Chapter 4 (Life Insurance 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

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

Answer 2

Lump-sum payment

Question 3

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

Answer 3

Primary beneficiary

Question 4

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

Answer 4

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

Question 5

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

Answer 5

Waiver of premium

Question 6

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

Answer 6

Paid-up additions

Question 7

What is the purpose of the Automatic Premium Loan provision?

Answer 7

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

Question 8

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

Answer 8

Settlement options

Question 9

What settlement options are available in life insurance policies?

Answer 9

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

Question 10

What required provision protects against unintentional policy lapse?

Answer 10

Grace period

Question 11

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

Answer 11

Policyowner

Question 12

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

Answer 12

A copy of the original insurance application

Question 13

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 13

It will be paid to the insured’s estate.

Question 14

What does the term double indemnity mean?

Answer 14

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

Question 15

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

Answer 15

Cash surrender

Question 16

What are the three nonforfeiture options in life insurance policies?

Answer 16

Cash surrender, reduced paid-up, and extended term

Question 17

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

Answer 17

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

Question 18

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

Answer 18

Policyowner

Question 19

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

Answer 19

Revocable

Question 20

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

Answer 20

Reinstatement

Question 21

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

Answer 21

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

Question 22

What are the dividend options in life insurance policies?

Answer 22

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

Question 23

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

Answer 23

Absolute assignment

Question 24

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

Answer 24

When the primary beneficiary dies before the insured

Question 25

What is the purpose of a free-look period?

Answer 25

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

Question 26

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

Answer 26

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

Question 27

What are policy dividends?

Answer 27

Return of unused premiums

Question 28

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

Answer 28

Extended term

Question 29

Who does the common disaster clause protect?

Answer 29

The contingent beneficiary

Question 30

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

Answer 30

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

Question 31

What are the most common exclusions in life insurance policies?

Answer 31

War and military service, hazardous occupation, and aviation

Question 32

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 32

Pay a reduced death benefit

Question 33

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

Answer 33

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

Question 34

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

Answer 34

Collateral assignment

Question 35

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

Answer 35

Grace period

Question 36

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

Answer 36

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

Question 37

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

Answer 37

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

Question 38

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

Answer 38

Other-insured rider

Question 39

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

Answer 39

The proceeds are paid to the insured’s estate.

Question 40

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 40

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

Question 41

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 41

Incontestability

Question 42

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

Answer 42

Contingent beneficiary

Question 43

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

Answer 43

Reduced paid-up

Question 44

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

Answer 44

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

Question 45

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 45

Entire contract