Chapter 5: Options and Riders

Question 1

_________ ___________ are guarantees that are required by law to be part of life insurance policies that build cash value. Insurers are required to make these available when policyowners discontinue premium payments for any reason.

Answer 1

Nonforfeiture options/values

Question 2

Insurers are required to provide a table of guaranteed nonforfeiture values to policyowners for at least a ____ _____ period with the policy.

Answer 2

20 year

Question 3

What are the 3 nonforfeiture options?

Answer 3

Cash surrender
Extended term insurance
Reduced paid-up insurance

Question 4

nonforfeiture optoins: For the ____ ____ option, it allows the policyowner to receive the policy’s cash value. In most states, policies that build cash value must begin to accrue cash value by the end of the third policy year. For industrial life policies, cash value must be available after five years.

Answer 4

Cash Surrender

Question 5

TF: During the first two years, premiums are used to pay acquisition and admin expenses

Answer 5

True

Question 6

TF: Once the cash surrender value is exercised:

No death benefit will be paid,
The policy cannot be reinstated,
Any outstanding policy loans plus interest would be deducted from the cash surrender value, and
A surrender fee is charged at the time of cash surrender.

Answer 6

True

Question 7

The ______ _____ provision permits the insurer to delay payment of cash surrender for up to 6 months, giving them a buffer for financial crisis

Answer 7

Delayed Payment

Question 8

The _____ ____ option permits the policyowner to use the policy’s cash values to buy paid-up term insurance.

Answer 8

Extended Term

Question 9

The _____ ___-___ insurance option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the amount of the policy cash value.

Answer 9

Reduced paid-up

Question 10

TF: With the reduced paid-up insurance option, the policy may be reinstated to the original face amount within the terms of the reinstatement provision.

Answer 10

True

Question 11

TF: Key points about the reduced paid-up option:

The policy is paid-up with the cash value used as a single premium to purchase the reduced face amount coverage.
No more premium payments are made.
The insured’s attained age is used to determine the amount of reduced paid-up coverage.
Reduced paid-up insurance is the same type of whole life coverage as the original policy, except all policy riders are eliminated.

Answer 11

True

Question 12

Mutual companies issue participating policies, meaning that policyholders participate in the profits of the insurer through the receipt of __________.

Answer 12

Dividends

Question 13

Dividends become payable at the end of the ____ or ____ policy year

Answer 13

first or second

Question 14

What are the 5 dividend options?

Answer 14

Cash Payment
Reduction of Premium Payments
Accumulation at Interest
One-year Term Option
Paid-up Additions

Question 15

Dividends: for the ____ ____ option, the policyowner receives a check for the amount of the dividend.

Answer 15

Cash Payment

Question 16

Dividends: for the _____ of _____ _____ option, this option allows the policyowner to use the dividend to offset the cost of a future premium payment.

Answer 16

Reduction of Premium Payments

Question 17

Dividends: the _______ at ______ option allows the insurer to retain the dividend to be invested and grow in value. The dividend earns a rate specified in the policy.

Answer 17

Accumulation at Interest

Question 18

Dividends: The ____ ____ ___ option (or fifth dividend option), allows the policyowner to use the dividend as a single premium to purchase one-year term protection. The amount of the term coverage is based on the insured’s attained age, and the face amount can be no more than the amount of the policy’s cash value.

Answer 18

One Year Term

Question 19

Dividends: The ____ ___ ____ option allows the policyowner to use the dividend as a single premium to purchase an additional amount of whole life coverage. The amount of coverage that can be purchased is based on the insured’s attained age when the paid-up addition is purchased.

Answer 19

Paid-up Additions

Question 20

TF: Insurers automatically use the Paid-up Addition if no dividend option is selected.

Answer 20

True

Question 21

All of the following are true regarding the reduced paid-up insurance nonforfeiture option for life insurance policies, EXCEPT:
Select one:
a. With the reduced paid-up insurance option, the policy may be reinstated to the original face amount within the terms of the reinstatement provision.
b. Any outstanding policy loans plus interest would be deducted from the cash surrender value prior to purchasing reduced paid-up insurance.
c. The reduced paid-up insurance option allows the policyowner to purchase paid-up term coverage at a reduced face amount based on the amount of the policy cash value.
d. The cash values act as a single premium to purchase reduced paid-up insurance.

Answer 21

C
The reduced paid-up insurance option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the amount of the policy cash value.
The correct answer is: The reduced paid-up insurance option allows the policyowner to purchase paid-up term coverage at a reduced face amount based on the amount of the policy cash value.

Question 22

Extended term is another option of the nonforfeiture provision. If Clarice opts to no longer pay the premiums on her $100,000 whole life policy and exchanges it for an extended term policy, what will be the face value of the term insurance policy?
Select one:
a. $10,000
b. $25,000
c. $50,000
d. $100,000

Answer 22

D

Question 23

If used, this nonforfeiture option does not allow the policyowner to reinstate the original policy:
Select one:
a. All nonforfeiture options
b. Cash surrender value
c. Extended term
d. Reduced paid-up

Answer 23

B

Question 24

Which dividend option allows the policyowner to use the dividend to offset the cost of a future premium payment?
Select one:
a. Reduction of premium payments
b. Accumulation at interest
c. One-year term
d. Paid-up additions

Answer 24

A

Question 25

When the extended term option is used, the face amount is:
Select one:
a. Equal to the original coverage
b. Lower than the original coverage
c. Higher than the original coverage
d. The amount the cash value can purchase for the extended policy term

Answer 25

A

Question 26

The automatic dividend option is:
Select one:
a. Paid-up additions
b. Cash payment
c. One-year term
d. Paid-up insurance

Answer 26

A

Question 27

All of the following are nonforfeiture options, EXCEPT:
Select one:
a. Cash surrender value
b. Reduced paid-up insurance
c. Accumulate at interest
d. Extended term

Answer 27

C (A at I is a dividend option)

Question 28

Some policies offer the policyholder the opportunity to purchase additional insurance when they get married, or have children. What is the factor that determines the rate of the additional coverage?
Select one:
a. The initial date of the policy
b. The attained age of the insured when the additional insurance is purchased
c. The exclusion of a waiver of premium rider
d. The reason for wanting the additional insurance

Answer 28

B

Question 29

Which of the following provisions allows a life insurance policy to continue beyond the grace period when a premium is overdue and not paid?
Select one:
a. Assignment clause
b. Nonforfeiture option
c. Consideration clause
d. Insuring clause

Answer 29

B

Question 30

Life insurance policies that pay dividends are referred to as “participating policies”. Participating policies pay dividends to policyholders. Which of the following is a true statement about dividends?

Select one:
a. Dividends are not taxable.
b. Dividends are usually paid on an annual basis.
c. Dividends are actually a return of overcharged premiums.
d. All of the above

Answer 30

D

Question 31

_______, also known as “endorsements,” add on or take away from policy benefits

Answer 31

Riders

Question 32

The _____ of ____ rider allows the policyowner to waive premium payments during a disability, and keeps the policy in force.

Answer 32

Waiver of Premium (waives premium payments for total and permanent disability)

Question 33

At age ___ or ____, the waiver of premium rider is void.

Answer 33

60 or 65

Question 34

The waiting period for a waiver of premium rider is ____________.

Answer 34

3-6 months from the date of total disability

Question 35

The ____ of ____ of ____ allows a universal life policyowner who becomes disabled to waive the cost of death protection, but does not waive the cost of premium required to build cash value.

Answer 35

Waiver of Cost of Insurance

Question 36

The ____ ____ rider will make the insurer pay the insured a periodic income.

Answer 36

Disability Income (in some cases, premiums are waived too)

Question 37

Waiting period for the Disability Income rider?

Answer 37

Usually 3-6 months from date of total disability, pays weekly or monthly

Question 38

The _____ _____ is used for juvenile life insurance, which is typically in affect until the child reaches a certain age, usually ______ or _____

Answer 38

Payor Rider, 21 or 25

Question 39

____ _____ and _____ policies pay a lump sum payment if the insured dies in an accident, or loses major body parts in an accident.

Answer 39

AD&D

Question 40

The _____ _____ rider, 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

Answer 40

Accelerated Benefits

Question 41

This accelerated benefit rider is intended to provide a terminally ill insured with necessary funds to pay ________ expenses and _____ _____ costs during a terminal illness.

Answer 41

Medical
Nursing Home

Question 42

What rider is a type of accelerated benefit is used to pay long-term care costs?

Answer 42

Long Term Care Rider

Question 43

TF: The long-term care rider may be separate from the life policy, in which case the accelerated benefit does not reduce the death benefit, or may be incorporated into the life insurance policy, thereby reducing the death benefit or policy cash value.

Answer 43

True

Question 44

A _____ ______ rider is a type of integrated accelerated benefit that may pay up to 80% of the death benefit for a terminally ill insured expected to die within 1-2 years.

Answer 44

Living Needs

Question 45

TF: Short Term Care Rider = Accelerated Benefits Rider

Answer 45

False - LONG term care rider

Question 46

TF: The amount of the accelerated benefit varies by policy, but is usually anywhere from 25% – 80%. Insurers are permitted to pay out the entire death benefit. The accelerated benefit is not subject to tax, since the funds are used to pay for medical care.

Answer 46

True

Question 47

The _____/_____-______ Term Rider gives term protection for a specific period of time and amount. The rider typically expires when the spouse/other-insured reaches a certain age, such as 65.

Answer 47

Spouse/Other-insured

Question 48

The _____ ______ rider permits children to be insured under term rider protection on a life insurance policy for a certain length of time. Children’s term riders usually expire when children reach the age of 18 or 21.

Answer 48

Children’s Term

Question 49

The _____ _______ rider combines the spouse and children’s term rider in one rider. When this rider is added to permanent coverage, then the rider is level term.

Answer 49

Family Term

Question 50

The ______ _______ rider, also known as the exchange privilege rider, allows the insured under a life insurance policy to be changed.
The substitute insured rider is useful for business life insurance contracts where key employees change employers or retire

Answer 50

Substitute Insured

Question 51

TF: Rather than go through the policy replacement process, the substitute insured rider allows the policy to continue with the same face amount; however, the policy premiums will be refigured based on the new insured’s age, health, sex, and insurability.

Answer 51

True

Question 52

The _____ _____ ______ rider, also referred to as a multiple indemnity rider, pays an additional sum, termed the principal sum, to the beneficiary if the insured dies due to an accident. The amount paid is a multiple of the policy face amount such as double or triple.

Answer 52

Accidental Death Benefit (ADB)

Question 53

For ADB, the insured must die within a certain time period of the accident, usually ____ ____

Answer 53

90 Days

Question 54

For AD&D the insured must suffer loss within a certain time period of the accident, usually ____ ____. The four types of losses are?

Answer 54

90 Days
Both Hands
Both arms
Both Legs
Vision in both eyes

Question 55

TF: AD&D Rider = Pays Principal Sum

Answer 55

True

Question 56

The _____ ______rider, sometimes referred to as the future increase option, permits the policyowner to buy additional permanent life insurance coverage at specific points in time in the future (i.e., marriage, births, etc.) without requiring the insured to provide proof of insurability.

Answer 56

Guaranteed INsurability Rider (GIR)

Question 57

TF: For guaranteed insurability riders, the future increase option is not exercised within a specified time period, such as 90 days, of each option age, then the option is forgone. The added coverage is rated at the insured’s attained age.

Answer 57

True

Question 58

The guaranteed insurability rider usually drops off when the insured reaches the age of _____.

Answer 58

40

Question 59

TF: Guaranteed Insurability = Increase Coverage (requiring Proof of Insurability)

Answer 59

False - does NOT require POI

Question 60

The ____ of _____ ____ rider allows the policy face amount to be adjusted to account for inflation based on the consumer price index (CPI).

If the face amount is increased, the premium will be increased.
If the face amount is decreased, the premium will be decreased.
If the face amount cannot be adjusted, then an increasing term rider is added to the coverage.

Answer 60

Cost of Living Adjustment (COLA)

Question 61

The _____ of ______ 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. The death benefit is comprised of the face amount plus the total premiums paid into the policy. Most policies drop the return of premium rider when the insured reaches age 60.

Answer 61

Return of Premium

Question 62

The _____ of _____ _____ rider allows a whole life policy’s cash value to be included in the death benefit. Similar to the return of premium rider, this rider doesn’t actually return the policyowner’s cash value; instead, the rider provides the additional benefit through an increasing term rider that always equals the policy’s cash value.

Answer 62

Return of Cash Value

Question 63

A _____ rider adds term coverage to an existing life insurance policy. This can be:
Spouse/other insured,
Children,
Family,
Return of premium and
Return of cash value.

Answer 63

Term

Question 64

An _______ rider can be added onto a life insurance policy, which protects against the chance of depleting income for prolonged life

Answer 64

Annuity

Question 65

How long is the waiting period for the waiver of premium rider in life insurance policies?
Select one:
a. 3 to 6 months
b. 9 months
c. 12 months
d. 24 months

Answer 65

A

Question 66

Accelerated benefits fall into the same category as death benefits. Which of the following is NOT true about the accelerated death benefit?
Select one:
a. The insured is certified by a physician to have an illness or condition that will result in death.
b. The benefit paid is tax free.
c. There is no deduction from the death benefit.
d. The benefits can be paid weekly or monthly.

Answer 66

C

Question 67

Which disability income rider is typically attached to a juvenile life insurance policy?
Select one:
a. Waiver of premium
b. Waiver of cost of insurance
c. Disability income benefit
d. Payor rider

Answer 67

D

Question 68

Which of the following statements is true about the guaranteed insurability rider (GIR)?
Select one:
a. The insured can buy additional life insurance at specific times in the future.
b. If the option is not exercised within 90 days of the specific time, the option is forgone.
c. The guaranteed insurability rider usually drops off at age 40.
d. All of the above

Answer 68

D

Question 69

Which of the following best describes the benefit provided by a payor benefit rider?
Select one:
a. Permanent waiver of the policy premium
b. Temporary waiver of the policy premium
c. Monthly disability income benefit
d. Triple indemnity death benefit

Answer 69

B

Question 70

Which life insurance rider is also referred to as the living benefit rider and allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness?
Select one:
a. Accelerated benefit rider
b. Substitute insured rider
c. Multiple indemnity
d. AD&D

Answer 70

A

Question 71

Jack is a fighter pilot in the Air Force and flies F16 jets. There are exclusions in his life insurance policy for death or injury related to war. What happens to the accidental death and dismemberment benefits of his life insurance policy if he loses his vision in both eyes in a car accident while home on leave?
Select one:
a. The policy does not pay because he is in the Air Force.
b. The policy does not pay because he did not die.
c. The policy pays because the accident was not war related.
d. The dismemberment part of the policy only covers loss of limbs.

Answer 71

C

Question 72

Which of the following riders pays back the premiums paid into a life insurance policy as long as the insured dies within the time as specified in the policy?
Select one:
a. Return of cash value
b. Automatic premium loan
c. Excess interest provision
d. Return of premium

Answer 72

D

Question 73

Which life insurance rider covers the insured’s spouse and three children in one rider ?
Select one:
a. Multiple indemnity
b. Family term rider
c. Children’s term rider
d. Spouse/other-insured term rider

Answer 73

B

Question 74

There are many different riders that can be added to a life insurance policy. Which of the following statements pertain to riders?
Select one:
a. Riders meet unique needs of policyholders.
b. A rider is an endorsement to a policy.
c. Policy benefits can be added to or taken away from policy benefits by a rider.
d. All of the above

Answer 74

D

Question 75

What type of life insurance policy is the waiver of cost of insurance rider used for?
Select one:
a. Modified whole life
b. Variable life
c. Straight life
d. Universal life

Answer 75

D

Question 76

Which life insurance rider allows the policyowner to waive premium payments during a disability, while keeping the policy in force?
Select one:
a. Waiver of premium rider
b. Waiver of cost of insurance
c. Disability income benefit
d. Payor rider

Answer 76

A

Question 77

The definition of what constitutes accidental death is defined in each policy. The accidental death benefit usually excludes deaths from accidents that occur while committing a crime, non-commercial aviation, and acts of war. How long does the accidental death benefit remain part of the policy?
Select one:
a. The benefit does not expire.
b. The benefit expires when the insured reaches 50 years of age.
c. The benefit expires when the insured becomes disabled.
d. The benefit expires when the insured reaches a certain age, usually 65.

Answer 77

D

Question 78

A long-term care rider provides qualifying individuals with funds to pay long-term expenses while the insured is still alive. What is the typical maximum percentage of the death benefit that can be paid by this rider?

Select one:
a. 75%
b. 50%
c. 25%
d. 80%

Answer 78

D

Question 79

Sometimes an insurance rider is needed for a non-family member such as a key employee in an organization. Which of the following riders would be used in this circumstance?
Select one:
a. Guaranteed insurability rider
b. Annuity rider
c. Substitute insurance rider
d. None of the above

Answer 79

C