Ch 12 Flashcards
Which of the following statements about the ownership of a life insurance policy is (are) true?
I. Under the ownership clause, the policyholder and beneficiary equally share all contractual rights in the policy while the insured is living.
II. The policyholder can designate a new owner by filing an appropriate form with the insurance company.
II only
Which of the following statements about the entire contract clause is true?
A) It allows the insurer to change the policy terms without the insured’s consent.
B) It specifies that all statements in the application are considered warranties.
C) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties.
D) It prevents the insurance company from contesting a policy after it has been in force for two years during the lifetime of the insured.
C
Which of the following would be a valid reason for an insurer to contest a policy after the contestable period has ended?
A) The policyholder made a material misrepresentation in the application process.
B) The insurer’s loss ratio is running higher than the insurer anticipated.
C) The applicant had someone else take the medical examination required for policy approval for her.
D) The policyholder concealed a material fact at the time of application.
C
Amy purchased a life insurance policy with the intent of committing suicide to pay all the debts that were burdening her family. If she commits suicide 9 months after the policy is purchased, and the insurer is able to prove that her death was a suicide, how much will be paid by the insurance company?
A) nothing, because the policy is void
B) the premiums paid for the policy
C) the policy’s cash value
D) the face value of the policy
B
Which of the following statements about the grace period in a whole life insurance contract is (are) true?
I. The purpose of the grace period is to prevent the policy from lapsing by giving the policyowner additional time to pay an overdue premium.
II. If the insured dies during the grace period, the death benefit is reduced by 50 percent.
I only
All of the following statements about the requirements to reinstate a lapsed life insurance policy are true EXCEPT
A) Evidence of insurability is required.
B) The lapse must have resulted from other than the surrender of the policy for its cash value.
C) All overdue premiums must be paid along with interest from the premium due dates.
D) There is no time limit on when the policy may be reinstated.
D
Bert purchased a life insurance policy 4 years ago. He inadvertently stated that he was 1 year younger than his actual age. If Bert dies today, how much will the insurance company pay?
A) nothing
B) less than the policy face value
C) the policy face value
D) more than the policy face value
B
Which of the following statements about beneficiary designations is (are) true?
I. The primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured.
II. If a revocable beneficiary designation is used, the insured must obtain the beneficiary’s permission of exercise most policy rights.
Neither I nor II
A contingent beneficiary in a life insurance policy has the right to
A) receive the policy proceeds if the primary beneficiary dies before the insured.
B) share the policy proceeds with the primary beneficiary.
C) change the beneficiary designation under specified circumstances.
D) exercise policy rights if the insured is incapacitated.
A
Which of the following statements about the change of plan provision in a life insurance contract is (are) true?
I. A change to a lower premium policy results in a refund of the difference in the cash values of the two policies.
II. A change to a higher premium policy requires evidence of insurability.
I only
Which of the following statements about the assignment of a life insurance policy is true?
A) The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary.
B) Under an absolute assignment, the only right transferred to a new owner is the right to change the beneficiary designation.
C) As long as a collateral assignment exists, a creditor will receive the entire death benefit even if the loan has been repaid.
D) Assignment may be made only with the permission of the insurer and the beneficiary.
A
Which of the following statements about the assignment of a life insurance policy is (are) true?
I. Under a collateral assignment, the policyowner assigns a life insurance policy to secure a loan.
II. Under an absolute assignment, only limited ownership rights in a policy are transferred.
I only
The transfer of all ownership rights in a life insurance policy can be accomplished through a(n)
A) absolute assignment.
B) irrevocable beneficiary designation.
C) incontestable clause.
D) participating-policy provision.
A
Which of the following statements about life insurance policy loans is true?
A) Loans are only permitted for specific reasons listed in the policy.
B) They are forgiven if the insured dies before the loans are repaid.
C) The policyholder must pay interest on a life insurance policy loan.
D) They must be repaid on the basis of a schedule determined at the time of the loan.
C
Which of the following statements is true regarding an automatic premium loan provision?
A) Its purpose is to prevent a policy from lapsing because of nonpayment of premium.
B) Interest does not have to be paid on an automatic premium loan.
C) If the provision is used, the insured must show evidence of insurability to resume regular premium payments.
D) An automatic premium loan, unlike a regular policy loan, is forgiven if the insured dies before the loan is repaid.
A
What major feature distinguishes a participating policy from a nonparticipating policy?
A) the availability of a waiver-of-premium provision
B) the existence of settlement options
C) the payment of dividends
D) the method by which beneficiaries can be named
C
Sources of life insurance dividends include which of the following?
I. Excess interest earned on the assets necessary to maintain legal reserves
II. Favorable mortality experience
Both I and II
Which of the following is a common dividend option found in a participating life insurance policy?
A) reduced paid-up insurance
B) fixed period
C) paid-up additions
D) life income
C
Which of the following statements about dividend options is (are) true?
I. The interest on dividends left to accumulate with the insurer is not considered to be taxable income.
II. Paid-up additions are additional units of whole life insurance.
II only
Advantages of selecting the paid-up additions dividend option in a life insurance policy include which of the following?
I. Evidence of insurability is not required to purchase additional insurance.
II. The additions are purchased at net rates without a loading for expenses.
Both I and II
Which of the following dividend options, sometimes called the “fifth dividend option,” is not offered by all insurers that sell participating life insurance coverage?
A) paid-up additions
B) reduction of premiums
C) accumulation of dividends at interest
D) term insurance
D
All of the following are nonforfeiture options found in cash value life insurance policies EXCEPT
A) cash value.
B) reduction of premiums.
C) reduced paid-up insurance.
D) extended term insurance.
B
Which of the following statements about nonforfeiture options found in life insurance policies is true?
A) Under the reduced paid-up option, the paid-up policy is term insurance.
B) Under the extended term option, the amount of term insurance is less than the face value of the surrendered cash value policy.
C) Under the reduced paid-up option, no additional premiums must be paid.
D) Unless the policyowner has selected another nonforfeiture option, the cash value option goes into effect automatically.
C
All of the following statements about the interest settlement option are true EXCEPT
A) The minimum guaranteed interest rate is usually equal to the prime rate.
B) The interest can be paid monthly, quarterly, semiannually, or annually.
C) The beneficiary may be allowed to withdraw part or all of the proceeds.
D) The beneficiary may be allowed to change to another settlement option.
A