Chapter 16

Question 0

The owner cannot change a beneficiary. The beneficiary had a vested interest in the death benefit and can prevent the owner from taking any action that reduces the beneficiary’s interest

Answer 0

Irrevocable beneficiary

Question 1

If the owner retains the right to change beneficiaries after the initial choice

Answer 1

Revocable beneficiary

Question 2

Relieves the insurer from having to make restitution to an injured party if the wrong person is paid the policy benefits

Answer 2

Interpleader

Question 3

A limited period of time, such as thirty days, in which an insured can pay a past-due life insurance premium without having to go through formalities of reinstating the policy

Answer 3

Grace period

Question 4

Means that the insured voluntarily has given up the life insurance contract

Answer 4

Lapsed policy

Question 5

The right of a life insurance policyholder to return a lapsed contract to its original terms. It must occurs within the specified time limits provided by the policy, it requires evidence of insurability and payment if all policy financial obligations, such as outstanding loan balances and missed premium payments

Answer 5

Reinstatement

Question 6

Means that the insurer is in good health and is not engaged in any dangerous occupations or hobbies

Answer 6

Evidence of insurability

Question 7

A part of a life insurance contract that prevents the insurer from denying a claim for alleged fraud occurring at the policy’s inception. The insurer has a limited period of time to discover any such fraud, after which time there can be no defense for nonpayment of the insurer. This means the insurer must pay even if fraud is proved after this time has elapsed

Answer 7

Incontestable clause

Question 8

Allows the insurer to adjust the face amount of unsure to reflect the insureds true age, rather than allowing the insurer to void the policy

Answer 8

Misstatement of age provision

Question 9

A clause required by state law to appear in life insurance policies, which makes the printed contact and the application attached thereto the entire contract between the parties. The purpose of this provision is to prevent incorporation of other documents (such as corporate charter) by reference

Answer 9

Entire contract provision

Question 10

Typically issued by mutual life insurers, set prices by charging the policy owner a relatively large initial premium, followed at the end of the year with a dividend

Answer 10

Participating policies

Question 11

Use more realistic projections of operating results and require a lower initial premium. Do not pay dividends to policyholders, but some modern forms credit excess interest payments if the insurer earns investment returns behind the guaranteed rate

Answer 11

Nonparticipating policies (nonpar)

Question 12

Financial projections showing the dividend and cash value accumulations on their life insurance policies based on their current mortality and investment experience

Answer 12

Policy illustrations

Question 13

Used to control moral hazard, but after 2 years the insurance company must pay

Answer 13

Suicide clause

Question 14

Paid in cash, used to pay a portion if the next premium, left in an account to accumulate interest, used to purchase single premium paid up insurance

Answer 14

Dividend options

Question 15

The amount to which the insured is entitled upon surrender if a cash-value life insurance policy. Include a limo some of cash, extended term insurance, or a reduced amount of paid up whole life insurance

Answer 15

Nonforfeiture

Question 16

This provision gives the policyowner the right to borrow an amount of money less than or equal to the cash value of the policy

Answer 16

Loan provision

Question 17

Is secured by the cash surrender value of the insurance policy. The insured is not legally required to repay the loan. If the loan is outstanding when the insured dies, the insurer deducts the amount of the loan and accrued interest from insurance proceeds. If the loan and the interest exceed the accumulated cash value, then the policy lapses

Answer 17

Policyholder loan

Question 18

Provision which typically is found in policies that have a cash surrender value, modifies the policy so that the insurer will advance a policy loan to the insured for the purpose of paying the premium

Answer 18

Automatic premium loan

Question 19

Cash, fixed-amount payment, fixed-period payment, interest only, life income (annuity)

Answer 19

Settlement options

Question 20

Obtain the legal right to purchase more insurance at predetermined intervals and at standard rates, regardless of changes in insurability

Answer 20

Guaranteed-insurability option

Question 21

If the insured becomes totally disabled, the insurer forgives any premium due during the period of disability, and the life insurance policy remains in force

Answer 21

Waiver of premium option

Question 22

Provides different payouts for different causes of death

Answer 22

Double indemnity option