Chapter 3: Life Policy Provisions, Riders, and Options

Question 1

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

Answer 1

Paid-up additions

Question 2

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

Answer 2

Reinstatement

Question 3

What is the purpose of the Automatic Premium Loan provision?

Answer 3

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

Question 4

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 4

Entire contract

Question 5

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

Answer 5

Paid-up additions

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

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

Answer 7

A copy of the original insurance application

Question 8

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

Answer 8

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

Question 9

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

Answer 9

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

Question 10

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 10

Incontestability

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 12

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

Answer 12

Reduced paid-up

Question 13

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

Answer 13

Extended term

Question 14

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

Answer 14

Cash surrender

Question 15

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

Answer 15

When the primary beneficiary dies before the insured

Question 16

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

Answer 16

Policyowner

Question 17

What settlement options are available in life insurance policies?

Answer 17

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

Question 18

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

Answer 18

Settlement options

Question 19

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

Answer 19

Lump-sum payment

Question 20

What is the purpose of a free-look period?

Answer 20

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

Question 21

What are the dividend options in life insurance policies?

Answer 21

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

Question 22

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

Answer 22

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

Question 23

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

Answer 23

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

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

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

Answer 25

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

Question 26

What are policy dividends?

Answer 26

Return of unused premiums

Question 27

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

Answer 27

Revocable

Question 28

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

Answer 28

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

Question 29

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

Answer 29

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

Question 30

What are the most common exclusions in life insurance policies?

Answer 30

War and military service, hazardous occupation, and aviation

Question 31

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

Answer 31

Policyowner

Question 32

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 32

It will be paid to the insured's estate.

Question 33

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 33

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

Question 34

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

Answer 34

The proceeds are paid to the insured's estate.

Question 35

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 35

Pay a reduced death benefit

Question 36

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

Answer 36

Contingent beneficiary

Question 37

What does the term double indemnity mean?

Answer 37

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

Question 38

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

Answer 38

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

Question 39

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

Answer 39

Absolute assignment

Question 40

What are the three nonforfeiture options in life insurance policies?

Answer 40

Cash surrender, reduced paid-up, and extended term

Question 41

What required provision protects against unintentional policy lapse?

Answer 41

Grace period

Question 42

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

Answer 42

Waiver of premium

Question 43

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

Answer 43

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

Question 44

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

Answer 44

Primary beneficiary

Question 45

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

Answer 45

Grace period