04_02 Policy Provisions, Options and Riders

Life insurance policies will normally pay for losses arising from

• commercial aviation

• war

• suicide

• hazardous jobs

Life insurance policies will normally pay for losses arising from

• commercial aviation

• war

• suicide

• hazardous jobs

commercial aviation

Life insurance policies routinely cover losses arising from commercial aviation

Ownership of a life insurance policy may be temporarily transferred with a(n)

• collateral assignment

• absolute assignment

• transferable assignment

• beneficiary assignment

collateral assignment

An owner of a life insurance policy may transfer ownership temporarily with a collateral assignment.

Ownership of a life insurance policy may be temporarily transferred with a(n)

• collateral assignment

• absolute assignment

• transferable assignment

• beneficiary assignment

collateral assignment

An owner of a life insurance policy may transfer ownership temporarily with a collateral assignment.

Which of these is NOT a characteristic of the Accelerated Death Benefit option?

• The face amount and policy premium are not affected by the payment

• Before payment of the benefit is made, specific conditions must exist, such as suffering from a terminal illness

• There may be a dollar limit on the maximum benefit

• The benefit can be offered as a rider at a specific extra cost or may be at no cost

The benefit can be offered as a rider at a specific extra cost or may be at no cost

"The benefit can be offered as a rider at a specific extra cost or may be at no cost"

Accelerated Death Benefit options are offered with NO increase in premium.

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy?

• Interest only

• Reduced paid-up insurance

• Extended term insurance

• Cash surrender

Interest only

In a whole life insurance policy, all of these are nonforfeiture options EXCEPT interest only.

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy?

• Interest only

• Reduced paid-up insurance

• Extended term insurance

• Cash surrender

Interest only

In a whole life insurance policy, all of these are nonforfeiture options EXCEPT interest only.

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy?

• Interest only

• Reduced paid-up insurance

• Extended term insurance

• Cash surrender

Interest only

In a whole life insurance policy, all of these are nonforfeiture options EXCEPT interest only.

A life insurance policyowner was injured in an automobile accident which results in a total and permanent disability. Which rider would pay a monthly amount because of this disability?

• Long-term care rider

• Disability income rider

• Annuity rider

• Waiver of premium

Disability income rider

The rider which pays a life insurance policyowner a monthly amount in the event of total and permanent disability is called a disability income rider.

Which of the following protects a policyowner from a misrepresentation caused by an innocent mistake?

• Reinstatement clause

• Entire Contract clause

• Incontestable clause

• Nonforfeiture clause

Incontestable clause

A clause that protects a policyowner from a misrepresentation caused by his or her own innocent mistake is an incontestable clause.

A life insurance policyowner does NOT have the right to

• change a beneficiary

• select a beneficiary

• take out a policy loan

• revoke an absolute assignment

revoke an absolute assignment

A policyowner may not revoke an absolute assignment.

What is an insurance policy's grace period?

• Period of time after the initial premium is paid and before the policy is issued

• Period of time it takes for a policy's underwriting to complete

• Period of time after a policy is issued and before it is delivered to policyowner

• Period of time after the premium is due but the policy remains in force

Period of time after the premium is due but the policy remains in force

The grace period is a period of time after the premium is due but the policy remains in force

All of the following are considered to be nonforfeiture options available to a policyowner

EXCEPT

• Extended Term Insurance

• Cash Surrender

• Reduction of Premium

• Reduced Paid-Up Insurance

Reduction of Premium

"Reduction of Premium". All of these are nonforfeiture options EXCEPT Reduction of Premium.

A life insurance rider that allows an individual to purchase insurance as they grow older, regardless of insurability, is called a(n)

• guaranteed term rider

• guaranteed insurability rider

• accelerated benefit rider

• cost of living rider

guaranteed insurability rider

A guaranteed insurability rider is designed to permit young individuals to be able to purchase additional insurance as they grow older, regardless of insurability.

A life insurance rider that allows an individual to purchase insurance as they grow older, regardless of insurability, is called a(n)

• guaranteed term rider

• guaranteed insurability rider

• accelerated benefit rider

• cost of living rider

guaranteed insurability rider

A guaranteed insurability rider is designed to permit young individuals to be able to purchase additional insurance as they grow older, regardless of insurability.

Which of the following is considered to be an alternative to a life settlement?

• Accelerated death benefit rider

• Waiver of premium rider

• Extended term option

• Decreasing term insurance

Accelerated death benefit rider

An alternative to a life settlement is an accelerated death benefit rider.

A whole life policy option where extended term insurance is selected is called a(n)

• dividend option

• settlement option

• nonforfeiture option

• interest-only option

nonforfeiture option

A nonforfeiture provision in a whole life policy that uses cash value to purchase term insurance equal to the existing amount of life insurance is called the extended term option.

Pat owns a 20-pay life policy with a paid-up dividend option. Which of the following statements is true?

• The policy may be paid up early by using accumulated cash values

• The policy may be paid up early by using policy dividends

• The policy's premiums will increase after 20 years

• The policy's cash values steadily decrease after 20 years

The policy may be paid up early by using policy dividends

"The policy may be paid up early by using policy dividends". In this situation, the insured may pay up the policy early by using policy dividends.

A whole life insurance policy accumulates cash value that becomes

• the policy loan value which the insured may borrow against

• the death benefit

• the source of funding for administration fees

• a source of funding a term rider to the policy

the policy loan value which the insured may borrow against

"the policy loan value which the insured may borrow against". The accumulated cash value of a whole life insurance policy becomes the policy loan value upon which the insured may borrow.

A whole life insurance policy accumulates cash value that becomes

• the policy loan value which the insured may borrow against

• the death benefit

• the source of funding for administration fees

• a source of funding a term rider to the policy

the policy loan value which the insured may borrow against

"the policy loan value which the insured may borrow against". The accumulated cash value of a whole life insurance policy becomes the policy loan value upon which the insured may borrow.

Matt is applying for life insurance and requests a double indemnity rider. A double indemnity benefit will be payable to Matt's beneficiary if Matt

• is killed while committing a felony

• dies of a stroke

• dies instantly from a car accident

• is injured in a skiing accident and dies 18 months later

dies instantly from a car accident

Matt's beneficiary will be provided with the double indemnity rider if Matt dies instantly from a car accident.

The automatic premium loan provision authorizes an insurer to withdraw from a policy's cash value the amount of

• any interest payable from an outstanding policy loan balance

• past due premiums that have not been paid by the end of the grace period

• the outstanding policy loan balance

• any surrender charges owed by the policyowner

past due premiums that have not been paid by the end of the grace period

In a life insurance cash value policy, the automatic premium loan provision authorizes the insurance company to withdraw from the policy's cash values the amount of premiums due if the premium has not been paid by the end of the grace period.

A guaranteed issue insurance policy has no

• initial premium requirement

• incontestable period

• waiting period

• medical underwriting

medical underwriting

A guaranteed issue policy refers to an insurance policy with no medical underwriting.

What is the name of the provision which states that a copy of the application must be attached to the policy when issued?

• Policy Summary

• Buyer's Guide

• Entire Contract

• Entire Policy

Entire Contract

The provision that the policy and a copy of an application is endorsed upon or attached to the policy when issued is the entire contract provision.

The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid

• minus indebtedness and with interest

• during the last 12 months

• minus indebtedness and without interest

• during the last 6 months

minus indebtedness and without interest

The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid minus indebtedness and without interest.

What is an insurer required to do when faced with an error made under the Misstatement of Age provision?

• Cancel the policy

• Pay age-corrected benefits

• Pay full benefits as stated in the policy

• Bill the policyowner for back premiums

Pay age-corrected benefits

Under the Misstatement of Age Provision, when done in error, an insurer must pay age-corrected benefits.

An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if

• the insured outlived the beneficiary

• the beneficiary outlived the insured

• no beneficiary was ever named

• the insured and beneficiary died at the same time

the insured outlived the beneficiary

A common disaster provision states that if the beneficiary dies from the same accident as the insured individual, the insurer will proceed as if the insured outlived the beneficiary. This allows the proceeds to go to the contingent beneficiary.

Of the following dividend options, which of these is taxable?

• Reduction of premium

• One year term

• Paid-up additions

• Accumulation at interest

Accumulation at interest

The accumulation at interest is a taxable dividend option.

A life insurance policy normally contains a provision that restricts coverage in the event of death under all of the following situations EXCEPT

• fare-paying passenger

• pilot of personal airplane

• suicide

• war

fare-paying passenger

A policy may contain provisions excluding or restricting coverage as specified in the event of death under all of these situations EXCEPT a fare-paying passenger.

An endorsement found in an insurance plan which modifies the provisions of the policy is called

a(n)

• attachment

• add-on

• rider

• supplement

rider

An endorsement found in an insurance plan which modifies the provisions of the policy is called a rider.

If an insured's age on a life insurance policy has been misstated, what is the insurer's liability if the insured dies?

• No death benefit is owed because of the misstatement of age

• The full original death benefit listed on the policy

• A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age

• The original death benefit listed on the policy minus any outstanding loans and interest

A prorated death benefit based on the amount of insurance the insured's premiums would have been if purchased at the correct age

In this situation, the insurer must pay a prorated amount of the policy based on the amount of insurance the insured's premiums would have been if purchased at the correct age

Which of these is considered to be a Living Benefit option in a life insurance policy?

• Reinstatement

• Waiver of premium

• Accelerated death benefit

• Payor benefit

Accelerated death benefit

"Accelerated death benefit. The accelerated death benefit is considered to be a Living Benefit option in a life insurance policy.

Which of the following is NOT part of an insurance contract?

• Policy

• Application

• Riders

• Certificate of Authority

Certificate of Authority

The Certificate of Authority allows an insurer to conduct business in a state. It is not part of an insurance contract.

The free-look provision gives the policyowner

• the right to return the policy for a partial refund within a specified number of days

• the right to contest the terms of the policy

• the right to change a policy provision

• the right to return the policy for a full refund within a specified number of days

the right to return the policy for a full refund within a specified number of days

Within a specified number of days, a free-look provision gives the policyholder the right to return the policy for a full refund.

A waiver of premium rider allows an insured to waive premium payments if the insured is

• temporarily disabled

• unemployed

• completely and permanently disabled

• experiencing financial hardship

completely and permanently disabled

Under a waiver of premium rider, the company waives the right to receive a premium if the insured individual is permanently and completely disabled.

Which of the following is a reinstatement condition?

• Proof of insurability

• Changes in the insuring clause

• Premium increase

• Premium decrease

Proof of insurability

One of the conditions required for an insurance policy reinstatement is proof of insurability.

Which of these is NOT considered to be a common life insurance nonforfeiture option?

• Cash surrender

• Extended term insurance

• Reduced paid-up insurance

• Life income annuity

Life income annuity

All of these are common life insurance nonforfeiture options EXCEPT a life income annuity.

A provision that allows a policyowner to withdraw a policy's cash value interest free is a(n)

• partial surrender

• waiver of premium

• automatic premium loan

• grace period

partial surrender

A partial surrender allows the policyowner to withdraw the policy's cash value interest free.

A rider that assures premiums will be paid on a juvenile policy until the child reaches a specific age is called a(n)

• waiver of premium rider

• payor rider

• automatic premium loan rider

• juvenile waiver rider

payor rider

A payor rider assures the premiums will be paid on a juvenile policy until the insured child reaches a specific age.

All of the following riders can increase the death benefit amount EXCEPT

• Cost of Living

• Waiver of Premium

• Accidental Death Rider

• Guaranteed Insurability

Waiver of Premium

All of the following riders can increase the death benefit amount EXCEPT the Waiver of Premium.

Which type of rider will waive the premium on a child's life insurance policy if the parent paying the premium dies?

• Waiver of premium

• Juvenile waiver

• Guaranteed insurability

• Payor benefit

Payor benefit

A payor benefit will waive the premium on a juvenile life insurance policy if the parent paying the premium dies.

A policyowner may exercise which of these dividend options that uses the dividend to pay all or part of the next premium due?

• Reduction of premium dividend option

• Extended term option

• Paid-up option

• Cash dividend option

Reduction of premium dividend option

The reduction of premium dividend option allows a policyowner to use the dividend to pay all or part of the next premium due on the policy.

All of these are common exclusions to a life insurance policy EXCEPT

• accidental death

• military service

• aviation

• hazardous occupations

accidental death

"accidental death". Accidental death is not a common exclusion to a life insurance policy.

Dorian exercised a nonforfeiture option by using his life policy's cash value to purchase an extended term insurance option. When the term insurance expires,

• he has the option of resuming the original policy and paying the same premium

• the coverage can be extended with a lump sum payment

• all remaining cash values are paid to the policyowner

• the protection ends

the protection ends

When the term insurance expires in an extended term option, there is no more protection.

An error was made on Mary's life insurance application. Which of the following areas do errors commonly occur on applications and for which the incontestable clause does NOT apply?

• Marital status

• Age

• Address

• Income

Age

The incontestable clause does not apply to the misstatement of age provision.

Kurt is an active duty serviceman who was recently killed in an accident while home on leave. Which military service exclusion clause would pay upon his death?

• Active

• Status

• Results

• Leave

Results

The "results clause" states the insurer is excused from paying the amount only if the death is a result of war.

Joanne has a $100,000 whole life policy with an accumulated $25,000 of cash value. She would like to borrow $15,000 against the cash value. Which of the following statements is TRUE?

• Net death benefit will be reduced if the loan is not repaid

• No interest will be charged on loan balance

• Term life policies are the only type of insurance that allows policy loans

• A loan can be taken out for up to the face amount of the policy

Net death benefit will be reduced if the loan is not repaid

If the loan is not repaid, the net death benefit will be reduced by the outstanding loan balance.

A provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a(n)

• insuring clause

• payor provision

• reinstatement provision

• nonforfeiture provision

nonforfeiture provision

A nonforfeiture provision in a cash value life insurance policy allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type.

Under a life insurance policy, what does the insuring clause state?

• The agent's obligation to provide the proper amount of coverage

• The insurer's obligation to return all premiums upon an approved death claim

• The insurer's obligation to pay a death benefit upon an approved death claim

• The agent's obligation to pay a death benefit upon an approved death claim

The insurer's obligation to pay a death benefit upon an approved death claim

While a life policy is in force, the insuring clause states the insurer's obligation is to pay the death benefit to the beneficiary when a death claim is approved.

In order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST

• remit all past-due premiums within the grace period

• provide evidence of insurability to the insurer

• resubmit a new life insurance application

• provide a valid reason for the lapse

provide evidence of insurability to the insurer

In order to activate the reinstatement clause of a lapsed life insurance policy, the insured must provide evidence of insurability to the insurer.

All of these are standard exclusions found in a life insurance policy EXCEPT

• hazardous occupations

• aviation

• disability

• war

disability

Disability is not one of the standard exclusions found in life insurance policies.

If an insured dies during the grace period with no premiums paid

• the policy would be payable, minus the premium amount

• the policy would be payable only after the beneficiary makes past due premium payment

• all past premiums will be refunded with interest

• the claim would be denied

the policy would be payable, minus the premium amount

If the insured dies during the grace period and premiums have NOT been paid, the policy would be payable, less the premium amount.

Loans obtained by a policyowner against the cash value of a life insurance policy

• are treated as taxable income

• would not be treated as taxable income

• are limited by the face amount of the policy

• would be subject to a Federal estate tax

would not be treated as taxable income

Loans may generally be obtained against the cash value of a personal life insurance policy and are not treated as taxable income.

The two major actions required for a policyholder to comply with the Reinstatement Clause are

• provide evidence of insurability, agree to a new incontestable period

• provide evidence of insurability, pay past due premiums

• pay past due premiums, agree to a new incontestable period

• pay past due premiums, agree to a reduction in coverage

provide evidence of insurability, pay past due premiums

Two important actions usually required for the policyholder to satisfy the conditions of the Reinstatement Clause would be to provide evidence of insurability and pay past due premiums.

What is the purpose for having an accelerated death benefit on a life insurance policy?

• It allows for a spouse to be added as a rider to a life insurance policy

• It allows for policy loans to be advanced to the insured in the event of unemployment

• It allows for cash advances to be paid against the death benefit if the insured becomes terminally ill

• It allows for a third party to purchase a life insurance policy at a discounted rate and immediately advance a portion of the death benefit

It allows for cash advances to be paid against the death benefit if the insured becomes terminally ill

An accelerated death benefit allows for cash advances to be paid against the death benefit if the insured becomes terminally ill.

Which of these would limit a company's liability to provide insurance coverage?

• Waiver

• Exclusion

• Rider

• Provision

Exclusion

An exclusion is a condition which limits the company's liability to provide coverage.

Barbara's policy includes a rider which allows her to purchase additional insurance at specific dates or events without evidence of insurability. This rider is called a(n)

• Guaranteed insurability rider

• Payor rider

• Endowment rider

• Family income rider

Guaranteed insurability rider

A guaranteed insurability rider allows for the insured to purchase additional insurance at specific dates or events without evidence of insurability.

An insurer will accept a premium from the insured and continue the coverage in full force as though it was NOT late during which time period?

• Incontestable period

• Probation period

• Reinstatement period

• Grace period

Grace period

The grace period is the amount of time an insurer continues coverage in full force and will accept the premium from the insured as though it was NOT late

Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue?

• Accumulation at Interest Option

• Cash Dividend Option

• Paid-Up Additions Option

• One-Year Term Dividend Option

Accumulation at Interest Option

The Accumulation at Interest Option invests the policyowner's money and adds interest earnings to the initial amount of the dividends.

Which situation accurately describes a reduced paid-up nonforfeiture option?

• Policy has a decreased face amount

• Face amount of the new policy equals that of the original policy

• Cash value is surrendered to policyowner

• Premiums must continue to be paid

Policy has a decreased face amount

With a reduced paid-up nonforfeiture option, the policy will have a decreased face amount.

A provision that allows a policyowner to temporarily give up ownership rights to secure a loan is called an)

• automatic premium loan

• nonforfeiture option

• collateral assignment

• irrevocable assignment

collateral assignment

A collateral assignment provision allows a person to temporarily give up a portion of their ownership rights to secure a loan.