Chapter 3. Life Insurance Policy Riders, Provisions, Options, and Exclusions

Question 1

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

Answer 1

The proceeds are paid to the insured’s estate.

Question 2

What are the three nonforfeiture options in life insurance policies?

Answer 2

Cash surrender, reduced paid-up, and extended term

Question 3

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

Answer 3

Waiver of premium

Question 4

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

Answer 4

Paid-up additions

Question 5

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

Answer 5

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

Question 5

What settlement options are available in life insurance policies?

Answer 5

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

Question 6

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

Answer 6

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

Question 6

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 6

Pay a reduced death benefit

Question 7

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 7

Pay a reduced death benefit

Question 7

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 7

Incontestability

Question 8

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

Answer 8

Policyowner

Question 8

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

Answer 8

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

Question 9

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

Answer 9

Primary beneficiary

Question 10

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

Answer 10

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

Question 10

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

Answer 10

Extended term

Question 11

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

Answer 11

Other-insured rider

Question 11

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

Answer 11

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

Question 12

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

Answer 12

Grace period

Question 12

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

Answer 12

Absolute assignment

Question 13

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

Answer 13

A copy of the original insurance application

Question 13

What required provision protects against unintentional policy lapse?

Answer 13

Grace period

Question 13

What is the purpose of a free-look period?

Answer 13

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

Question 14

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 14

Entire contract

Question 14

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 14

It will be paid to the insured’s estate.

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

Answer 17

Reinstatement

Question 17

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

Answer 17

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

Question 17

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

Answer 17

Paid-up additions

Question 18

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

Answer 18

Contingent beneficiary

Question 19

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

Answer 19

Reduced paid-up

Question 20

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

Answer 20

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

Question 20

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

Answer 20

Settlement options

Question 20

What are policy dividends?

Answer 20

Return of unused premiums

Question 21

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

Answer 21

Cash surrender

Question 21

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

Answer 21

Policyowner

Question 22

What is the purpose of the Automatic Premium Loan provision?

Answer 22

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

Question 23

What are the most common exclusions in life insurance policies?

Answer 23

War and military service, hazardous occupation, and aviation

Question 23

What does the term double indemnity mean?

Answer 23

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

Question 24

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

Answer 24

Revocable

Question 24

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

Answer 24

Collateral assignment

Question 25

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 25

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

Question 26

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

Answer 26

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

Question 26

What are the dividend options in life insurance policies?

Answer 26

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

Question 27

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

Answer 27

Lump-sum payment