Ch. 4 (Life Insurance Policy Provisions, Options, and Riders) Flashcards
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
Absolute assignment.
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?
Pay a reduced death benefit.
What is the purpose of a free-look period?
To allow the insured to return the policy with a full refund.
Under what nonforfeiture option does the company pay the policy’s surrender value and have no further obligations to the policyowner?
Cash surrender.
What settlement options are available in life insurance policies?
Lump sum/cash, fixed period, fixed amount, life income, interest only.
When will a contingent beneficiary receive death benefits from a life insurance policy?
When the primary beneficiary dies before the insured.
What are policy dividends?
Return of unused premiums.
What type of beneficiary is next in line after the primary beneficiary?
Contingent beneficiary.
The meet the requirement of the entire contract policy provision, an insurance policy must contain what?
A copy of the original insurance application.
What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured’s death?
Settlement options.
Is the beneficiary required to have insurable interest in the insured?
No. Beneficiaries do not have insurable interest in the insured.
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?
Entire contract.
What dividend option can increase the death benefit of the existing life policy?
Paid-up additions.
What type of beneficiary can be changed at any point by the policyowner?
Revocable.
In the fixed period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?
The longer the period selected, the smaller each installment will be.
What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
Collateral assignment.
What is the advantage of reinstating a life insurance policy, as opposed to applying for a new one?
Policy premium in a reinstated policy will be set according to the insured’s original age.
What is the purpose of the automatic premium loan provision?
To prevent the unintentional lapse of a policy because of nonpayment of the premium.
What is the name for a life insurance policy rider that provides coverage on the insured’s family members?
Other-insured rider.
What nonforfeiture option provides coverage for the longest period of time?
Reduced paid-up.
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
Primary beneficiary.
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
The proceeds are paid to the insured’s estate.
What are the most common exclusions in life insurance policies?
War and military service, hazardous occupation, and aviation.
What required provision protects against unintentional policy lapse?
Grace period.
When can an insurance company use suicide as a defense against paying a death claim?
When a suicide is committed within a specified period of time after the policy is purchased (usually two years).
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
The death benefit will be adjusted to the amount that the insured could obtain for her correct age.
If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?
Lump-sum payment.
What is the purpose of settlement options in life insurance policies?
To determine how the death benefit will be paid to the beneficiary.
What dividend option is automatically selected by the company if not chosen by the policyowner?
Paid-up additions.
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?
The amount of the loan will be subtracted from the death benefit.
What provision in a life insurance policy extends coverage beyond the premium due date?
Grace period.
What does the common disaster clause protect?
The contingent beneficiary.
What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?
Reinstatement.
With the reduction of premium dividend option, how is the dividend used?
The dividend is applied to next year’s premium (it reduces the next year’s premium).
What happens to a policy’s cash value under an extended term nonforfeiture option?
The cash value is converted to the same face amount as in the whole life policy.
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?
It will be paid to the insured’s estate.
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?
Incontestability.
What does the term double indemnity mean?
The insurer will pay a benefit of twice the face amount.
With the interest only settlement option, what happens to the policy’s death benefit?
Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary.
What are the dividend options in life insurance policies?
Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one year term, and acceleration of endowment.
What are the three nonforfeiture options in life insurance policies?
Cash surrender, reduced paid-up, and extended term.
Who controls the changes in premium payments, face values, and loans in a life insurance policy?
Policyowner.
Who has the right to the cash value of a life insurance policy?
Policyowner.
What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
Extended term.
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
Waiver of premium.
