Pearson Vue LIFE INSURANCE POLICY PROVISIONS, OPTIONS, AND RIDERS Quiz

Which of these Nonforfeiture Options continue a build-up of cash value?

Reduced Paid-Up

Which of these provisions require proof of insurability after a policy has lapsed?

Reinstatement

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

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 more than 2 Activities of Daily Living (ADL's)

A policyowner may generate taxable income from which of the following Dividend Options?

Accumulation at Interest

A Whole Life insurance policyowner does NOT have the right to

change the grace period

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?

Evidence of insurability is required when the option is exercised

All of these statements about the Waiver of Premium provision are correct, EXCEPT:

Insured must be eligible for Social Security disability for claim to be accepted

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

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 dies during this Grace Period?

Full face amount minus any past due premiums

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?

Variable Universal Life

Whose life is covered on a life insurance policy that contains a payor benefit clause?

Child

An insurer may normally delay the payment of a cash value loan or surrender value for up to

6 months

A Nonforfeiture clause gives the policyowner

guaranteed values even if the policy has lapsed

A policy loan is made possible by which of these life insurance policy features?

Cash value provision

A Cost of Living rider gives the insured

additional death benefits

All of these statements concerning Settlement Options are true, EXCEPT:

Only the beneficiary may select

Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary?

All proceeds are income tax free in the year they are received

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

A Return of Premium life insurance policy is:

Whole life and Increasing term

A(n) _____ rider may be used to include coverage for children under their parents' life insurance policy.

Term

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?

The full face amount

Which of these is NOT an element of Life insurance premiums?

Morbidity rate

The Common Disaster clause provides that if both the insured and the sole named beneficiary were to die in a common accident, which of the following is true?

This clause provides the payment of proceeds to the insured's estate

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

All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death, EXCEPT:

Interest Only

Dividends paid from a life insurance policy are

issued by the insurer

When can a policyowner change a revocable beneficiary?

Anytime

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

Which premium schedule results in the lowest cost to the policyowner?

Annual

An insured's inability to perform two or more activities of daily living may trigger which type of life policy rider?

Long term care

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

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

The Accelerated Death Benefit provision in a life insurance policy is also known as a(n):

Living Benefit

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

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 the past due premium

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

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

The Consideration clause in a life insurance contract contains what pertinent information?

Amount of premium payments and when they are due

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

Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?

Life Income

Which of the following best describes a contingent beneficiary?

Person designated by the insured to receive policy proceeds in the event that the primary beneficiary dies before the insured

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

The incontestable clause allows an insurer to:

contest a claim during the Contestable Period

Who has the right to change a revocable beneficiary?

Policyowner

How are policyowner dividends treated in regards to income tax?

How are policyowner dividends treated in regards to income tax?

Which type of life insurance beneficiary requires his/her consent when a change of beneficiary is attempted by the policyowner?

Irrevocable beneficiary

How would a contingent beneficiary receive the policy proceeds in an Accidental Death and Dismemberment (AD&D) policy?

If the primary beneficiary dies before the insured

P is blinded in an industrial accident. Which provision of his life insurance policy will pay a stated benefit amount?

Accidental Death and Dismemberment clause

Which statement is true regarding a minor beneficiary?

Normally, a guardian is required to be appointed in the Beneficiary clause of the contract

How are surrender charges deducted in a life policy with a rear-end loaded provision?

Deducted when the policy is discontinued

Variable Whole Life Insurance can be described as:

both an insurance and securities product

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 still receive declared dividends

What benefit does the Payor clause on a Juvenile Life policy provide?

Premiums are waived if payor 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

A whole life insurance policyowner does not wish to continue making premium payments. Which of the following enables the policyowner to sell the policy for more than its cash value?

Life settlement contract

When a misrepresentation on 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

What is the underlying concept regarding level premiums?

The early years are charged more than what is needed

In a life insurance policy, which feature states that the policy will not cover certain risks?

Exclusion

A Term Life rider offers the insured

additional life coverage

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

Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?

Taxed as ordinary income

Which statement regarding the Change of Beneficiary provision is true?

The policyowner can change the beneficiary

All of the following statements are true regarding a policy's Grace period, EXCEPT:

Past due premiums are waived

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

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

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?

50,000

How do life 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

M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiary. M has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?

Revocable

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?

Exclusion

In a Life insurance contract, an insurance company's promise to pay stated benefits is called the:

Insuring clause

A policyowner is able to choose the frequency of premium payments through what policy feature?

Premium Mode

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 premium rider

Which of the following statements is CORRECT about accelerated death benefits?

Must have a terminal illness to qualify

The __________ has the right to change a life insurance policy's beneficiary.

policyowner

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

A policyowner would like to change the beneficiary on a Life insurance policy and make the change permanent. Which type of designation would fulfill this need?

Irrevocable

The __________ is authorized to assign a Life Insurance policy as collateral for a loan.

policyowner

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 will be denied

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?

$50,000

Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?

Collateral assignment

A primary beneficiary has died before the insured in a life insurance policy. A contingent beneficiary is also named in the policy. Which of the following will occur when the insured dies?

Proceeds will go to the contingent beneficiary

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

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

The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of a completed application and

the initial premium

The free-look provision begins

upon receipt of the policy by the policyowner

The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called:

Reinstatement

K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?

Proceeds will be payable to K's estate if P dies within a specified time

On a life insurance policy, who is qualified to change the beneficiary designation?

On a life insurance policy, who is qualified to change the beneficiary designation?

The purpose of the _______ Period clause is to avoid an unintentional lapse of a life insurance policy.

Grace

The advantage of reinstating an original life policy is

the premiums are based on a younger age

Which of these are NOT an example of a Nonforfeiture option?

Life Income

What action can a policyowner take if an application for a bank loan requires collateral?

Assign policy ownership to the bank

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

The Automatic Premium Loan provision is designed to:

avoid a policy lapse

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n):

Accidental Death and Dismemberment rider (AD&D)

Which of these life insurance riders allows the applicant to have excess coverage?

Term rider

What does the insuring agreement in a Life insurance contract establish?

An insurer's basic promise

What provision in a life insurance policy states that the application is considered part of the contract?

Entire Contract provision