MI Life Insurance Policy Provisions, Options and Riders

In order to reduce the premium, an insurer can backdate a life policy up to A 1 year. B 30 days. C 90 days. D 6 months.

D It is legal for Michigan insurers to backdate life policies, but this adjusted effective date can be no more than 6 months before the "actual" date.

Who can request changes in premium payments, face value, loans, and policy plans? A Contingent beneficiary B Beneficiary C Producer D Policyowner

D mandatory provisions give these rights to the policyowner.

Which nonforfeiture option provides coverage for the longest period of time? A Accumulated at interest B Reduced paid-up C Extended term D Paid-up option

B The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in A Adjustment in the amount of death benefit. B No change whatsoever. C Automatic lapse. D Recession of the policy.

A If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights? A Insured B Policyowner C The insured and the policyowner D Beneficiary

B Only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary.

If a policy is in danger of being terminated due to a nonpayment of premium, how many days before termination must an insurer send written notice to the policyowner? A 15 days B 30 days C 45 days D 7 days

B The insurer must send written notification at least 30 days before the termination of coverage.

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? A The death benefit will be forfeited. B The death benefit will be the same as the original face amount. C The death benefit will be larger. D The death benefit will be smaller.

D If an insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income.

If an insured continually uses the automatic premium loan option to pay the policy premium, A The insurer will increase the premium amount. B The policy will terminate when the cash value is reduced to nothing. C The face amount of the policy will be reduced by the automatic premium loan amount. D The cash value will continue to increase.

B This option, usually elected at the time of application, provides that in case of a possible policy lapse, the premium will be automatically paid form the contract's guaranteed cash value. However, once the cash value is exhausted, the policy will terminate.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this? A Paid-up addition B Accumulation at interest C Cash option D Reduction of premium

D The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

An insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called A One-year term purchase. B Accumulation at interest. C Reduction of premiums. D Paid-up additions.

D When this option is selected, the annual dividend acts as a single premium each year to buy additional amounts of insurance, based on the insured's currently attained age.

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? A Fixed amount option B Interest only option C Life income with period certain D Joint and survivor

B With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to A The state. B The beneficiary's estate. C The insured's estate. D Probate.

C In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.

Which of the following statements about the reinstatement provision is true? A It requires the policyowner to pay all overdue premiums with interest before the policy is reinstated. B It permits reinstatement within 10 years after a policy has lapsed. C It provides for reinstatement of a policy regardless of the insured's health. D It guarantees the reinstatement of a policy that has been surrendered for cash.

A Upon policy reinstatement, the policyowner will be required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest.

Which of the following is NOT typically excluded from life policies? A Death that occurs while a person is committing a felony B Death due to war or military service C Death due to plane crash for a fare-paying passenger D Self-inflicted death

C Generally, policies do not exclude conditions in which an insured is a fare-paying passenger on a commercial airline.

A policyowner fails to pay the premium due on his whole life policy after the grace period passes, but the policy remains in force. This is due to what provision? A Assignment B Automatic premium loan C Waiver of premium D Incontestability period

B This provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

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 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.

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 receives the full death benefit. B The policy beneficiary takes over the loan payments. C The policy is rendered null and void. D The balance of the loan will be taken out of the death benefit.

D If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit.

An individual is purchasing a permanent life insurance policy with a face value of $25,000. While this is all the insurance that he can afford at this time, he wants to be sure that additional coverage will be available in the future. Which of the following options should be included in the policy? A Nonforfeiture options B Guaranteed insurability option C Dividend options D Guaranteed renewable option

B The guaranteed insurability option allows the insured to purchase specific amounts of additional insurance at specific times without proving insurability.

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 A Stirpes designation. B Class designation. C Revocable designation. D Irrevocable designation.

B A designation such as the child of the insured, or all children of the insured, or all current members of a group, is called a "class designation." The individuals need not be specifically named, since each who meet the qualifications of being included in the class will share in the benefit.

The Ownership provision entitles the policyowner to do all of the following EXCEPT A Receive a policy loan. B Assign the policy. C Designate a beneficiary. D Set premium rates.

D The insurer sets premium rates based upon underwriting considerations.

Which settlement option provides a single beneficiary with income for the rest of his/her life? A Single Life B Fixed Amount C Lump Sum D Retained Assets

A The Single Life Option provides a single beneficiary with income for the rest of his/her life.

What is the term for how frequently a policyowner is required to pay the policy premium? A Consideration B Mode C Schedule D Grace period

B The premium mode is the manner or frequency that the policyowner pays the policy premium.

The Waiver of Cost of Insurance rider is found in what type of insurance? A Joint and Survivor B Juvenile Life C Universal Life D Whole Life

C The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.

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? A $20,000 B $25,000 C $50,000 D The face amount will be determined by the insurer.

C The face of the term policy would be the same as the face amount provided under the whole life policy.

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? A Reduction of premium B Accumulation at interest C Paid-up option D One-year term

C With the paid-up option, the insurer can accumulate dividends at interest and then use them, in addition to interest and the policy's cash value, to pay the policy earlier than planned. This is different from paid-up additions, in which the dividends are used to buy additional policies that increase the face amount of the original policy.

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? A Payor Benefit B Jumping Juvenile C Juvenile Premium Provision D Waiver of Premium

A If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

All of the following are beneficiary designations EXCEPT A Primary. B Specified. C Tertiary. D Contingent.

B Beneficiary designations determine the order in which benefits will be paid: primary or contingent, which includes secondary and tertiary.

What happens when a policy is surrendered for its cash value? A The policy can be converted to term coverage. B Coverage ends and the policy cannot be reinstated. C Coverage ends but the policy can be reinstated at any time. D The policy can be reinstated by paying back all policy loans and premiums.

B Once the cash surrender value option is selected, the coverage is terminated and the policy cannot be reinstated.

An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe? A Flexible Premium B Reduction of Premium C Accumulation at Interest D Cash option

B The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

What type of account will most likely be established for a minor? A Annuity B Credit life C Estate planning D Trust

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

Using a class designation for beneficiaries means A Naming beneficiaries as a group. B Not naming beneficiaries. C Naming an estate as the beneficiary. D Naming each beneficiary by his or her name.

A 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."

Which is true about a spouse term rider? A The rider is usually level term insurance. B Coverage is allowed for an unlimited time. C The rider is decreasing term insurance. D Coverage is allowed up to age 75.

A The spouse term rider allows a spouse to be added for coverage. It is available for a limited amount of time, typically expiring at age 65. A spouse term rider (just like any other insured rider) is usually level term insurance.

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

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? A Incontestable clause B Grace period C Reinstatement provision D Waiver of premium provision

C A lapsed policy may be reinstated within 3 years by paying back premiums, with interest, and proving insurability.

Which of the following protects the insured from an unintentional policy lapse due to a nonpayment of premium? A Reinstatement B Reduced paid-up option C Automatic premium loan D Extended term

C Automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

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 A Both children who share equally on a per-capita basis. B The insurance company. C The insured's estate. D The insured's firstborn child.

C Because there is no viable beneficiary at the time of death, proceeds are paid to the insured's estate.

At the time the insured purchased her life insurance policy, she added a rider that will allow her to purchase additional insurance in the future without having to prove insurability. This rider is called A Accelerated benefits. B Cost of living. C Guaranteed insurability. D Waiver of cost of insurance.

C Guaranteed insurability is a rider that is included at the time of application (or can be added at a later date) which allows the insured to increase the amount of insurance without proving evidence of insurability.

Michigan insurance policies can specify a time limit during which legal action against the insurer can be taken. This time limit, however, has to be at least A 4 years. B 5 years. C 6 years. D 3 years.

C Michigan law prohibits any provision that limits the time during which a legal action may be initiated to less than 6 years after the cause of such action occurs.

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 A Cost of living provision. B Nonforfeiture option. C Guaranteed insurability rider. D Paid-up additions option.

C The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT A The interest is credited at a rate specified by the policy. B The policyholder has the right to withdraw the accumulations at any time. C The interest is not taxable since it remains inside the insurance policy. D The annual dividend is retained by the company.

C The interest credited under this option is TAXABLE, whether or not the policyowner receives it.

he insured under a $100,000 life insurance policy with a triple indemnity rider for accidental death was killed in a car accident. It was determined that the accident was his fault. The triple indemnity rider in the policy specifies that the death must not be contributed to by the insured in any manner. In this case, what will the policy beneficiary receive? A$0 B$50,000 (50% of the policy value) C$100,000 D$300,000 (triple the amount of policy value)

C The triple indemnity accidental death rider obligates the company to pay three times the face amount of the policy if the insured dies as a result of an accident. The death must be accidental and not contributed to by any other factors and must occur within 90 days of the accident. In this case, since the insured contributed to his own death, the triple indemnity rider is void, but the beneficiary will still receive the policy's death benefit.

In a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to A The insured's spouse. B The policyowner. C The insurance company. D The contingent beneficiary.

D A contingent beneficiary receives the death benefit if the primary beneficiary predeceases the insured. If there are no designated beneficiaries surviving the insured, the benefits are paid to the estate of the insured.

Which of the following best describes fixed-period settlement option? A Only the principal amount will be paid out within a specified period of time. B The death benefit must be paid out in a lump sum within a certain time period. C Income is guaranteed for the life of the beneficiary. D Both the principal and interest will be liquidated over a selected period of time.

D Under the fixed-period option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. Both the principal and interest are liquidated together over the selected period of time.

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? A The time varies from one policy to another. B It was already too late when J received the policy because the 10-day free-look period had expired. C Anytime, because the agent did not deliver the policy promptly. D February 28th, or 10 days after the time the policy is delivered.

D The 10-day free-look period begins when the policy is delivered.

All of the following are true regarding the guaranteed insurability rider EXCEPT A The insured may purchase additional insurance up to the amount specified in the base policy. B It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events. C This rider is available to all insureds with no additional premium. D The insured may purchase additional coverage at the attained age.

C The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.

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 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.

Which of the following is true regarding a single life settlement option? A Payments continue until the entire principal is exhausted. B Proceeds are paid out in a lump sum. C It provides income for a specified period of time. D It provides income the beneficiary cannot outlive.

D The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.

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 to the life insurance premiums? A. The insured's premiums will be waived until she is 21. B. The premiums will become tax deductible until the insured's 18th birthday. C. Since it is the policyowner, and not the insured, who has become disabled, the life insurance policy will not be affected. D. The insured will have to pay premiums for 6 months. If at the end of this period the father is still disabled, the insured will be refunded the premiums.

A If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

ccording to the Entire Contract provision, a policy must contain A Buyer's guide to life insurance. B Listing of the insured's former insurer(s) for incontestability provisions. C A copy of the original application for insurance. D A declarations page with a summary of insureds.

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

Which of the following riders would NOT cause the Death Benefit to increase? A Cost of Living Rider B Accidental Death Rider C Payor Benefit Rider D Guaranteed Insurability Rider

C Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.

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? A. If the insured died from accidental means B. If the primary beneficiary predeceases the insured C. The primary and contingent beneficiaries share death benefits equally D. With the primary beneficiary's written consent

B The daughter, as contingent beneficiary, would need to outlive the insured and primary beneficiary.

The two types of assignments are A Absolute and collateral. B Absolute and partial. C Complete and partial. D Complete and proportionate.

A Absolute assigns the entire policy. Collateral assigns a part or all of the benefits.

Which of the following is true of a children's rider added to an insured's permanent life insurance policy? A. Each child covered must show evidence of insurability. B It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age. C It is permanent insurance. D The policy covers only the natural children of the insured.

B Children's rider is term insurance covering all of the children in the family, including newly born children, and is convertible to permanent insurance upon a child reaching the maximum age without evidence of insurability.

When the policyowner specifies a dollar amount in which installments are to be paid, he/she has chosen which settlement option? A Extended term B Fixed amount C Fixed period D Life income period certain

B When the fixed amount settlement option is chosen, the policyowner sets the amount of each installment. The insurer will determine how long the installments are to be paid.

What would be an advantage to naming a contingent (or secondary) beneficiary in a life insurance policy? A It determines who receives policy benefits if the primary beneficiary is deceased. B It allows creditors to receive payment out of the proceeds. C It ensures the policy proceeds will be split between the primary and contingent beneficiaries. D It requires that someone who is not the primary beneficiary handles the estate.

A Naming a secondary beneficiary (also referred to as contingent beneficiary) ensures that there is a beneficiary to receive policy proceeds if the primary beneficiary dies before the insured. If there is no secondary beneficiary, the policy benefits will go to the insured's estate.

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

B The premium does not change on the inclusion of additional children; it is based on an average number of children.

An insured purchased a life policy in 2010 and died in 2017. The insurance company discovers at that time that the insured had misstated information during the application process. What can they do? A Refuse to pay the death benefit because of the misstatement on the application B Pay a decreased death benefit C Sue for the right to not pay the death benefit D Pay the death benefit

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

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the A Contingent beneficiary. B Irrevocable beneficiary. C Revocable beneficiary. D Secondary beneficiary.

C The policyowner may change a revocable designation at any time and without the consent of the beneficiary. Irrevocable beneficiaries, on the other hand, have a vested interest in the policy, so the policyowner may not be able to exercise certain rights without their consent.

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? A Premature death B Return of premium C Cost of living D Decreasing term

B The Return of Premium Rider pays the beneficiary not only the face amount of the policy but also the amount that had been paid in premiums. The rider stipulates that death must occur prior to a certain age in order for the premium amount to be returned. The Return of Premium Rider is funded by using increasing term insurance.

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount? A The same as the original policy minus the cash value B Equal to the original policy for as long as the cash values will purchase. C In lesser amounts for the remaining policy term of age 100. D Equal to the cash value surrendered from the policy

B With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.

The interest earned on policy dividends is A Tax deductible. B 40% taxable, similar to a capital gain. C Taxable. D Nontaxable.

C Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.