. Inflation Rider

a. Cost of Living Rider The Cost of Living rider annually adjusts the policy's face value in accordance with the national rate of inflation or deflation. This rider adjusts the face amount of the policy to correspond with the rate of inflation, in order to keep the initial value of the policy constant over time.

All of the following statements concerning dividends are true EXCEPT a. Dividend amounts are guaranteed in the policy. b. Lower insurance company costs generate higher dividends. c. They stem from favorable underwriting experience. d. Favorable investment results generate higher dividends.

a. Dividend amounts are guaranteed in the policy. Dividends cannot be guaranteed.

Which of the following is true about the premium on the children's rider in a life insurance policy? a. It remains the same no matter how many children are added to the policy. b. It decreases when the oldest child reaches the age of 21 c. It increases when a newborn baby is added to the policy. d. It decreases when an adopted child is added to the policy.

a. It remains the same no matter how many children are added to the policy. The premium does not change on the inclusion of additional children; it is based on an average number of children.

Under an extended term nonforfeiture option, the policy cash value is converted to a. The same face amount as in the whole life policy. b. The face amount equal to the cash value. c. A lower face amount than the whole life policy. d. A higher face amount than the whole life policy.

a. The same face amount as in the whole life policy. Under this option the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

Which of the following statements is TRUE concerning irrevocable beneficiaries? a. They can be changed only with the written consent of that beneficiary. b. They may be changed at any time. c. They can never be changed. d. They may be changed only on the anniversary date of the policy.

a. They can be changed only with the written consent of that beneficiary. Once irrevocable beneficiaries are indicated for the policy, their written consent is required to change the beneficiary.

The validity of coverage under a life insurance policy may not be contested, except for nonpayment of premium, after the policy has been in force for at least how many years? a. 1 year b. 2 years c. 5 years d. 7 years

b. 2 years The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

Under which of the following circumstances would an insurer pay accelerated benefits? a. A couple wants to build a house and would like to make a larger down payment. b. An insured is diagnosed with cancer and needs help paying for her medical treatment. c. A couple is nearing retirement and needs a steady stream of income. d. An insured is looking for a way to put her daughter through college.

b. An insured is diagnosed with cancer and needs help paying for her medical treatment. Accelerated benefits are paid when insureds endure financial hardship due to severe illness. They may request immediate payment of some portion of the policy's death benefit, usually 50-100%, depending on the insurer. Benefits are not taxable.

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? a. Ownership provision b. Collateral assignment c. Insurable interest d. Modification clause

b. Collateral assignment The business owner could make a collateral assignment of his or her life insurance policy to the bank.

What type of insurance would be used for a Return of Premium rider? a. Annually Renewable Term b. Increasing Term c. Level Term d. Decreasing Term

b. Increasing Term The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.

The dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the a. Paid-up additions. b. One-year term option. c. Paid-up option. d. Accelerated endowment.

b. One-year term option. The dividend is utilized to purchase one-year term insurance.

An insured committed suicide 6 months after his life insurance policy was issued. The insurer will a. Pay nothing. b. Refund the premiums paid. c. Pay the policy's cash value. d. Pay the full death benefit to the beneficiary.

b. Refund the premiums paid. If the insured commits suicide within a certain period of time following the policy effective date, the insurer's liability is limited to a refund of premium.

An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries? a. One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies. b. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. c. The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time. d. The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies.

b. The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive. When the reduced option is written as "joint and 2/3 survivor," the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.

When may an insurance company use suicide as a defense against paying a death claim? a. At no time b. When death occurs within a specified period of time after the policy was issued c. Only when there was a witness to the event d. At any time suicide can be proven

b. When death occurs within a specified period of time after the policy was issued An insurance company can deny a claim if the death of the insured was by suicide and occurred within a time specified in the policy.

An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy? a. $0 b. $200 c. $9,800 d. $10,000

c. $9,800 In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.

Which of the following is TRUE about a class designation? a. It is not allowed. b. It determines the succession of beneficiaries. c. Beneficiaries are not identified by name. d. Beneficiaries must be part of the insured's immediate family.

c. Beneficiaries are not identified by name. A class of beneficiary is using a designation such as "my children". This can be a vague term if the insured has been married more than once, or has adopted or illegitimate children. Many insurers encourage the insured to name each child specifically and to state the percentage of benefit they are to receive.

Which is TRUE about the cash surrender nonforfeiture option? a. The policy remains active for some time after the policyholder opts for cash surrender. b. The policyholder receives the original cash value of the policy. c. Funds exceeding the premium paid are taxable as ordinary income. d. After the cash surrender, the insured is covered for a grace period of one month.

c. Funds exceeding the premium paid are taxable as ordinary income. The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

What required provision protects against unintentional lapse of the policy? a. Payment of premiums b. Reinstatement c. Grace period d. Assignment

c. Grace period The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.

During partial withdrawal from a universal life policy, which portion will be taxed? a. Principal b. Loan c. Interest d. Cash value

c. Interest During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation.

Which life insurance settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary? a. Single life b. Fixed-amount c. Life income with period certain d. Joint and survivor

c. Life income with period certain The life income with period certain option guarantees payments for the life of the recipient and also specifies a guaranteed period of continued payments. If the recipient should die during this period, the payments would continue to a designated beneficiary for the remainder of the period.

All of the following are true regarding insurance policy loans EXCEPT a. The policy will terminate if the loan plus interest equals or exceeds the cash value of the policy. b. Policyowners can borrow up to the full amount of their whole life policy's cash value. c. Policy loans can be made on policies that do not accumulate cash value. d. The amount of the outstanding loan and interest will be deducted from the policy proceeds when the insured dies.

c. Policy loans can be made on policies that do not accumulate cash value. The policy loan option is only found in policies that contain cash value

If a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back? a. The policy beneficiary takes over the loan payments. b. The policy is rendered null and void. c. The balance of the loan will be taken out of the death benefit. d. The policy beneficiary receives the full death benefit.

c. The balance of the loan will be taken out of the death benefit. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

What type of account will most likely be established for a minor? a. Credit life b. Estate planning c. Trust d. Annuity

c. Trust Trusts are commonly established for minors, or to create a scholarship fund.

The automatic premium loan provision is activated at the end of the a. Free-look period b. Elimination period. c. Policy period. d. Grace period.

d. Grace period. Provided there is sufficient cash value in the policy, this provision triggers a loan at the end of the grace period to keep a policy in force.

Which of the following policy components contains the company's promise to pay? a. Premium mode b. Owner's rights c. Entire contract provision d. Insuring clause

d. Insuring clause The insuring clause contains the company's promise to pay.

Which of the following riders added to a life insurance policy can pay part of the death benefit to the insured to cover expenses incurred in a nursing or convalescent home? a. Accidental death b. Guaranteed insurability c. Payor benefit d. Long-term care

d. Long-term care Long-term care rider provides for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home.

Using a class designation for beneficiaries means a. Not naming beneficiaries. b. Naming an estate as the beneficiary. c. Naming each beneficiary by his or her name. d. Naming beneficiaries as a group.

d. Naming beneficiaries as a group. Class designations are used when an insured chooses to distribute benefits among the living beneficiaries and/or their heirs without naming each individual person, such as "all my children."

Who can request changes in premium payments, face value, loans, and policy plans? a. Contingent beneficiary b. Beneficiary c. Producer d. Policyowner

d. Policyowner Mandatory provisions give these rights to the policyowner.

When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to a. Purchase a term rider to attach to the policy. b. Pay back all premiums owed plus interest. c. Receive payments for a fixed amount. d. Purchase a single premium policy for a reduced face amount.

d. Purchase a single premium policy for a reduced face amount. When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

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? a. Adjustable life b. Term life c. Limited pay d. Universal life

d. Universal life Universal Life policies allow for policyholders to withdraw a limited portion of the policy's cash value. Each withdrawal, however, is usually charged, and the amount and frequency of withdrawals are usually limited