Ch 5: Life Insurance Policy Options & Riders

Question 1

What are the three nonforfeiture options?

Answer 1

Cash surrender, reduced paid-up, and extended term

Question 2

What is cash surrender option?

Answer 2

Policy owner can request a cash payment of the cash values when the policy is surrendered. It will be reduced by any outstanding policy debt.

Question 3

What is included in cash values?

Answer 3

Premium + interest earned

Question 4

What’s the reduced paid-up insurance option?

Answer 4

The cash values in the policy will be used as a single premium to buy insurance of the same plan as the current policy. Longest period of protection.

Question 5

What is extended term option?

Answer 5

When cash values is used to buy a term insurance contract for the same face amount as the original policy. Most insurance coverage

Question 6

Participating policies and non participating parties. Which one receives dividends?

Answer 6

Participating

Question 7

In a mutual company, there are policy holders, participating parties, and non-tax dividends. What are non tax dividends described as?

Answer 7

Refund of an over charged premium

Question 8

In mutual companies, who gets the dividends and are they taxable?

Answer 8

They get paid out to the policy holders and are non taxable

Question 9

What are the five most common dividend options?

Answer 9

Cash
Reduce premium
Accumulate at interest (taxable)
Paid up additional insurance
One year term

CRAPIO

Question 10

What happens in a cash dividend option?

Answer 10

The company will issue a check for the dividend amount. Dividends uskaky paid annually after policy has been in force in a year or two.

Question 11

What happens in a reduced premium dividend option?

Answer 11

When Policy owner uses the dividend to pay part or the premium.

Question 12

What is the accumulate at interest dividend option?

Answer 12

The insurer keeps the dividend with this option and interest will be paid at a rate specified in the policy and compounded annually.

Question 13

What’s paid-up additional insurance dividend option?

Answer 13

Insurer used the dividend as a single premium to buy more paid up insurance. The amount of paid up insurance is based on the amount of the dividend and the insureds attained age.

Question 14

What is one year term dividend option?

Answer 14

Use the dividend to buy a term contract of one year duration.

Question 15

What are the four settlement options?

Answer 15

Interest only option
Fixed period option
Fixed amount option
Life income option

Question 16

What happens in an interest only settlement option?

Answer 16

Allows only the death benefits earnings (interest) to be paid to the beneficiary

Question 17

What is fixed period settlement option?

Answer 17

Principal plus interest at regular intervals over a specified period of years; longer period, smaller payments, shorter period, higher payments

Question 18

What is fixed amount settlement option?

Answer 18

Death benefit is paid in a series of fixed amount installments until proceeds plus interest are exhausted

Question 19

What is life income settlement option?

Answer 19

Beneficiary receives a guaranteed income for life; single premium immediate annuity is purchased by company.

Question 20

What is a life insurance rider?

Answer 20

Optional policy provisions that you pay extra for

Question 21

If an insured is a total and permenant you disabled, the insured policy continues in force without further premium payment. The additional premium paid for the rider does not affect cash value. While the company is paying the premiums the policy continues in full force in every respect. What rider is this?

Answer 21

Waiver of premium rider

Question 22

What is the accidental death rider do?

Answer 22

Pays double the death benefit

Question 23

What does the payout benefit rider do?

Answer 23

The company will make the payments until the juvenile reaches a specific age (usual 21-25)

Question 24

What does guaranteed insurability rider (guaranteed purchase option)?

Answer 24

Guarantees the opportunity to buy additional life insurance at certain or specific ages without proof of insurability.

Question 25

What does cost of living rider do?

Answer 25

Acts as thought it’s an indexed whole life policy. Increases in amount of coverage without proof of insurability, which is tied to inflation index. Any increase means higher premium.

Question 26

What does the accelerated benefits rider do?

Answer 26

Rider will pay portion of death benefit prior to insured’s death due to terminal illness. Not considered a rider, but for test purposes, it is!

Question 27

What is a life settlement?

Answer 27

When policy owner sells the policy for more than cash value but less than face value.

Life settlement. Timer negotiates life settlements on behalf of policyowner