Chapter 3. Life Insurance Policy Riders, Provisions, Options, and Exclusions Flashcards
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
The proceeds are paid to the insured’s estate.
What are the three nonforfeiture options in life insurance policies?
Cash surrender, reduced paid-up, and extended term
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
Waiver of premium
What dividend option is automatically selected by the company if not chosen by the policyowner?
Paid-up additions
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
The death benefit will be adjusted to the amount that the insured could obtain for her correct age.
What settlement options are available in life insurance policies?
Lump-sum/cash, fixed period, fixed amount, life income, interest only
With the reduction of premium dividend option, how is the dividend used?
The dividend is applied to the next year’s premium (it reduces the next year’s premium).
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?
Pay a reduced death benefit
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?
Pay a reduced death benefit
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?
Incontestability
Who has the right to the cash value of a life insurance policy?
Policyowner
What is the purpose of settlement options in life insurance policies?
To determine how the death benefit will be paid to the beneficiary
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
Primary beneficiary
Is the beneficiary required to have insurable interest in the insured?
No. Beneficiaries do not have insurable interest in the insured.
What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?
Extended term
What is the name for a life insurance policy rider that provides coverage on the insured’s family members?
Other-insured rider
What happens to a policy’s cash value under an extended term nonforfeiture option?
The cash value is converted to the same face amount as in the whole life policy.
What provision in a life insurance policy extends coverage beyond the premium due date?
Grace period
Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
Absolute assignment
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
A copy of the original insurance application
What required provision protects against unintentional policy lapse?
Grace period
What is the purpose of a free-look period?
To allow the insured to return the policy with a full refund
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?
Entire contract
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?
It will be paid to the insured’s estate.
