Chapter 3

Question 1

When can an insurance company use suicide as a defense against paying a death claim?

Answer 1

When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)

Question 2

What are policy dividends?

Answer 2

Return of unused premiums

Question 3

What dividend option is automatically selected by the company if not chosen by the policyowner?

Answer 3

Paid-up additions

Question 4

What type of beneficiary is next in line after the primary beneficiary?

Answer 4

Contingent beneficiary

Question 5

To meet the requirement of the entire contract policy provision, an insurance policy must contain what?

Answer 5

A copy of the original insurance application

Question 6

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Answer 6

Extended term

Question 7

What is the purpose of a free-look period?

Answer 7

To allow the insured to return the policy with a full refund

Question 8

What are the dividend options in life insurance policies?

Answer 8

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment

Question 9

What are the most common exclusions in life insurance policies?

Answer 9

War and military service, hazardous occupation, and aviation

Question 10

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

Answer 10

Primary beneficiary

Question 11

Is the beneficiary required to have insurable interest in the insured?

Answer 11

No. Beneficiaries do not have insurable interest in the insured.

Question 12

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured’s death?

Answer 12

Settlement options

Question 13

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?

Answer 13

Reinstatement

Question 14

What does the term double indemnity mean?

Answer 14

The insurer will pay a benefit of twice the face amount.

Question 15

With the interest only settlement option, what happens to the policy’s death benefit?

Answer 15

Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary

Question 16

When will a contingent beneficiary receive death benefits from a life insurance policy?

Answer 16

When the primary beneficiary dies before the insured

Question 17

What happens to a policy’s cash value under an extended term nonforfeiture option?

Answer 17

The cash value is converted to the same face amount as in the whole life policy.

Question 18

What are the three nonforfeiture options in life insurance policies?

Answer 18

Cash surrender,
reduced paid-up, and
extended term

Question 19

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?

Answer 19

Entire contract

Question 20

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?

Answer 20

Pay a reduced death benefit

Question 21

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?

Answer 21

The amount of the loan will be subtracted from the death benefit.

Question 22

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?

Answer 22

Incontestability

Question 23

What dividend option can increase the death benefit of the existing life policy?

Answer 23

Paid-up additions

Question 24

What required provision protects against unintentional policy lapse?

Answer 24

Grace period

Question 25

What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Answer 25

Waiver of premium

Question 26

In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?

Answer 26

The longer the period selected, the smaller each installment will be

Question 27

What is the purpose of settlement options in life insurance policies?

Answer 27

To determine how the death benefit will be paid to the beneficiary

Question 28

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Answer 28

Policyowner

Question 29

Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Answer 29

Absolute assignment

Question 30

What type of beneficiary can be changed at any point by the policyowner?

Answer 30

Revocable

Question 31

What settlement options are available in life insurance policies?

Answer 31

Lump-sum/cash, fixed period, fixed amount, life income, interest only

Question 32

What provision in a life insurance policy extends coverage beyond the premium due date?

Answer 32

Grace period

Question 33

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

Answer 33

The death benefit will be adjusted to the amount that the insured could obtain for her correct age.

Question 34

Under what nonforfeiture option does the company pay the policy’s surrender value and have no further obligations to the policyowner?

Answer 34

Cash surrender

Question 35

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Answer 35

Collateral assignment

Question 36

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

Answer 36

The proceeds are paid to the insured’s estate.

Question 37

What is the purpose of the Automatic Premium Loan provision?

Answer 37

To prevent the unintentional lapse of a policy because of nonpayment of the premium

Question 38

Who has the right to the cash value of a life insurance policy?

Answer 38

Policyowner

Question 39

What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?

Answer 39

Policy premium in a reinstated policy will be set according to the insured’s original age.

Question 40

What nonforfeiture option provides coverage for the longest period of time?

Answer 40

Reduced paid-up

Question 41

If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?

Answer 41

Lump-sum payment

Question 42

What is the name for a life insurance policy rider that provides coverage on the insured’s family members?

Answer 42

Other-insured rider

Question 43

With the reduction of premium dividend option, how is the dividend used?

Answer 43

The dividend is applied to the next year’s premium (it reduces the next year’s premium).

Question 44

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?

Answer 44

It will be paid to the insured’s estate.

Question 45

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?

Answer 45

Pay a reduced death benefit