Chapter 5: Provisions, Options, Riders and Exclusions

Question 1

TF: Only the policyowner has the right to request permitted changes to the policy. Only an authorized officer of the insurer can make changes to a policy. All changes must be made in writing, attached to the policy, and signed by the authorized officer of the insurer. Insurance producers cannot make any changes to a policy.

Answer 1

True

Question 2

_______ are the characteristics, privileges, duties of all parties, and rights of a policy.

Answer 2

Provisions

Question 3

____ involve how policy funds are utilized

Answer 3

Options

Question 4

______ are policy elements that “ride on” or add to the existing coverage by modifying provisions or coverage.

Answer 4

Riders

Question 5

TF: Entire Contract = Policy + Application + Riders

Answer 5

True

Question 6

The _____ _____ is the insurer’s promise to pay.

Answer 6

Insuring Clause

Question 7

TF: The contingent beneficiary is included in the insuring clause.

Answer 7

False

Question 8

The insuring clause includes:?

Answer 8

Names the individuals covered by the policy,
States the policy effective date,
States the period of coverage,
Is usually included on the policy face,
Includes the face amount of the policy,
Includes the names of the insurer, and
The insured.

Question 9

_____ _____ provision - allows policyowner 10 days from delivery to examine the policy

Answer 9

Free Look

Question 10

The _____ _____ states that a policyowner must pay a premium in exchange for the insurer’s promise to pay benefits.

Answer 10

Consideration Clause

Question 11

The ____ _____ is the stipulated period of time policyowners are allotted to pay an overdue premium, during which the policy remains in force.

Answer 11

Grace period

Question 12

Most policies have grace period of ____ or ___ days; If an insured dies during the grace period, the ______ plus ______ is deducted from the death benefits.

Answer 12

30 or 31
Premium
Interest

Question 13

TF: A policy that has been surrendered for its cash value can be reinstated if the cash is paid back.

Answer 13

false

Question 14

The _______ provision permits the policyowner to reinstate a policy that has lapsed, as long as the policyowner can provide proof of insurability. In most states, this provision allows policyowners to reinstate a policy up to ____ years after the lapse date.

Answer 14

Reinstatement
3

Question 15

To reinstate a lapsed policy, the policyowner must pay back all due ______ with ______.

Answer 15

Premiums
Interest

Question 16

TF: Misstatement of Age = Correct Premium or Death Benefit

Answer 16

True

Question 17

How long until a policy can start building cash value?

Answer 17

Typically 3 years

Question 18

TF: Policy loans are taxable and subject to interest

Answer 18

False, NOT taxable

Question 19

TF: Outstanding policy loans do not cause the policy to lapse unless the cash value in the policy is less than the total amount of indebtedness against the policy.

Answer 19

True (followed by written notice and 30 day grace period)

Question 20

Insurers may postpone a policy loan request for a max of ________ months, unless the loan is requested to pay a premium.

Answer 20

6

Question 21

The ____ ____ ____ provision allows the insurer to automatically use the policy cash value to pay an overdue premium

Answer 21

Automatic Premium Loan (APL)

Question 22

For withdrawals or partial surrenders of policy cash value, the insurer has up to ____ months to pay, but usually pay very quickly

Answer 22

6

Question 23

the ______ ______ prevents the insurer from denying a claim or voiding a life insurance policy, except for nonpayment of premiums, after the policy has been in force for _____ years.

Answer 23

Incontestability Clause
2

Question 24

If the insurer discovers the applicant made a misstatement of age or sex, the mistake will be corrected and the ____ _____ _____ will be adjusted accordingly.

Answer 24

Policy Face Amount

Question 25

Three situations allowing an insurer to contest or void a policy:

Answer 25

Lack of insurable interest – if there was not an insurable interest at policy outset, the insurer may contest the policy at any time.
Impersonation – if the applicant for a life policy is not the person who signs the application or undergoes the medical exam, the insurer may contest the policy and the death claim.
Murder – if the applicant is shown to have applied for a life insurance policy with the intent on murdering the insured, the insurer may contest the policy and the death claim.

Question 26

The _____ ____ transfers ownership of a policy, but does not change the named insured or the face amount of the policy

Answer 26

Assignment Clause

Question 27

TF: if an irrevocable beneficiary has been named, that beneficiary must consent to the assignment in writing.

Answer 27

True

Question 28

An ______ or _______ assignment occurs when the policyowner assigns all rights – including cash values – to another person or entity permanently. Absolute assignment means the policyowner has surrendered all rights, and the assignee, in essence, becomes the new policyowner.

Answer 28

Absolute (permanent)
Complete

Question 29

A _____ or ______ assignment is the partial and temporary transfer of rights to another person or entity. Collateral assignments are usually intended for securing a loan.

Answer 29

Collateral (temporary)
Partial

Question 30

A _________ assignment can be done instead of purchasing a credit life policy

Answer 30

Collateral

Question 31

____ are the applicant’s statements in the application.

Answer 31

Representations

Question 32

The _______ ______ states that the policy is established when all parties tot he contract have met the policy[s conditions

Answer 32

Execution Clause

Question 33

The ____ ____ _____ provision stipulates that:
When premium payments are due,
How they must be paid, and
To whom they must be paid.

Answer 33

Payment of Premiums

Question 34

four premium payment modes>

Answer 34

Monthly
Quarterly
Semiannually
Annually

Question 35

Length of time insurer has to pay death benefit (once the death certificate is received)?

Answer 35

60 days

Question 36

Legal action against an insurer cannot be taken until ____ _____ since the insurer received proof of loss, and must occur within ___ ___ proof of loss was received.

Answer 36

60 days
2 years

Question 37

In third party ownership, who are the three parties to the contract?

Answer 37

Policyowner, Insured and Insurer

Question 38

TF: the policyowner must have an insurable interest in the life of the insured

Answer 38

True

Question 39

Third party ownership, called _____ _____ _____ ____, or ________, a consumer purchases a life insurance policy with the agreement that a third party agent/broker or investor will purchase the consumer’s policy and receive the proceeds as a profit upon the consumer’s death.

Answer 39

Stranger Oriented Life Insurance, STOLI

Question 40

Under STOLI, the insured is usually either _____ or ____ _____.

Answer 40

Elderly (65 to 85 years)
Terminally ill

Question 41

_____ ____ ____ ____ is a type of STOLI, where investors solicit elderly people to purchase life insurance, and an agent or broker agrees to loan insureds money to pay the premiums for a period of time, with the agreement that after two years of paying premiums the investors become the policyowners, and receive the policy death benefits upon the insured’s death.

Answer 41

Investor Originated Life Insurance (IOLI)

Question 42

Why are STOLI arrangements ethical dilemmas?
Select one:
a. Because life insurance cannot be sold to third parties
b. All of the above
c. Because the insured receives a lump-sum payment from a third party when the policy is sold to the stranger/investor
d. Because the investor/stranger does not have an insurable interest in the insured

Answer 42

D

Question 43

Hank wants to understand his rights as the owner of a life insurance policy. All of the following are rights under the owners’ rights provision, EXCEPT:
Select one:
a. Changing the beneficiary
b. Assigning rights to another party
c. Choice of premium payment mode
d. Changing the grace period

Answer 43

D

Question 44

A policyholder has the right to examine the policy purchased. If the policy owner returns the policy to the insurer within the specified time, to be cancelled, he/she can expect:
Select one:
a. A pro-rated refund
b. No refund
c. A one month refund
d. A full refund

Answer 44

D

Question 45

If no beneficiary is named in the insuring clause of a life policy, what happens to the benefit proceeds?
Select one:
a. The proceeds go to the next of kin.
b. The proceeds go to the children of the insured.
c. The proceeds go to the parents of the insured.
d. The proceeds go to the estate of the insured.

Answer 45

D

Question 46

Dianne’s life policy lapsed due to unpaid premiums. Which of the following statements is not true about conditions to reinstate a policy?
Select one:
a. Back premiums must be paid.
b. Policy loans and interest must be repaid.
c. The policyowner must provide proof of insurability.
d. The policy has not been expired for more than 1 year.

Answer 46

D

Question 47

Once a life insurance policy has been in force for two years, the incontestable clause prevents the insurer from denying a claim or canceling the policy for anything other than nonpayment of premiums. Which of the following is NOT a reason for voiding a policy during the contestable period?
Select one:
a. Not divulging drug use
b. Hiding a life-threatening medical condition
c. Misstatement of age
d. Neglecting to provide information on medical treatment(s) received

Answer 47

C

Question 48

Transfer of ownership rights from one person to another is described by the:
Select one:
a. Assignment clause
b. Entire contract
c. Nonforfeiture benefits
d. Reinstatement

Answer 48

A

Question 49

Barney dies during the grace period of a life insurance policy. The insurer will:
Select one:
a. Void the policy
b. Pay half the death benefit
c. Pay the full death benefit
d. Pay the death benefit minus the overdue premium

Answer 49

D

Question 50

The applicant’s statements in the application are considered ______________ and not _____________, unless fraudulent.
Select one:
a. fraud; warranties
b. warranties; representations
c. representations; warranties
d. absolute truth; the insured’s best knowledge

Answer 50

C

Question 51

When a misstatement of age on a life insurance application is found, what action can the insurer take?

Select one:
a. Nothing, if found after the contestable period
b. Reduce the cash value
c. Void the policy
d. Adjust benefits and or premium to reflect correct age

Answer 51

D

Question 52

The automatic premium loan provision is best described by the following:
Select one:
a. Surrenders the policy for its cash value
b. Uses the cash value to pay unpaid premiums, thereby keeping the policy in force
c. Cancels the death benefit
d. Automatically pays policy premiums

Answer 52

B

Question 53

The ____________ clause states that the insurance coverage is in place on application and the payment of the first premium.
Select one:
a. Payment of premium
b. Insuring
c. Consideration
d. Applicant control

Answer 53

C

Question 54

The entire contract clause of a life policy provides all of the following, EXCEPT:
Select one:
a. A copy of the insured’s application
b. Approved riders and endorsements
c. A copy of the basic policy
d. Permission for producer to make changes to the policy

Answer 54

D

Question 55

Which type of assignment is partial and temporary?
Select one:
a. Absolute
b. Involuntary
c. None
d. Collateral

Answer 55

D

Question 56

All of the following are part of the entire contract provision, EXCEPT:
Select one:
a. States that the insurer’s promise to pay benefits is contingent upon the policyowner’s premium payments
b. States who can make changes to the contract
c. Policy
d. Application

Answer 56

A

Question 57

Paul has a $50,000 whole life insurance policy. At the time of his death he has an outstanding policy loan in the amount of $10,000. The insurer will deduct the outstanding loan from the:

Select one:
a. surrender value
b. cash value
c. withdrawal amount
d. policy proceeds

Answer 57

D

Question 58

All of the following statements are true regarding the APL provision in a life insurance policy, EXCEPT:
Select one:
a. The APL provision prevents policies from unintended lapse caused by nonpayment of premium.
b. The APL is unlike other policy loans, and if not repaid, it will not reduce the death benefit by the amount of the premium loan with interest.
c. APL stands for automatic premium loan.
d. The APL provision allows the insurer to automatically use policy cash value to pay an overdue premium.

Answer 58

B

Question 59

What part of the insurance contract contains the insurer’s promise to pay benefits?

Select one:
a. Consideration clause
b. Insuring clause
c. Payment of claims
d. Execution clause

Answer 59

B

Question 60

Which of the following does NOT happen if an insured dies during the grace period of a policy?
Select one:
a. The face amount of the policy is paid to the beneficiary.
b. The overdue premium is deducted from the paid benefit.
c. Any interest due on the overdue premium is deducted from the benefit.
d. The insurance company is relieved of any responsibility to pay a benefit.

Answer 60

D

Question 61

Which of the following policies allows partial withdrawals or surrenders?

Select one:
a. Whole life
b. Level term
c. Increasing term
d. Decreasing term

Answer 61

A

Question 62

____ are provisions which exclude or limit coverage, and are intended to protect the insurer from adverse selection and misuse of policies.

Answer 62

Exclusions

Question 63

Suicide Clause - won’t pay out if the insured commits suicide within _______ from the policy effective date. If after this time period, the policy will pay out regardless.

Answer 63

1 or 2 years

Question 64

Suicide clause - If an insured commits suicide within the time frame, the insurer will:

Answer 64

repay the premiums paid, without interest

Question 65

TF: AviationClause - insurer will not pay claim if the insured dies due to involvement with aviation. Commercial flights as fare paying passengers is fine though

Answer 65

True

Question 66

TF: AviationClause - insurer will not pay claim if the insured dies due to involvement with aviation. Commercial flights as fare paying passengers is fine though.

Answer 66

True

Question 67

Aviation Clause = charge higher premiums

Answer 67

True

Question 68

TF: Aviation Clause = charge higher premiums

Answer 68

True

Question 69

Two kinds of war or military service exclusions?

Answer 69

Status Clause - claim wont be paid if dies during active military service
Results Clause - claim wont be paid if dies during an act of war

Question 70

Two kinds of war or military service exclusions (only effective during wartime)?

Answer 70

Status Clause - claim wont be paid if dies during active military service
Results Clause - claim wont be paid if dies during an act of war

Question 71

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 71

Claim won’t be paid out if insured dies doing something dangerous
Sometimes, instead of excluding coverage, insurers will just charge a higher premium to offset the increased risk

Question 72

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 72

True

Question 73

______ are policy changes and must be made by an authorized officer of the insurer and attached to the policy. Only the policyowner has the right to request changes. Insurance producers cannot make any policy change. Changes to the policy can only be implemented by an executive officer of the insurer.

Answer 73

Modifications

Question 74

Who pays for an autopsy or medical exam?

Answer 74

Insurer

Question 75

_____ ____ provision: when a life insurance policy’s interest rate becomes greater than the assumed interest rate, the policy will build excess cash value.

Answer 75

Excess Interest Provision

Question 76

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 76

D

Question 77

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 77

C

Question 78

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 78

D

Question 79

Which provision in a life insurance policy provides the insurer with the right of medical examination and autopsy?
Select one:
a. Excess interest provision
b. Modifications
c. Medical examination and autopsy
d. APL

Answer 79

C

Question 80

What are the two types of war/military service exclusions?
Select one:
a. Suicide and aviation
b. Aviation and jet aircraft
c. Status clause and results clause
d. Airplane clause and passenger clause

Answer 80

C

Question 81

The aviation clause excludes all of the following accidents, EXCEPT:
Select one:
a. Individual who dies while flying in a commercial aircraft as a fare-paying passenger
b. Individual who dies while performing as an acrobatic pilot in an air show
c. Charter pilot who loses control of the plane in a thunderstorm, and dies
d. Air Force pilot whose jet aircraft explodes

Answer 81

A

Question 82

To prevent individuals intending to commit suicide from purchasing life insurance, policies include a suicide clause. How long is the suicide clause in effect.

Select one:
a. 3 months
b. 1 year
c. 2 years
d. 5 years

Answer 82

C

Question 83

What will the insurance company do if an insured commits suicide after the suicide clause expires?
Select one:
a. Pay the death benefit
b. Refund the premiums paid to the beneficiary
c. Refund the premiums paid with interest, to the beneficiary
d. Void the policy

Answer 83

A

Question 84

Which of the following is a situation where the insurance company refunds premiums paid?
Select one:
a. Insured commits suicide during the suicide clause period
b. Insured cancel the policy because he found a better deal
c. Insured files a fraudulent claim
d. None of the above

Answer 84

A

Question 85

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 85

Claim won’t be paid out if insured dies doing something dangerous

Question 86

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 86

True

Question 86

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 86

D

Question 87

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 87

D

Question 87

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 87

C

Question 87

Which of the following is a situation where the insurance company refunds premiums paid?
Select one:
a. Insured commits suicide during the suicide clause period
b. Insured cancel the policy because he found a better deal
c. Insured files a fraudulent claim
d. None of the above

Answer 87

A

Question 88

All of the following statements are true of the modifications provision in a life insurance policy, EXCEPT:
Select one:
a. Modifications are policy changes.
b. Modifications must be made by an authorized officer of the insurer.
c. Insurance producers can make any policy change.
d. Only the policyowner has the right to request changes.

Answer 88

C

Question 89

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 89

D

Question 90

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 90

C

Question 90

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 90

Claim won’t be paid out if insured dies doing something dangerous

Question 90

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 90

True

Question 91

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 91

D

Question 92

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 92

True

Question 92

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 92

D

Question 92

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 92

Claim won’t be paid out if insured dies doing something dangerous

Question 92

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 92

C

Question 93

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 93

D

Question 94

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 94

True

Question 94

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 94

D

Question 94

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 94

Claim won’t be paid out if insured dies doing something dangerous

Question 94

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 94

C

Question 95

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 95

D

Question 96

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 96

C

Question 97

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 97

Claim won’t be paid out if insured dies doing something dangerous

Question 97

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 97

D

Question 97

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 97

True

Question 98

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 98

D

Question 99

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 99

Claim won’t be paid out if insured dies doing something dangerous

Question 100

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 100

True

Question 101

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 101

D

Question 101

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 101

C

Question 102

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 102

D

Question 103

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 103

Claim won’t be paid out if insured dies doing something dangerous

Question 104

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 104

True

Question 104

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 104

C

Question 105

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 105

D

Question 105

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 105

D

Question 106

TF: Hazardoes Occupation or Hobby Clause - what does it do?

Answer 106

Claim won’t be paid out if insured dies doing something dangerous

Question 107

TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony

Answer 107

True

Question 108

What is the purpose of the hazardous occupation clause?
Select one:
a. To exclude losses while the insured is fulfilling military service
b. To exclude losses if the insured dies as a results of war
c. To exclude losses if the insured commits suicide during the first two years the policy is in force
d. To exclude losses if the insured dies as a result of a hazardous occupation or hobby

Answer 108

D

Question 108

All of the following life insurance provisions are considered exclusions, EXCEPT:
Select one:
a. Suicide clause
b. Aviation clause
c. War service clause
d. Cash loan

Answer 108

D

Question 108

Which of the following is a provision that requires any change to a life insurance policy be made by an executive officer of the insurer, and attached to the policy?
Select one:
a. Cash loan
b. APL
c. Modifications
d. Excess interest provision

Answer 108

C