Section 8 (Life Contract)

Each of the following is true regarding policy loans except: A. All life policies contain a policy loan provision B. Some companies charge an interest rate on the money borrowed C. Insured can borrow up to the amount of cash available in the contract. D. The money borrowed does not have to be paid back

A. All life policies contain a policy loan provision. The policy loans provision is only found in policies that contain cash value

If a beneficiary wants the death proceeds to be paid monthly for the next 20 years, this is called: A. Fixed Period Installments B. Period Certain Guaranteed C. Cash Payment for 20 D. Fixed Amount Installments

A. Fixed Period Installments This specifies a certain number of years and equal installments are paid to the beneficiary. Beneficiary wants death benefit to be paid out every month for the next 20 years, which is a fixed period installment

Which of the following statements about the suicide clause is incorrect? A. If a suicide is committed in the first 2 years, then the beneficiary receives nothing B. The start of the 2 year mark is the policy`s effective date C. This provision is set up as a protection to the insurance company D. After a policy is in force for 2 years, insurer will pay death proceeds in event of a suicide

A. If a suicide is committed in the first 2 years, then the beneficiary receives nothing If an insured commits suicide within 2 years of the policy`s effective date, the insurer is only obligated to refund the insured`s premiu

Which of the following statements are not true about the grace period in individual life insurance policies? A. If the insured dies during the grace period, no death benefit is payable but all premiums will be returned b. Coverage remains in force during the grace period c. It applies for a number of days after a premium payment is overdue before the policy lapses for nonpayment of premium d. This policy provision is designed to prevent unintentional policy lapse

A. If the insured dies during the grace period, no death benefit is payable but all premiums will be returned If the insured dies during the grace period the insurer will pay the death benefit minus the overdue premium

All of the following incontestability clause statements are true except: A. No statement made in the application may be used to deny a claim if in force for one year B. Preexisting conditions that are not known will be covered in the first two years C. Misstatements that are fraudulent may not be used to deny a claim after the first two years of being in force D. After two years of being in force, an insurer cannot deny a claim for death by suicide

A. No statement made in the application may be used to deny a claim if in force for one year Policy becomes incontestable after two years. This means that a claim cannot be denied or policy voided for material misrepresentation, concealment, or even fraud after the first two years

All the following are common premium modes except: A. Pay bi-monthly B. Pay quarterly C. Pay bi-yearly D. Pay annual

A. Pay bi-monthly Paying 2 times a month is not common or normal

The following premium modes is the least expensive? A. Pay in full B. Automatic drafting plan, such as BCP C. Annually D. Monthly billed direct

A. Pay in full Paying in full is the most inexpensive. The next most inexpensive is to pay annually

If an insurer fails to pay the death claim within 30 days, then it must: A. Pay interest from the insured`s date of death B. Pay interest from the insured`s date of death and a 10% penalty C. Insurers have 30 days to contest the policy and 30 days to pay the claim D. Pay interest at the legal rate starting on the 31st day

A. Pay interest from the insured`s date of death The insurance company must pay interest at the legal rate if it does not pay a first party claim within 30 days of the insured`s death. If an insurer fails to pay within the 30 days, it must pay interest from the insured`s date of death

An insurance producer is prohibited from the following except: A. Producer may be named as the owner or beneficiary in a life policy for a client who is a relative B. Producer may get a personal loan from a client C. Producer may influence the client one way or another D. Producer may be named beneficiary in a client`s will

A. Producer may be named as the owner or beneficiary in a life policy for a client who is a relative These prohibited acts do not apply to policies of a producer`s family members

What is the clause that most life insurance policies contain which prevents the creditors of a beneficiary from claiming any of the benefits the beneficiary hopes to receive before the beneficiary actually receives the money? A. Spendthrift clause B. Irrevocable clause C. Revocable clause ID. Common disaster clause

A. Spendthrift clause The purpose of the spendthrift clause is to protect the proceeds from a death settlement from creditors of the beneficiary

A reinstatement may be based on the following circumstances, except: A. Any time before the maturity date B. Any time before the grace period ends and the maturity date is reached C. Policy proceeds have been paid to the beneficiary D. Policy has been surrendered for the surrender value

B. Any time before the grace period ends and the maturity date is reached Any time before the maturity date, the policy may be reinstated with normally three years of grace period that ends with subsequent termination of coverage

Transferring all or a portion of a policyowner`s interest to an insurance policy is known as: A. Assignee`s interest B. Assignment of interest C. A beneficiary`s interest D. An Insurable interest

B. Assignment of interest Assignment of interest equals transfer of ownership rights

All of the following are rights of policy ownership: A. Selecting a settlement option B. Changing a policy provision with agents approval C. Designating beneficiaries D. Selecting a nonforfeiture option

B. Changing a policy provision with agents approval

Suppose that you name someone as your irrevocable beneficiary. Without the permission of the irrevocable beneficiary, you give up the right to do all of the following except: A. Change beneficiaries B. Continue to pay premiums C. Surrender the policy and take the cash value D. Borrow against the policy

B. Continue to pay premiums Once an irrevocable beneficiary is named the policyowner is required to obtain the irrevocable beneficiaries permission to exercise most of their policy rights. However, the policyowner does not need the irrevocable beneficiaries permission to name a contingent beneficiary

Which creditors would have the right to claim a portion of a death benefit? A. Creditors of the insured B. Creditors of the beneficiary C. Creditors of the insurer F. Creditors of the insured`s estate

B. Creditors of the beneficiary Creditors of the insurer do not have the right to claim any portion of the death benefit, but creditors of the beneficiary may have rights to all or part of the death benefit

All statements made by the insured will be considered representations and warranties except: A. In the case of non payment of premium B. In the case of fraud C. In the case of misstatement of age D. In the case of misstatement of beneficiary names

B. In the case of fraud All statements made by the insured will be considered representations and not warranties, except in the case of fraud

The promise that the insured has a specified amount of life coverage while the insurer is completing the underwriting is known as: A. IIR - Interim Insurance Receipts B. TIA - Temporary Insurance Agreement C. SIA - Specific Insurance Agreement D. PIA - Partial Insurance Agreement

B. TIA - Temporary Insurance Agreement The TIA is a legal agreement between an insurer and a proposed insured that provides a guaranteed amount of temporary life insurance coverage for a specific period of time, usually the underwriting period

Who has the right to take legal action if the insurer does not pay the death benefit as stated in the policy? A. The insured B. The beneficiary C. The insured`s estate D. Both primary and contingent beneficiarie

B. The beneficiary When an insured dies, the life insurance contract between the insured and the insurer terminates and now becomes a contractual arrangement between the insurer and the beneficiary as stated in the policy. The beneficiary would now have the right to take legal action if the insurer did not pay the death benefit as stated in the policy

The main benefit for reinstating a lapsed policy rather than purchasing a new policy is: A. The premium is guaranteed less than any new product that comes out B. The premium remains at the same level, based on the insured`s original age C. The premium remains at the same level, based on the insured`s current age ID. The misstatement of age clause may not begin again

B. The premium remains at the same level, based on the insured`s original age

The policyowner has the right to do all of the following except: A. Cancel the policy B. Transfer the responsibility to pay the premiums to someone else C. Name a new owner D. Name a new beneficiary

B. Transfer the responsibility to pay the premiums to someone else The policyowner is the individual who has all the ownership rights, including the responsibility to pay the premiums

When can an irrevocable beneficiary designation be changed? A. Never, that`s the point of being irrevocable B. With the primary beneficiary`s consent C. Owner must complete a change form requesting the irrevocable be changed to revocable D. With the owner`s consent

B. With the primary beneficiary`s consent The term irrevocable means the policyowner cannot change the beneficiary without the beneficiary`s consent

Which of the following is not a settlement option? A. Lump Sum B. Period Certain C. Fixed Interes Only D. Joint and Survivor

C. Fixed Interes Only There is no such option as fixed interest only. Interest only would have been a correct option

The common provision that says the insurer will not contest the policy after 2 years of being in force is: A. Insuring clause B. Suicide clause C. Incontestability clause D. Delay Clause

C. Incontestability clause The Incontestability clause states the insurer will not contest the policy after it has been in force for two years during the insured`s lifetime

If the insured dies on Monday and the primary beneficiary dies on Tuesday, who receives the proceeds? A. Contingent beneficiary B. The insured`s estate C. Primary beneficiary`s estate D. Tertiary beneficiary

C. Primary beneficiary`s estate The primary already assumed the death proceeds on Monday. The Primary would have to die before the insured for the contingent to receive the death proceeds

All of the following are true about the grace period except: A. This amount of time is usually 30 to 60 days B. The policy will continue in force during the grace period C. Proceeds will be reduced to zero if the insured dies during the grace period D. This period protects the policyholder from unintentional lapses

C. Proceeds will be reduced to zero if the insured dies during the grace period If the insured dies during the grace period, the proceeds will be reduced by any overdue monthly deductions

The following are common provisions of life insurance policies: A. Future children clause B. Right to examine clause C. Spendthrift clause D. Change of beneficiary clause

C. Spendthrift clause The spendthrift clause protects the proceeds from a death settlement from creditors of the beneficiary. This is not considered a common provision, but is an additional clause

Jason has a $710K life policy that is a per stirpes. What happens when Jason dies after one of his 3 children? A. The 2 remaining children receive $271K each B. The 2 remaining children get $100K each and the children of the child who died would receive $71K C. The 2 remaining children receive their third and the heirs of the child who died would split the final third equally ID. The oldest child gets all $710K

C. The 2 remaining children receive their third and the heirs of the child who died would split the final third equally Per Stirpes means ''by the bloodline''

All of the following statements pertaining to reinstatement of a life insurance policy are correct: A. When reinstating a policy, the company must charge the policyowner for interest on past due premiums B. When reinstating a policy, the company must charge the policyowner for past due premiums C. The insurer cannot require that previous loans be repaid D. When reinstating a policy, evidence of insurability is usually required by the insured

C. The insurer cannot require that previous loans be repaid The insurer can require that outstanding loans be repaid as a condition of reinstatement

If the insured and beneficiary die in a car accident and the accident report determines the insured died first, the following is true? A. The estate of the insured receives the death proceeds B. The contingent beneficiary receives the death proceeds C. The primary beneficiary estate receives the proceeds D. The insurance company keeps the money because this is too confusing

C. The primary beneficiary estate receives the proceeds This is important, because if it is ruled that the insured dies first, then the policy proceeds are paid to the estate of the primary beneficiary

If Mr. X selects the reduced paid up nonforfeiture option, his coverage will continue A. For the length of time and in the amount stated in the policy's table of guaranteed values B. For the length of time stated in the policy's table of guaranteed values in the amount of $100,000 C. Until death or age 100, whichever occurs first, in an amount stated in the policy's Table of Guaranteed values within his policy D. Until death or age 100, whichever occurs first, in the amount of $100,000

C. Until death or age 100, whichever occurs first, in an amount stated in the policy's Table of Guaranteed values within his policy The Table of Guaranteed Values shows the breakdown of the nonforfeiture options of a whole life policy. If Mr. X selected the reduced paid up he will have a lower death benefit (one stated in the policy) and his coverage will stay in force to age 100

A viatical settlement is an: A. Agreement that pays the insured a lump sum B. Agreement that changes the beneficiary to an irrevocable beneficiary in a divorce settlement C. Agreement that allows an insurer to refund all premiums due to misrepresentation D. Agreement that provides a life insurance policyowner immediate cash in exchange for death benefit

D. Agreement that provides a life insurance policyowner immediate cash in exchange for death benefit A viatical settlement is a contractual agreement that provides a life insurance policyowner immediate cash in exchange for the sale and transfer of life insurance policyownership rights

The following are options for a policyowner when a permanent policy with cash values is terminated, except: A. Reduced Paid Up Insurance B. Cash Surrender Value D. Extended Term Insurance D. Cash Value

D. Cash Value Cash value is only available with an active policy. A surrender value must be made available in cash. It also permits the insurance company to delay or postpone payment for up to 6 months after thesurrender of the policy

Which of the following policy provisions states that the application is part of the policy? A. Assignment clause B. Nonforfeiture option C. Ownership clause D. Entire contract

D. Entire contract The entire contract provision states that the policy consists of the policy, the application when attached, and any riders or modifications

Which of the following could not be named as a beneficiary? A. Spouse B. Child C. Complete stranger D. Insured

D. Insured The beneficiary does not have to have an insurable interest in the insured. The insured can`t be the beneficiary, obviously

Mr. and Mrs. Smith are receiving a monthly annuity distribution of $2,000. If Mr. Smith dies and Mrs. Smith continues to receive the same amount, which payout option was selected? A. Joint income B. Joint life C. Cash refund D. Joint with last survivor

D. Joint with last survivor The option is referred to as Joint and Survivor. This options will continue to pay an income until the last person dies

If an insured commits suicide after the suicide clause in the insured's life insurance policy has expired, the insurance company will: A. Refund the premiums paid plus interest B. Refund only the premiums paid D. Refuse to pay the death benefit or refund any premiums D. Pay the death benefit

D. Pay the death benefit. After 2 years the suicide exclusion ends and the insurer will pay the full death benefit should the insured commit suicide. Should the insured commit suicide before the end of the 2 year period the insurer will refund premiums paid

A change of beneficiary in an individual life policy can be made by the A. Insured, under all circumstances B. Beneficiary, with the permission of the insured C. Insured, with the permission of the beneficiary D. Policyowner, unless there is an irrevocable beneficiary

D. Policyowner, unless there is an irrevocable beneficiary The policyowner has the right to change the beneficiary unless the beneficiary is irrevocable

All of the following statements regarding the free-look provision of a deferred annuity contract sold in California are correct: A. The free-look period begins on the date the contract is delivered to the buyer B. Unless overridden by the buyer, premiums paid by a senior age 60 or older to purchase a variable annuity must be invested in a fixed interest account during the free-look period C. For buyers age 60 and older, the minimum free-look period is 30 days D. The amount returned to the buyer requesting to return an annuity contract during the free-look period is the premium minus the contract surrender charge

D. The amount returned to the buyer requesting to return an annuity contract during the free-look period is the premium minus the contract surrender charge When a contract is returned during the free-look period they receive a full refund. If the annuity is returned after the free-look period it is considered a surrender and a surrender charge will apply

Dividends are normally paid to which of the following? A. The stockholders of a mutual company B. The officers of a mutual company C. The policyowners of a stock company D. The policyowners of a mutual company

D. The policyowners of a mutual company Dividends are paid to the policyowner of participating policies and are normally issued by mutual insurer

Under the provisions of the uniform simultaneous death act, how would the proceeds of an insurance policy settle if the insured and the only primary beneficiary were killed in the same accident, with no evidence as to which died first? A. The proceeds would be shared equally by the insured's estate and the beneficiary's estate B. The court would have to determine how to pay out the proceeds to the insured's heirs C. The proceeds would be distributed as though the beneficiary survived the insured D. The proceeds would be distributed as through the insured survived the beneficiary

D. The proceeds would be distributed as through the insured survived the beneficiary Under the simultaneous death act it is assumed that the insured survived the beneficiary to protect the proceeds from being paid to the primary beneficiary estate. This protects the rights of the contingent beneficiary

What happens under the automatic premium loan option? A. This allows an amount greater than the cash value to be accessed under certain conditions B. This allows a specific loan amount from the cash value at specific times designated by the insured C. This prevents the death benefits from being paid to an estate instead of a beneficiary D. This prevents the unintentional lapse of a policy due to nonpayment of the premium

D. This prevents the unintentional lapse of a policy due to nonpayment of the premium This provision is set up to prevent the unintentional lapse of a policy due to nonpayment of the premium. A loan against the policy cashvalue for amount of premium due is automatically created by the insurance company when the policyowner has failed to pay the premium on time and by the grace period

With regard to beneficiaries, what does per capita mean? A. The death benefit will be split equally by bloodline B. The death benefit will be split equally between the contingent and the tertiary C. The death benefit will skip the primary and go directly to the contingent D. The death benefit will be split equally between each living child

The death benefit will be split equally between each living child Per Capita means ''by the head''. Bill has a life policy worth $300,000. Bill has three children (Frank, Roger, and Lucy) and they all have children. Frank passes away before Bill does. When Bill dies, the proceeds of his life insurance policy will go to Roger ($150,000) and Lucy ($150,000). Frank's children get nothing