Chapter 5: Dividends and Riders

Question 1

What dividend option uses the dividend as a single premium to purchase paid up whole life (permanent) coverage?

Answer 1

Paid Up Additions

Question 2

What nonforfeiture option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the policy’s existing cash value?

Answer 2

Reduced paid-up insurance

Question 3

Which of the following nonforfeiture options does not allow the insured to reinstate the policy:
Select one:
a. None
b. Extended term option
c. Reduced paid-up
d. Cash surrender

Answer 3

D. Cash Surrender

Question 4

Rick is planning on getting married next month. He currently has a $100,000 whole life participating policy. Because he is planning a family, he wants to increase his life insurance while keeping his costs down. Which of the following options would best suit his needs?
Select one:
a. Rick could use his dividends to purchase one-year term insurance.
b. Dividends could be applied against Rick’s future premium payments.
c. He could allow the dividends to accumulate at interest.
d. Rick could use the dividends to purchase paid-up additions.

Answer 4

D.

Question 5

Which of the following is a guarantee that is required by law to be a part of life insurance polices that build cash value?

Select one:
a. Insuring clause
b. Settlement option
c. Nonforfeiture option
d. Dividend option

Answer 5

C.

Question 6

Which life insurance dividend option does not increase a policy’s cash value?

Select one:
a. Cash payment
b. Paid-up insurance
c. Paid-up additions
d. All the above

Answer 6

A

Question 7

Which of the following is not a dividend option?
Select one:
a. Reduction of premium payments
b. Paid-up additions
c. Reduced paid-up insurance
d. Cash payments

Answer 7

Reduced paid-up insurance is a nonforfeiture option.
The correct answer is: Reduced paid-up insurance

Question 8

Eddie wants to use a nonforfeiture option. Which of the following may Eddie not use?
Select one:
a. Cash surrender value
b. Accumulation at interest
c. Extended term
d. None of the above

Answer 8

Accumulation at interest is a dividend option.
The correct answer is: Accumulation at interest

Question 9

Which nonforfeiture option is the “automatic” option?
Select one:
a. None
b. Extended term option
c. Reduced paid-up
d. Cash surrender

Answer 9

If the policyowner cannot be reached, premium payments have ceased, and the policy’s cash value is eliminated, the insurer will automatically use the extended term option.
The correct answer is: Extended term option

Question 10

Riders (endorsements) ____________

Answer 10

Add or take away from policy benefits

Question 11

What rider allows policyowners to waive premium payments during a disability?

Answer 11

Waiver of Premium

Question 12

After what age is a waiver of premium voided?

Answer 12

usually 60 or 65

Question 13

What is the waiting period before a waiver of premium will take affect?

Answer 13

3 or 6 months

Question 14

True or false: a waiver of premium rider can only be added to a term policy because there is no cash value

Answer 14

True

Question 15

What rider allows a universal life policyowner who becomes disabled to waive the cost of death protection, but does not wave the cost of premium required to build cash value?

Answer 15

Waiver of cost of Insurance

Question 16

When a policyowner becomes totally and permanently disabled, what rider will make the insurer pay the insured a periodic income, and possibly waive the policy premiums?

Answer 16

Disability Income Rider (waiting period 3 or 6 months to ensure the disability is permanent)

Question 17

Used for Juvenile life insurance, the ____________ _____________ states that if the individual paying the premiums becomes disabled or dies before the child reaches a certain age, such as 21 or 25, the policy premiums will be waived until the child reaches the specified age.

Answer 17

Payor Rider

Question 18

What is AD&D? How Does it pay? When does it pay?

Answer 18

Accidental Death and dismemberment, lump sum payment, if they die in an accident or loses major body parts in an accident

Question 19

What is an Accelerated Living Benefit Rider?

Answer 19

Also called Living Benefit Rider, allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness. Life insurance premiums might be waived. It relieves financial burdens assocated with terminal illness

Question 20

The __ ___ __ ____ is a rider providing an accelerated benefit which is used to pay long term care costs.

Answer 20

Long Term Care Rider

Question 21

What is the amount of the accelerated benefit rider?

Answer 21

usually between 25-80%, not subjected to tax, reduces death benefit by that amount

Question 22

What are the three types of riders covering additional insureds?

Answer 22

Spouse and Other Insured Term Rider
Children’s Term Rider
Family Term Rider

Question 23

Substitute Insured Rider?

Answer 23

Also called exchange privilege rider, Used in Business Life, can change who the insured is (key employees)

Question 24

What rider pays an additional “principal” sum to the beneficiary if the insured dies due to an accident (a multiple of the face amount)?

Answer 24

Accidental Death Benefit Rider or Multiple Indemnity

Question 25

Stipulations of Accidental Death Benefit Rider?

Answer 25

The insured must die within 90 days of accident
Excludes death from war, crime, private aviation
Expires when the insured reaches age 65

Question 26

AD&D Rider Stipulations?

Answer 26

May be added to life insurance to pay benefits for dismemberment, within 90 days of the accident, both hands, both arms, both legs, vision in both eyes

Question 27

Guaranteed Insurability Rider (GIR)?

Answer 27

Also called Future Increase Option
Allows policyowner to buy additional permanent life insurance at specific points of time in the future (qualifying life events) without providing proof of insurability
90 day period

Question 28

Cost of Living Adjustment Rider?

Answer 28

Allows the face amount of policy be adjusted to account for inflation
Premium change will align with change in face amount

Question 29

Return of Premium Rider?

Answer 29

Pays the total amount of premiums back along with the face amount, expires at age 60

Question 30

Return of Cash Value Rider?

Answer 30

Allows a whole life policy’s cash value to be included in the death benefit

Question 31

5 types of Term Riders?

Answer 31

Spouse/Other, Children, Family, Return of Premium, Return of Cash Value
Adds term coverage to an existing life insurance policy

Question 32

Under what conditions will the waiver of premium rider pay benefits?
Select one:
a. If the insured is disabled
b. If the insured is partially disabled
c. If the insured is totally disabled
d. If the insured is totally and permanently disabled

Answer 32

D
The waiver of premium rider stipulates that the insured must be totally and permanently disabled in order to pay benefits.
The correct answer is: If the insured is totally and permanently disabled

Question 33

All of the following statements are true about the accidental death benefit (ADB), EXCEPT:
Select one:
a. The amount paid is one half of the face amount of the life insurance policy.
b. The policy pays an additional sum if the insured dies due to an accident.
c. The insured must die within a certain time period after the accident (usually 90 days).
d. The accidental death benefit does not build cash value.

Answer 33

A

Question 34

Which of the following explanations best describes the purpose of the waiver of premium provision of a life insurance policy?
Select one:
a. It decreases the monthly amount of an insured’s premium payments.
b. It decreases the frequency of an insured’s premium payments.
c. It waives the insured’s premiums if the insured becomes disabled.
d. It waives the insured’s premiums if the insured is totally disabled before a specified age.

Answer 34

D

Question 35

Jon’s life insurance policy contains a disability income benefit that will pay him a periodic income in the event he becomes disabled. What factor determines the amount of the benefit?
Select one:
a. If it is paid weekly
b. The face amount of the policy
c. If it is paid monthly
d. The nature of the disability

Answer 35

B

Question 36

Which of the following best describes the return of premium rider

Select one:
a. The return of premium rider pays the total amount of premiums paid into the policy as long as the insured dies within a certain time period specified in the policy.
b. The return of premium rider allows a whole life policy’s cash value to be included in the death benefit.
c. The return of premium rider allows a universal life policyowner who becomes disabled to waive the cost of death protection.
d. The return of premium rider allows the policyowner to waive premium payments during a disability, and keeps the policy in force.

Answer 36

A

Question 37

What is the term for a policy element that adds or takes away coverage?
Select one:
a. Policy
b. Contract
c. Rider
d. Clause

Answer 37

C

Question 38

When a juvenile covered by a payor rider reaches the specified age, what happens to the ownership of the policy?
Select one:
a. It stays with the original policyholder.
b. The policy expires.
c. The premium is reduced.
d. The juvenile can assume ownership of the policy.

Answer 38

D

Question 39

The principal sum of a AD&D rider attached to a life insurance policy pays:
Select one:
a. A principal sum if the insured loses one leg
b. A principal sum if the insured loses both arms
c. A principal sum if the insured loses one hand
d. A principal sum if the insured loses vision in one eye

Answer 39

B

Question 40

Which life insurance rider affecting the policy’s death benefit protects against the chance of depleting income during prolonged life?
Select one:
a. Annuity rider
b. Cost of living rider
c. Term rider
d. Guaranteed insurability

Answer 40

A

Question 41

Of the following life insurance policy riders, which does not alter the amount of the death benefit?
Select one:
a. Cost of living
b. Return of premium
c. Term
d. Payor

Answer 41

D

Question 42

Riders covering additional insureds can be added to life policies. A popular rider is the children’s term rider. All of the following can be covered by the children’s term rider, EXCEPT:
Select one:
a. Younger siblings of the policyholder
b. Step children
c. Legally adopted children
d. Biological children

Answer 42

A

Question 43

The appropriate rider allows premium payments to be waived in the event of disability. What is the normal waiting period for premiums to be waived?
Select one:
a. 30 days
b. 60 days
c. 3 or 6 months
d. 1 year

Answer 43

C

Question 44

Some riders can affect the death benefit of a life insurance policy. Which of the following riders can decrease the death benefit?

Select one:
a. Payor rider
b. Waiver of premium rider
c. Long-term care rider
d. Family term rider

Answer 44

C

Question 45

The Guaranteed Insurability Rider, or GIR, allows the insured to buy:

Select one:
a. More insurance coverage at any time
b. More insurance coverage at specified points in the future, without proof of insurability
c. More insurance coverage when the insured retires, upon request by the insured
d. More insurance coverage when the insured loses their job, with proof of insurability\

Answer 45

B

Question 46

Which life insurance rider pays an amount equal to the total premiums paid as long as the insured dies during a certain time period, as stated in the policy?
Select one:
a. Return of cash value
b. Return of premium
c. Waiver of premium
d. Payor rider

Answer 46

B