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ExamFX Insurance Exam Prep > Chapter 3 - Life Insurance Provisions, Options and Riders > Flashcards

Chapter 3 - Life Insurance Provisions, Options and Riders Flashcards

1
Q

Who has exclusive ownership rights to any insurance policy

A

The policyowner

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2
Q

What are the two types of assignment?

A

Absolute - the assignee becomes the policyowner

Collateral - partial assignment (e.g. as collateral for loans)

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3
Q

Insuring Clause (x4)

A
  • Parties to the contract
  • Length of coverage
  • Premium to be paid
  • Amount of death benefit
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4
Q

Entire contract (x3)

A
  • Application
  • Policy
  • Riders and options
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5
Q

Free-look period

A

Period of time (usually 10 days) insured can reject the policy for any reason for a full refund

  • Starts on the date the policy is MAILED, not delivered
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6
Q

Incontestability clause

A

Insurer can only contest applications within the first two years of a policy. After two years, they surrender that right.

  • Liars pray for 2 years, then they’re covered
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7
Q

What are the three exceptions to the Incontestability Clause?

A
  • Age
  • Gender
  • Identity
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8
Q

What are the three typical exclusions?

A
  • Noncommercial aviation
  • Hazardous occupation or hobby
  • War and military service
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9
Q

Suicide

A

Excluded the first two years of a policy, included thereafter

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10
Q

What are the five classes of beneficiaries?

A
  • Individuals
  • Groups (e.g. children)
  • Minors
  • Estates
  • Trusts
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11
Q

What is automatic premium coverage called?

A

Automatic Premium Loan or APL

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12
Q

What is a loan against the cash value of a Universal Life policy called?

A

Partial surrender or withdrawal.

  • Fees MAY be charged and interest MAY be taxable
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13
Q

Principal sum

A

Face amount with accidental death ridter. If double indemnity, then 2x the face amount. If triple indemnity, then 3x.

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14
Q

Capital sum

A

A percent of face amount with accidental dismemberment rider - usually 50%

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15
Q

What happens to the premium if the Guaranteed Insurability rider is excercised?

A

It goes up commensurate with the increase in death benefit

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16
Q

What are the two benefits of the Accelerated (Living) Benefit Rider?

A
  • Early payment of partial death benefit
  • If terminally ill and projected to die in <2 years, can be used to pay for medical treatment
  • Will reduce remaining death benefit
17
Q

What is nonforfeiture and what are the three options?

A

Policyowner forfeits a whole life policy he can no longer afford.

1) Refund cash value
2) Extended term policy
3) Reduced paid-up (whole life) policy

18
Q

What are the six options with dividends?

  • Only paid on participating policies
A
  • Cash payment
  • Premium reduction
  • Accumulation at interest
  • Paid-up addition (increased death benefit)
  • Paid-up premium - reduces number of payments due
  • One-year term policy
19
Q

What are the five settlement options?

  • CLIFF
A
  • Cash payment (lump sum)
  • Life income
  • Interest only (temporarily until you make a final decision)
  • Fixed-period installments
  • Fixed-amount installments
20
Q

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?

A

Incontestability

21
Q

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

A

Lump-sum payment

22
Q

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

A

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

23
Q

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

A

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

24
Q

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

A

Waiver of premium

25
Q

What are the three nonforfeiture options?

A
  • Cash Surrender Value
  • Extended Term
  • Reduced Paid-Up Insurance
26
Q

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

A

Other-insured rider

27
Q

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

A

Reinstatement

28
Q

What are policy dividends?

A

Return of unused premiums

29
Q

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

A

No.

30
Q

What is the advantage of reinstating a policy instead of applying for a new one?

A

The original age is used for premium determination

31
Q

An insured commits suicide six months after his life insurance policy was issued. The insurer will…

A

Refund the premiums paid

32
Q
A

ExamFX Insurance Exam Prep (13 decks)

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