Ch. 4 (Life Insurance Policy Provisions, Options, and Riders)

Question 1

Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Answer 1

Absolute assignment.

Question 2

An insurer has discovered a representation on a life insurance policy application regarding the insured’s age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Answer 2

Pay a reduced death benefit.

Question 3

What is the purpose of a free-look period?

Answer 3

To allow the insured to return the policy with a full refund.

Question 4

Under what nonforfeiture option does the company pay the policy’s surrender value and have no further obligations to the policyowner?

Answer 4

Cash surrender.

Question 5

What settlement options are available in life insurance policies?

Answer 5

Lump sum/cash, fixed period, fixed amount, life income, interest only.

Question 6

When will a contingent beneficiary receive death benefits from a life insurance policy?

Answer 6

When the primary beneficiary dies before the insured.

Question 7

What are policy dividends?

Answer 7

Return of unused premiums.

Question 8

What type of beneficiary is next in line after the primary beneficiary?

Answer 8

Contingent beneficiary.

Question 9

The meet the requirement of the entire contract policy provision, an insurance policy must contain what?

Answer 9

A copy of the original insurance application.

Question 10

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured’s death?

Answer 10

Settlement options.

Question 11

Is the beneficiary required to have insurable interest in the insured?

Answer 11

No. Beneficiaries do not have insurable interest in the insured.

Question 12

What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?

Answer 12

Entire contract.

Question 13

What dividend option can increase the death benefit of the existing life policy?

Answer 13

Paid-up additions.

Question 14

What type of beneficiary can be changed at any point by the policyowner?

Answer 14

Revocable.

Question 15

In the fixed period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?

Answer 15

The longer the period selected, the smaller each installment will be.

Question 16

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Answer 16

Collateral assignment.

Question 17

What is the advantage of reinstating a life insurance policy, as opposed to applying for a new one?

Answer 17

Policy premium in a reinstated policy will be set according to the insured’s original age.

Question 18

What is the purpose of the automatic premium loan provision?

Answer 18

To prevent the unintentional lapse of a policy because of nonpayment of the premium.

Question 19

What is the name for a life insurance policy rider that provides coverage on the insured’s family members?

Answer 19

Other-insured rider.

Question 20

What nonforfeiture option provides coverage for the longest period of time?

Answer 20

Reduced paid-up.

Question 21

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

Answer 21

Primary beneficiary.

Question 22

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

Answer 22

The proceeds are paid to the insured’s estate.

Question 23

What are the most common exclusions in life insurance policies?

Answer 23

War and military service, hazardous occupation, and aviation.

Question 24

What required provision protects against unintentional policy lapse?

Answer 24

Grace period.

Question 25

When can an insurance company use suicide as a defense against paying a death claim?

Answer 25

When a suicide is committed within a specified period of time after the policy is purchased (usually two years).

Question 26

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

Answer 26

The death benefit will be adjusted to the amount that the insured could obtain for her correct age.

Question 27

If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?

Answer 27

Lump-sum payment.

Question 28

What is the purpose of settlement options in life insurance policies?

Answer 28

To determine how the death benefit will be paid to the beneficiary.

Question 29

What dividend option is automatically selected by the company if not chosen by the policyowner?

Answer 29

Paid-up additions.

Question 30

A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?

Answer 30

The amount of the loan will be subtracted from the death benefit.

Question 31

What provision in a life insurance policy extends coverage beyond the premium due date?

Answer 31

Grace period.

Question 32

What does the common disaster clause protect?

Answer 32

The contingent beneficiary.

Question 33

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?

Answer 33

Reinstatement.

Question 34

With the reduction of premium dividend option, how is the dividend used?

Answer 34

The dividend is applied to next year’s premium (it reduces the next year’s premium).

Question 35

What happens to a policy’s cash value under an extended term nonforfeiture option?

Answer 35

The cash value is converted to the same face amount as in the whole life policy.

Question 36

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy’s death benefit?

Answer 36

It will be paid to the insured’s estate.

Question 37

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Answer 37

Incontestability.

Question 38

What does the term double indemnity mean?

Answer 38

The insurer will pay a benefit of twice the face amount.

Question 39

With the interest only settlement option, what happens to the policy’s death benefit?

Answer 39

Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary.

Question 40

What are the dividend options in life insurance policies?

Answer 40

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one year term, and acceleration of endowment.

Question 41

What are the three nonforfeiture options in life insurance policies?

Answer 41

Cash surrender, reduced paid-up, and extended term.

Question 42

Who controls the changes in premium payments, face values, and loans in a life insurance policy?

Answer 42

Policyowner.

Question 43

Who has the right to the cash value of a life insurance policy?

Answer 43

Policyowner.

Question 44

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Answer 44

Extended term.

Question 45

What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Answer 45

Waiver of premium.