Ch.3 pt 2

Question 1

Exclusions

Answer 1

Features of an insurance policy stating that the policy will not cover certain risks

Question 1

Extended term option

Answer 1

Permits the policy owner to use the policy’s cash value to buy level, extended term insurance for a specified period

Question 2

Free look period

Answer 2

States the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid

Question 3

Grace period

Answer 3

A period after the due date of a premium during which the policy remains in force without penalty

Question 4

Guaranteed insurability rider

Answer 4

Permits the policy owner to buy additional permanent life insurance coverage at predetermined intervals without submitting proof of insurability. It also includes specific events like marriage and births, without requiring proof of insurability

Question 5

Incontestable provision

Answer 5

States that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time, typically two years

Question 5

Insuring clause

Answer 5

The insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss

Question 6

Misstatement of age or sex provision

Answer 6

Allows the insurer to adjust the policy benefits if the insured’s age or sex is misstated on the policy application

Question 6

Nonforfeiture options

Answer 6

The options you have for your cash value if you terminate a policy that has a cash value

Question 7

One year term option

Answer 7

Allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy

Question 7

Paid up additions option

Answer 7

Allows the policy owner to exchange the dividend for an additional single payment whole life policy

Question 8

Payor provision

Answer 8

Waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled

Question 8

Policy loan

Answer 8

A policy loan in life insurance allows the policyholder to borrow money against the cash value of their life insurance policy. This loan does not require credit checks or a repayment schedule, but interest is charged. The borrowed amount, plus any unpaid interest, reduces the death benefit if not repaid. Policy loans are available only with policies that accumulate cash value, such as whole life or universal life insurance

Question 9

Reduced paid-up option

Answer 9

Allows the policy owner to reduce the policy’s benefit amount and, in turn, cease making premium payments

Question 10

Reduced premiums option

Answer 10

Allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year’s premium payments

Question 11

Reinstatement provision

Answer 11

A reinstatement provision in life insurance allows a policyholder to restore a lapsed policy to active status after it has lapsed due to missed premium payments. To reinstate the policy, the policyholder typically must pay all overdue premiums with interest, provide proof of insurability, and meet any other conditions set by the insurer. Reinstatement is usually allowed within a specified period, often within three to five years from the lapse date

Question 12

Return of premium rider

Answer 12

Pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a specific period specified in the policy. It may also return premiums to the insured at the end of a specified period

Question 13

Suicide clause

Answer 13

States that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance

Question 13

Waiver of premium rider

Answer 13

Allows the policy owner to waive premium payments during a disability and keeps the policy in force. The waiver of premium rider is not a loan and does not provide cash payments to the policy owner

Question 13

Execution clause

Answer 13

States that the insurance contract will be executed when both parties (the insurer and the policy owner) have satisfied the conditions of the contract. In other words, when both parties have fulfilled their responsibilities, the contract will be executed

Question 14

Modification Provision

Answer 14

States that any changes made to the contract must be in writing and endorsed or attached to the policy. It also states that only an officer of the insurer or authorized home office personnel possess the authority to make any changes or modifications or waive a policy provision

Question 15

Privilege of change clause

Answer 15

Outlines the conditions under which the company will allow the policy owner to change the policy’s coverage

Question 15

Owner’s provision

Answer 15

States that the policy owner possesses all rights contained in the policy. In any insurance policy or contract, the policy owner may name or change the beneficiary, borrow against the cash value (if applicable), and select the frequency with which premiums are paid

Question 16

Mode of premium provision

Answer 16

States that premiums must be paid to an insurer or its representative in order for coverage to be provided and allows the policy owner to select the mode of premium

Question 17

Excess interest provision

Answer 17

The excess interest provision in life insurance refers to a feature where the insurance company credits additional interest to the policy’s cash value beyond the guaranteed minimum rate. This typically occurs in permanent life insurance policies, like universal life, where the insurer’s investment performance has exceeded expectations. The excess interest can help the cash value grow faster, potentially reducing the amount of premium needed or increasing the death benefit. However, this interest is not guaranteed and can vary depending on market conditions and the insurer’s investment returns

Question 18

Settlement options provision

Answer 18

Outlines the various ways the policy’s death benefit may be paid to the beneficiary as well as who has the authority to decide how to distribute the funds

Question 18

Long-term care rider

Answer 18

optional add-on that provides coverage for long-term care expenses, such as nursing home care, in-home care, or assisted living, if the policyholder becomes unable to perform basic activities of daily living, like bathing or dressing. With this rider, a portion of the life insurance policy’s death benefit can be accessed early to pay for these costs. The amount used for long-term care reduces the death benefit available to beneficiaries when the policyholder passes away

Question 19

Disability income benefit rider

Answer 19

Provides an income benefit if the insured is totally and permanently disabled as defined by the policy

Question 20

Cost of living rider

Answer 20

This rider automatically increases the face amount of the policy at specified intervals based upon increases in the Consumer Price Index

Question 20

Eexchange privilege rider

Answer 20

Outlines the conditions and processes for changing the insured of an insurance policy

Question 21

Term insurance riders

Answer 21

Were created to give insureds an inexpensive option to add additional temporary coverage to a permanent policy. These riders allow for an additional death benefit (above the permanent face value) if the insured dies during a specified term

Question 22

Level term rider

Answer 22

Adds an additional fixed, level death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy

Question 23

Decreasing term rider

Answer 23

Adds an additional decreasing death benefit for a predetermined amount of time at a predetermined cost to the existing face value of a permanent policy

Question 24

Increasing term rider

Answer 24

Will allow for an increasing amount of coverage each year. Increasing term riders provide an additional term insurance face amount at death equal to either all premiums paid or the amount of cash value

Question 25

Return of cash value rider

Answer 25

Another type of increasing term rider that provides an increasing amount of term insurance that equals the cash value as it accumulates in a whole life policy. This rider allows the cash value to be paid in addition to the face amount

Question 25

Family rider

Answer 25

When added to an insured’s individual policy, covers the rest of the family but not the primary insured who is protected by the individual policy

Question 26

Spousal rider

Answer 26

May be added to a primary policy to cover a spouse

Question 27

Child or children’s rider

Answer 27

May be added to an insured’s policy to cover children or adopted children

Question 27

Results clause

Answer 27

States that an individual policy does not provide coverage if the insured dies while participating in military activities or during military maneuvers of some sort. If the insured were on furlough and killed, he or she would be covered under an individual policy

Question 27

3 Types of life insurance policies

Answer 27

Industrial life
Group life
Ordinary life

Question 28

Advantage of whole life insurance

Answer 28

Covers the entire life of the insured

Living benefits - cash value and policy loans

Fixed premiums

Question 29

Drawbacks of whole life insurance

Answer 29

Protection is more expensive because of living benefits

Premium paying period may extend beyond the income-earning years

Question 30

Multiple protection policies

Answer 30

Pays a benefit of double or triple the face amount if death occurs during a specified period. If death occurs after the period has expired, only the policy face amount is paid. The period may be for a specified number of years - 10, 15, or 20 years or to a specified age such as 65. These policies are combinations of permanent insurance and level term insurance

Question 31

Interest-sensitive whole life

Answer 31

A type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant

Question 32

Variable whole life insurance

Answer 32

Was created to help offset the effects of inflation on death benefits

Question 33

Beneficiaries

Answer 33

_____________ and assignees are entitled to the proceeds upon the death of the insured before any claims of the insured’s creditors

Question 33

Irrvocable beneficiary

Answer 33

means the beneficiary cannot be changed

Question 34

Absolute and collateral

Answer 34

two types of assignments

Question 35

Cost recovery rule

Answer 35

states that when a life policy is surrendered for its cash value, the cost basis (total premiums paid) is exempt from taxation

Question 36

Spendthrift clause

Answer 36

stipulates that a settlement option may be selected by the policy owner at the time of application. This clause often prevents beneficiaries from assigning or pledging the death benefit to others before they receive it, ensuring that the funds are used as intended and providing a layer of financial security

Question 37

Catastrophic illness rider

Answer 37

coverage covers only identified or listed diseases in the policy, such as cancer, heart disease, renal failure, stroke, etc. insured will recieve a lump sum

Question 38

Double indemnity

Answer 38

Policies that pay a multiple of two times the policy face amount are called

Question 39

Triple indemnity

Answer 39

policies that pay three times the death benefit for death due to accidents are called

Question 40

Principal sum

Answer 40

The death benefit paid under accidental death coverage

Question 41

Capitol sum

Answer 41

The severance (dismemberment) benefit paid under accidental dismemberment

Question 42

Riders

Answer 42

can be added to a life insurance policy that provide term insurance coverage for the spouse, children, or entire family

Question 43

War exclusion

Answer 43

The exclusion typically applies to both declared and undeclared wars and can also include deaths caused by terrorism or civil unrest, depending on the policy’s specific terms. This clause is common in life insurance policies to limit the insurer’s risk exposure during times of conflict

Question 44

Status war clause

Answer 44

a restrictive type of clause which states that the insured will not possess coverage under an individual life insurance policy while he or she is in the military even if killed while away on furlough