Policy Provisions, Options, Riders
S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?
$50K
Which of the following policies may NOT have the Automatic Premium Loan provision attached to it?
Decreasing Term (all but term life can have Automatic premium loans)
Additional coverage can be added to a Whole Life Policy by adding a(n):
Decreasing Term Rider
The purpose of the __________ Period clause is to avoid an unintentional lapse of a life insurance policy.
Grace
Which of the following statements is CORRECT about accelerated death benefits?
Must have a terminal illness to qualify
In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy?
Owner's rights
P is the insured on a participating life policy. Which statement is true if P's premiums are waived due to a disability?
P will receive dividends (it doesn't matter who pays the premiums)
What benefit does the Payor clause on a Juvenile Life policy provide?
Premiums are waived if the Payor becomes disabled
An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured died during this Grace Period?
full face amount minus any past due premiums
When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n):
exclusion
A Nonforfeiture clause gives the policyowner
guaranteed values even if the policy has lapsed
Dividends paid from a life insurance policy are
issued by the insurer
Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?
it is taxed as ordinary income
An insured's inability to perform two or more activities of daily living may trigger which type of policy rider?
long term care
All of these statements concerning Settlement Options are true, EXCEPT:
only the beneficiary may select (actually policyowners can as well)
Which statement is TRUE in regards to a policy loan?
past-due interest on a policy loan is added to the total debt
The _________ is authorized to assign a Life Insurance policy as collateral for a loan.
policyowner
The __________ has the right to change a life insurance policy's beneficiary
policyowner
Typically a life insurance death benefit is paid by a lump-sum payment. A(n) __________ option is a method of distributing a Life Insurance policy's death benefit OTHER than by a lump sum payment.
settlement
A(n) ______ rider may be used to include coverage for children under their parent's life insurance policy.
term
The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and
the initial premium
What does the ownership clause in a life insurance policy state?
who is the policyowner and provides a general description of the owner's rights
Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?
Collateral assignment
Which of these life insurance riders allows the applicant to have excess coverage?
Term Rider
The incontestable clause allows an insurer to
contest a claim during the contestable period
An insurer may normally delay the payment of a cash value loan or surrender value for up to
6 months
The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n):
AD&D
S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?
Automatic Policy Loan
P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?
Beneficiary will be paid the Death Benefit; The incontestable clause prevents the insurer from canceling the contract even for a material misrepresentation.
The free-look provision begins
Upon receipt of the policy by the policyowner
A Term Life rider offers the insured
additional life coverage
What action can a policyowner take if an application for a bank loan requires collateral?
assign ownership of the policy to the bank
Whose life is covered on a life insurance policy that contains a payor benefit clause?
Child
Which of these is NOT considered to be a right given to a policyowner?
Modify a provision in the insurance contract
K owns a Whole Life policy. If K wants an increasing Death Benefit to protect against inflation, which Dividend Option should she chose?
Paid-Up Additional Insurance
All of the following statements are true regarding a policy's Grace period, EXCEPT:
Past due premiums are waived
M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?
Pay face amount minus past due premium
P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary?
$50,000 minus any outstanding policy loans (it is beyond the contestable period)
T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?
$50K - The suicide happened outside of the suicide clause period (normally 1-2 years) - so face amount paid
A potential client, age 40, would like to purchase a Whole Life policy that will accumulate cash value at a faster rate in the early years of the policy. Which of these statements made by the producer would be correct?
20-Pay Life Accumulates cash value faster than straight life
P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?
AD&D clause
A policyowner may generate taxable income from which of the following Dividend Options?
Accumulation at Interest
The Consideration clause in a life insurance contract contains what pertinent information?
Amount of premiums payments and when they are due (amount and frequency)
What does the insuring agreement in a Life insurance contract establish?
An insurer's basic promise to pay out
Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself?
Entire Contract Provision - The entire contract provision, found at the beginning of the policy, states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract. Nothing may be "incorporated by reference," meaning that the policy cannot refer to any outside documents as being part of the contract.
What provision in a life insurance policy states that the application is considered part of the contract?
Entire contract Clause
Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?
Evidence of insurability is required when the option is exercised.
D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D's wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?
Ex-wife (never changed the beneficiary)
In a life insurance policy, which feature states that the policy will not cover certain risks?
Exclusion
N is a student pilot with a large life insurance policy. Which of these features would limit the insurer's obligation in the event N was killed while flying as a student pilot?
Exclusions-are specific hazards listed in a policy for which benefits will not be paid
D owns a Whole Life policy that was purchased 10 years ago. If the premium payments suddenly stop and D takes no additional action, which Nonforfeiture Option will the insurer likely proceed with?
Extended Term (this is no default options of insurance companies in the event of nonpayment of premiums)
K pays on a $20,000 20-Year Endowment policy for 10 years and dies from an automobile accident. How much will the insurance company pay the beneficiary?
If the insured dies before the endowment's maturity, the face value (Death benefit) is paid - which in this case is $20K
A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following?
Inability of the insured to perform for than 2 activities of daily living (ADLs)
All of these statements about the Waiver of Premium provision are correct, EXCEPT:
Insured must be eligible for Social Security disability for the claim to be accepted.
The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured's death is called a(n)
Insuring agreement
In a life insurance contract, an insurance company's promise to pay stated benefits is called the:
Insuring clause
How are policyowner dividends treated in regards to income tax?
Interest on accumulations is taxed
All of these statements about the Waiver of Premium provision are correct EXCEPT
Interest-only
K's whole life insurance policy lapsed two months ago due to nonpayment. She would now like to reinstate the policy. All of these statements are correct about the policy's reinstatement EXCEPT
K will forfeit the right to use the automatic loan provision upon reinstatement
Which of these are NOT an example of a Nonforfeiture option?
Life Income
The Accelerated Death Benefit provision in a life insurance policy is also known as a)n):
Living benefit
B recently died and was insured with a life insurance policy for over five years. During the claims process, the insurer discovered that B had understated his age by 5 years at the time of application. In this situation, the insurer will
Pay the amount that the premium would have purchased at the correct age.
Which of the following provisions guarantees that premiums will be waived if a juvenile life policyowner becomes disabled?
Payor Clause
The advantage of reinstating an original life policy is
Premiums are based on a younger age
Which of the following is an example of a nonforfeiture option:
Reduce paid-up (there is also cash surrender, extended term)
Which of these Nonforfeiture Options continue a build-up of cash value?
Reduced Paid-Up
J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?
Reinstatement provision
S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?
Return of the premium rider
A Life insurance policyowner would like to take out a policy loan against the cash value in his Whole Life policy. The interest rate applied to this loan may vary over time. This is referred to as a(n) __________ rate loan
Variable
Which type of life insurance policy contains a monthly mortality charge as well as self-directed investment choices?
Variable Universal Life
Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?
Variable life (level premiums, selection of investment options)
When a misrepresentation of a life insurance policy application is discovered, what action may an insurance company take:
Void the policy only if it is discovered during the Contestable period and proven to be material
A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?
Waiver of premium
When is the face amount of a Whole Life policy paid?
When the insured dies or at the policy's maturity date, whichever happens first
A Return of Premium Life insurance policy is:
Whole Life with increasing term (death benefit rider = to the amount of prem paid)
A cost of living rider gives the insured
additional death benefits. The Cost of Living rider can be purchased with many different types of life insurance. This type of coverage is designed to help you hedge your bets against inflation. For example, if you purchase this rider, your policy is going to increase in value if inflation increases.
B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of
additional whole life coverage at specified times
L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will
adjust the death benefit to a reduced amount
When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?
at future dates specified in the contract with no evidence of insurability
What action will an insurer take if an interest payment on a policy loan is not made on time?
automatically add the amount of interest due to the loan balance
Automatic Premium Loan Provision is designed to:
avoid a policy lapse
S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT
beneficiary's age (paid-up additions with their life insurance dividends is typically determined by the type of life insurance, their age, and the amount of dividends used)
Variable Whole Life Insurance can be described as:
both an insurance and securities product
A policy loan is made possible by which of these life insurance policy features?
cash value provision (makes policy loans possible)
A Whole Life Insurance policyowner does NOT have the right to
change the grace period
Which rider provides coverage for a child under a parent's life insurance policy?
child term rider
N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?
claim would be denied
How do insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?
claims are denied under the Suicide clause of the policy
Which statement regarding the Misstatement of Age provision is considered to be true?
coverage will be adjusted to reflect the insured's age if a misstatement of age is discovered
How are surrender charges deducted in a life policy with a rear-end loaded provision?
deducted when the policy is discontinued (i.e. surrendered)
Which of the following Nonforfeiture options offers the highest death benefit?
extended term (use cash value to purchase a term insurance policy with a death benefit equal to that of the original whole-life policy.
D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D's beneficiary's receive?
full face amount
B receives yearly dividends and interest from a participating life insurance policy. Which of these should B include as gross income for federal income tax purposes?
interest only
The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured:
is blinded in an accident
Which life insurance rider typically appears on a Juvenile life insurance policy?
payor benefit rider (adult payor can waive premiums if becomes disabled)
A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the:
policy loan provision
M has an insurance policy that also has an outstanding policy loan at the time of M's death. The insurer will deduct the outstanding loan balance from the
policy proceeds. If not repaid by the time the insured dies, the loan balance and any interest accrued are deducted from policy proceeds.
The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called
reinstatement
Which of these provisions require proof of insurability after a policy has lapsed?
reinstatement
What is the Suicide provision designed to do?
safeguard the insurer from an applicant who is contemplating suicide
