Chapter 3 - Policy Settlements, Options & Riders

Question 1

3 Types of policy options:

Answer 1

Nonforfeiture
Dividend
Settlement

Question 2

Three types of nonforfeiture options

Answer 2

Cash surrender value
reduced paid-up insurance
extended term

Question 3

Nonforfeiture values

Answer 3

Certain guarantees built into the policy that cannot be forfeited by the policy owner

Question 4

What nonforfeiture values must be included in the table?

Answer 4

A table showing values for a minimum of 20 years.

Question 5

What triggers a nonforfeiture option?

Answer 5

A policy surrender or lapse

Question 6

Cash surrender

Answer 6

The policy owner surrenders the policy when no longer needed or affordable and receives the cash surrender value.

Question 7

Extended term forfeiture

Answer 7

Insurer uses policy cash value to convert to term insurance for the same face amount as the former permanent policy for as long as the cash value can purchase. This is default option if no forfeiture options are selected.

Question 8

Reduced paid up

Answer 8

Used to purchase a single premium purchase for a paid up policy that has a reduced face amount than the former policy.

Question 9

What are the dividend options in life insurance?

Answer 9

• Cash
• reduced premium (next years premium)
• Accumulation of interest
• paid-up additions
• paid up option
• one-year term

Question 10

Term for how often premiums should be paid?

Answer 10

Mode

Question 11

What is a policy assignment?

Answer 11

The transfer of ownership rights from owner to another person.

Question 12

What type of insurance are insured riders?

Answer 12

Level term

Question 13

What is the purpose of settlement options?

Answer 13

To determine how benefits will be paid.

Question 14

What is the default settlement option?

Answer 14

Lump sum, but beneficiary may select option if the insured did not select one.

Question 15

What is the triple indemnity rider?

Answer 15

The benefit will be triple if certain conditions are met or will be base benefit if condition is broken.

Question 16

Difference in paid up addition and paid up option?

Answer 16

Paid up addition uses the dividend to purchase additional whole life policy that adds to the face value of the original.

In Paid up option the dividend accumulates interest and is used to pay out the policy early.

Question 17

Who does the benefit go to if no named beneficiary?

Answer 17

The insureds estate

Question 18

What types of riders does not cause death benefit to increase?

Answer 18

Payor benefit rider

• Payor benefit rider does not increase death benefit. It only pays the premium if the payor is disabled or dies for a minor.
• Cost of living rider increases DB to pace inflation
• Accidental Death increases DB to multiple of face amount.
• Guaranteed Insurability rider DB can be increased at certain intervals.

Question 19

Which rider provides coverage for insureds family members?

Answer 19

Other-insured rider

Question 20

Describe Guaranteed Insurability Rider:

Answer 20

Allows the insured to purchase additional coverage (increase death benefit) every 3 years or at specific events like marriage or birth of child without evidence of insurability for an additional premium set at the current age. Rider expires at age 40.

Question 21

Waiver of premium rider:

Answer 21

Waives the premium for a total disability after a waiting period.

Question 22

Children term rider:

Answer 22

One premium for all children. No proof of insurability required when children switch off this rider.

Question 23

Accelerated benefit rider:

Answer 23

Early payment of part of the death benefit to the insured from the insurer for qualifying medical expenses. Benefit is taxable up to 20%, or sum like dat.

Question 24

Disability Income Rider

Answer 24

Provides premium waiver and monthly income for disability.

Question 25

What are the settlement options?

Answer 25

Cash (lump sum) - tax free and triggered by death or age 100

Life income (straight life) - Recipient cannot outlive settlement but if die early then forfeit all funds.

Interest only - Makes interest payments at guaranteed rate and makes lump sum payment at some later date.

Fixed period - has guaranteed payout

Fixed amount - has guaranteed payout

Question 26

Are dividends guaranteed?

Answer 26

No, but interest is.

Question 27

Which policy is cheaper, survivors or joint?

Answer 27

Survivors is the cheaper of the two.

Question 28

How are death benefits taxed?

Answer 28

• Death benefit is tax free if taken as lump sum.
• If taken in installments, the premiums are tax free but any interest gained is taxed.
• Disability rider for terminally ill taxed up to 20% or something like that.

Question 29

How is the cash option for the dividend option taxed?

Answer 29

The cash option is a monthly non-taxable dividend check.