Traditional Life Insurance – Mock-Exam Key Concepts

Flashcards reviewing major life-insurance principles, provisions, policy types, riders, underwriting and contract clauses drawn from the mock-exam answer explanations.

What type of policy provides guaranteed cash values plus extra annual distributions and pays the insured after a specified time?

A participating endowment policy.

If ages are misstated on an application, how will the insurer adjust a death benefit?

The benefit is adjusted to the amount the premium would have purchased at the correct ages.

Does a misstatement of the assured’s date of death render a policy void?

No, the policy is not rendered void by such a misstatement.

Which is NOT a usual source of underwriting information: applicant appearance, medical exam, agent report, or government tax records?

Government tax records.

What do non-forfeiture provisions guarantee the policyowner?

That any guaranteed cash or policy values belong to the owner even if premiums stop.

Which is the LEAST important reason for licensing agents?

To provide additional government income through license fees.

The extent of required medical evidence is chiefly determined by which two factors?

Applicant’s age and the proposed sum assured.

Can an insured with revocable beneficiaries add another beneficiary at any time?

Yes, the owner retains full rights to change beneficiaries.

What are optional provisions that add extra benefits to a basic policy called?

Riders.

Life insurance cash benefits are NOT explicitly designed for which purpose: mortgage, clean-up fund, family income, or educational fund?

Educational fund.

What is anti-selection in life insurance?

When persons in poor health seek to buy insurance.

What does the incontestability clause do after a policy is in force two years?

Prevents the insurer from denying a claim except for proven fraud.

Which non-forfeiture option keeps full coverage for a limited period without further premiums?

Extended term insurance.

Name the four basic settlement options.

Fixed amount, fixed period, life income, interest-only (deposit interest).

Does a 20-pay endowment-at-65 policy mature at the 20th year?

False. It matures at age 65.

Selling approach that analyzes all of a prospect’s financial requirements before recommending coverage is called what?

Total needs selling.

A flexible-premium policy whose cash value depends on investment performance is known as?

Universal life.

Which is NOT a function of a life-insurance application: indicate non-forfeiture options or show insurability?

Indicating non-forfeiture options.

Which statement about a Disability Waiver of Premium rider is FALSE?

The insured has to die while disabled.

What rider most commonly increases basic policy life coverage?

Supplemental term rider.

In group insurance, is every member normally assumed insurable if minimum work hours are met?

False (statement in question deemed false).

One reinstatement requirement for a lapsed policy is to furnish what?

Evidence of insurability satisfactory to the insurer.

Who lacks legitimate insurable interest: individual on own life, spouse’s life, borrower’s life, or mistress’s life?

An individual on the life of his mistress.

Why do life insurers use the laws of probability?

To estimate future death rates in a large group and set premiums.

Best settlement option for leaving policy proceeds intact but paying interest regularly to a church?

Interest-only option.

Largest portion of information on most life applications relates to what?

The applicant’s insurability.

Which of these is NOT a standard policy provision: grace period, entire contract, misstatement of age, or automatic premium loan?

Automatic premium loan.

To pass a policy (and premium payments) to his son while avoiding estate tax, a father should execute what?

An absolute assignment.

What happens to premiums in a yearly renewable term policy each renewal?

They increase based on the insured’s attained age.

Which factor does NOT help conserve a life policy: first-year commission, service attitude, needs selling, or pressure selling?

Pressure selling.

Without irrevocable beneficiary consent, an insured may still do what?

Discontinue premium payments (allowing lapse).

When a non-earning housewife wants large coverage, what should the agent evaluate first?

Adequacy of the husband’s existing insurance.

A binding (temporary) receipt provides what interim protection?

Immediate temporary insurance until the policy is issued or declined.

Which data category is greatest on an application: identification, plan details, insurability, or payment mode?

Insurability details.

An insurer may rescind a policy if it discovers what about the policyowner?

The owner was a minor at application (lack of capacity).

What do endowment and term policies share?

Coverage is limited to a specified period.

If loan interest is unpaid at anniversary, the insurer may do what?

Add the interest to the existing loan balance.

Which is NOT offered by settlement-options clause: life-only to insured, fixed period, fixed amount, or interest on deposit by request?

Interest payable only on request (it is on regular intervals).

If the insured dies during the grace period with premium unpaid, how is the payout adjusted?

Face amount minus the overdue premium.

Which statement about insurable interest is INCORRECT: important for underwriting?

It is important for underwriting the risk (actually important only for contract validity at inception).

Advantage of continuous-premium whole life over limited-pay whole life?

More insurance protection for the same annual premium outlay.

Which premium statement is false?

Cash is required for premiums paid in the grace period.

Life insurance benefits the country in what three ways?

Accumulating capital, relieving dependency burdens, and encouraging future provision.

Why is the statement “yearly renewable term builds cash values quickly” false?

Term insurance has no cash values.

If the insured survives the endowment term, what is paid?

The policy’s face amount (maturity benefit).

Under the reduced paid-up option, what happens to premiums and coverage?

Premiums cease; coverage continues for life at a reduced amount.

A statement: “Paid-up insurance keeps full sum assured for four more years” – true or false?

False (that describes extended term, not paid-up).

On renewal of a term plan, what changes to the premium?

It increases (attained-age premium).

When is a non-forfeiture option chosen?

When the owner stops paying premiums on a whole life or endowment policy.

If premiums stop, cash value exhausted, and grace period ends, can the policy still rely on grace?

False—grace ends once cash value and grace are exhausted.

Which cannot be sold as a basic term contract: decreasing term, YRT, 10-year term, or six-month interim term?

Six-month interim term.

Effect of misstatement-of-age clause on sum assured?

Benefit adjusted to amount the correct-age premium would buy.

Which statement about policy loans is false?

Dividends are reduced by the current interest amount.

Why might an insurer file an interpleader in court?

To settle conflicting claims on the same policy proceeds.

To change to a lower-premium policy, what must the insured provide?

Satisfactory evidence of insurability.

Endowment and term insurance both provide what similarity?

Protection only for the stated period (specified term).

If an applicant conceals a material fact, when is the contract voidable?

If the insurer proves fraud; otherwise it remains valid.

Do paid-up additions affect base policy loan or cash values?

No, they generally do not affect loan or cash values of the base policy.

What insurance principle states that large numbers of similar risks make losses predictable?

The law of large numbers.