Chapter 12

Question 1

The policyholder possesses all contractual rights in the policy while the insured is living.

Answer 1

Ownership clause

Question 2

States that the life insurance policy and attached applications constitute the entire contract between the parties.

Answer 2

Entire contract clause

Question 3

Possible owners under ownership clause:
Insured, beneficiary or a third party.

Owners rights: may change the beneficiary, surrender the policy, receive dividends and elect

Answer 3

Settlement options

Question 4

Several purposes of entire contract clause:
Protects insured by preventing insurer from amending policy without knowledge or consent of the owner
Provides some protection to the insured by restricting ___ that a beneficiary might introduce in court.

Answer 4

Evidence

Question 5

States that the insurer cannot contest the policy after it has been in force two years during the insureds lifetime.

Answer 5

Incontestable clause

Question 6

The purpose of the incontestable clause is to protect the negotiate if the insurer tries to

Answer 6

Deny payment of the claim years after the policy was first issued.

Question 7

States that if the insured commits suicide within two years after the policy is issued, the face amount of insurance will not be paid.

Answer 7

Suicide clause

Question 8

A life insurance policy also contains a ___ ____ during which the policyholder has a period of 31 days to pay an overdue premium.

Answer 8

Grace period

Question 9

Permits the owner to reinstate a loser policy.

Answer 9

Reinstatement clause

Question 10

Reinstatement clause requirements:

• Evidence of insurability is provided
• All overdue premiums plus interest must be paid from their respective due dates.
• any policy loan must be repaid or reinstated, with interest from the due date of the ____ ____
• policy must not have been surrendered for its cash value.
• must be reinstated within a certain period, typically to years from the dates of the lapse.

Answer 10

Overdue premium, 3-5

Question 11

Advantages of reinstatement clause: lower premiums, no additional acquisition expenses, cash values and dividends are higher, suicide and incontestable clause may have

Answer 11

Expired.

Question 12

If the insureds age or sex is misstated, the amount payable at death is the amount that the premiums paid would have purchased at the correct age and sex.

Answer 12

Misstatement if age or sex clause.

Question 13

Beneficiary designation can be primary and contingent, rovocable and irrevocable, or ___ and ___ beneficiaries.

Answer 13

Specific and class

Question 14

Beneficiary who is first entitled to receive the policy proceeds on the insureds death.

Answer 14

Primary beneficiary

Question 15

Entitled to the proceeds if the primary beneficiary dies before the insured.

Answer 15

Contingent beneficiary

Question 16

Means that the policyholder reserves the right to change the beneficiary designation without the beneficiary’s consent.

Answer 16

Revocable beneficiary

Question 17

One that can not be changed without the beneficiary’s consent.

Answer 17

Irrevocable beneficiary

Question 18

Means the beneficiary is specifically named and identified.

This means a specific person is not named but is a member of a group designated as beneficiary, such as children of the insured.

Answer 18

Specific, class beneficiary

Question 19

Allows policy owners to exchange their present policies for different contracts.

Answer 19

Change of plan provision

Question 20

Exclusions and limitations to life insurance policy:
Suicide clause
War clause
____ exclusion

Answer 20

Aviation

Question 21

All ownership rights in the policy can be transferred to a new owner.

Answer 21

Absolute assignment

Question 22

The policyholder temporarily assigns a life insurance policy to a creditor as collateral for a loan.

Answer 22

Collateral assignment

Question 23

Allows the policyholder to borrow the cash value.

Answer 23

Policy loan provision.

Question 24

Advantages of policy loan provision:
-low APR, no paperwork, flexibility in _____

Disadvantages:
-heavy borrowing may cause policy to lapse, amount of protection is _____

Answer 24

Repaying, reduced

Question 25

Overdue premium is automatically borrowed from the cash value after the grace period expires, provided the policy has a loan value sufficient to pay the premium.

Answer 25

Automatic premium loan provision

Question 26

Disadvantages to automatic premium provision:

May be ____, amount of protection is reduced.

Answer 26

Overused

Question 27

Sources of surplus for dividends:

• higher interest earnings than assumed
• lower ____ than expected
• loser operating expenses than expected

Answer 27

Mortality

Question 28

Ways of taking dividends:

• cash
• ___ of ____: dividend is used to reduce the next premium coming due
• accumulate at interest: company guarantees a minimum rate on dividend accumulations but may pay a higher rate depending on market conditions
• ___ ____ additions: dividend can be used as a single premium to buy additional amounts of paid up insurance
• term insurance: dividend can be used to purchase term insurance

Answer 28

Reduction of premiums, paid up additions

Question 29

Dividends can also be used to convert the policy into a paid up contract or to mature the policy as an _____

Answer 29

Endowment

Question 30

If a cash value policy is purchased and policyholder pays more than actuarially necessary for life insurance protection, they should get something back if policy is surrendered. This is known as a

Answer 30

Nonforfeiture value or cash surrender value.

Question 31

Three nonforfeiture options:
Cash value:
Little or no cash value during the ___ ____
Payment of cash value can be delayed for 6 months if policy is surrendered

Answer 31

Early years

Question 32

Reduced paid up insurance: cash value is used to buy a _________
Appropriate option for someone with limited income who still needs life insurance.

Answer 32

Reduced paid up policy.

Question 33

Cash value is extended the full face amount of insurance into the future as term insurance for a certain number of years and days.

Answer 33

Extended term insurance.

Question 34

For settlement options, most proceeds are paid as

Answer 34

Cash

Question 35

Additional life insurance benefits: under this provision, if the insured becomes totally disabled from bodily injury or disease before some stated age, all premiums coming due during the period of disability are waived.

Answer 35

Waiver of premium provision

Question 36

Give policyholders the right to purchase additional amounts of life insurance at specified times in the future without evidence of insurability.

Answer 36

Guaranteed purchase options

Question 37

Increased the face amount of life insurance if death occurs as a result of an accident.

Answer 37

Accidental death rider, also known as double indemnity rider

Question 38

Allows the policyholder to purchase one year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.

Answer 38

Cost of living rider

Question 39

Allows part or all of the life insurance face amount to be paid to a chronically or terminally ill policyholder before he or she dies, and the charge for the benefit is usually included into the premium.

Answer 39

Accelerated death benefits rider.