Chapter 5: Provisions, Options, Riders and Exclusions Flashcards
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.
True
_______ are the characteristics, privileges, duties of all parties, and rights of a policy.
Provisions
____ involve how policy funds are utilized
Options
______ are policy elements that “ride on” or add to the existing coverage by modifying provisions or coverage.
Riders
TF: Entire Contract = Policy + Application + Riders
True
The _____ _____ is the insurer’s promise to pay.
Insuring Clause
TF: The contingent beneficiary is included in the insuring clause.
False
The insuring clause includes:?
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.
_____ _____ provision - allows policyowner 10 days from delivery to examine the policy
Free Look
The _____ _____ states that a policyowner must pay a premium in exchange for the insurer’s promise to pay benefits.
Consideration Clause
The ____ _____ is the stipulated period of time policyowners are allotted to pay an overdue premium, during which the policy remains in force.
Grace period
Most policies have grace period of ____ or ___ days; If an insured dies during the grace period, the ______ plus ______ is deducted from the death benefits.
30 or 31
Premium
Interest
TF: A policy that has been surrendered for its cash value can be reinstated if the cash is paid back.
false
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.
Reinstatement
3
To reinstate a lapsed policy, the policyowner must pay back all due ______ with ______.
Premiums
Interest
TF: Misstatement of Age = Correct Premium or Death Benefit
True
How long until a policy can start building cash value?
Typically 3 years
TF: Policy loans are taxable and subject to interest
False, NOT taxable
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.
True (followed by written notice and 30 day grace period)
Insurers may postpone a policy loan request for a max of ________ months, unless the loan is requested to pay a premium.
6
The ____ ____ ____ provision allows the insurer to automatically use the policy cash value to pay an overdue premium
Automatic Premium Loan (APL)
For withdrawals or partial surrenders of policy cash value, the insurer has up to ____ months to pay, but usually pay very quickly
6
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.
Incontestability Clause
2
If the insurer discovers the applicant made a misstatement of age or sex, the mistake will be corrected and the ____ _____ _____ will be adjusted accordingly.
Policy Face Amount
Three situations allowing an insurer to contest or void a policy:
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.
The _____ ____ transfers ownership of a policy, but does not change the named insured or the face amount of the policy
Assignment Clause
TF: if an irrevocable beneficiary has been named, that beneficiary must consent to the assignment in writing.
True
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.
Absolute (permanent)
Complete
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.
Collateral (temporary)
Partial
A _________ assignment can be done instead of purchasing a credit life policy
Collateral
____ are the applicant’s statements in the application.
Representations
The _______ ______ states that the policy is established when all parties tot he contract have met the policy[s conditions
Execution Clause
The ____ ____ _____ provision stipulates that:
When premium payments are due,
How they must be paid, and
To whom they must be paid.
Payment of Premiums
four premium payment modes>
Monthly
Quarterly
Semiannually
Annually
Length of time insurer has to pay death benefit (once the death certificate is received)?
60 days
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.
60 days
2 years
In third party ownership, who are the three parties to the contract?
Policyowner, Insured and Insurer
TF: the policyowner must have an insurable interest in the life of the insured
True
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.
Stranger Oriented Life Insurance, STOLI
Under STOLI, the insured is usually either _____ or ____ _____.
Elderly (65 to 85 years)
Terminally ill
_____ ____ ____ ____ 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.
Investor Originated Life Insurance (IOLI)
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
D
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
D
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
D
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.
D
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.
D
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
C
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
A
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
D
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
C
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
D
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
B
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
C
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
D
Which type of assignment is partial and temporary?
Select one:
a. Absolute
b. Involuntary
c. None
d. Collateral
D
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
A
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
D
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.
B
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
B
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.
D
Which of the following policies allows partial withdrawals or surrenders?
Select one:
a. Whole life
b. Level term
c. Increasing term
d. Decreasing term
A
____ are provisions which exclude or limit coverage, and are intended to protect the insurer from adverse selection and misuse of policies.
Exclusions
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.
1 or 2 years
Suicide clause - If an insured commits suicide within the time frame, the insurer will:
repay the premiums paid, without interest
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
True
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.
True
Aviation Clause = charge higher premiums
True
TF: Aviation Clause = charge higher premiums
True
Two kinds of war or military service exclusions?
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
Two kinds of war or military service exclusions (only effective during wartime)?
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
TF: Hazardoes Occupation or Hobby Clause - what does it do?
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
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
______ 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.
Modifications
Who pays for an autopsy or medical exam?
Insurer
_____ ____ provision: when a life insurance policy’s interest rate becomes greater than the assumed interest rate, the policy will build excess cash value.
Excess Interest Provision
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
D
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
C
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
D
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
C
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
C
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
A
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
C
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
A
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
A
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
D
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
D
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
C
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
A
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.
C
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
D
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
C
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
D
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
D
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
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
C
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
D
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
D
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
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
C
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
D
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
C
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
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
D
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
D
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
D
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
C
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
D
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
C
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
D
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
D
TF: Hazardoes Occupation or Hobby Clause - what does it do?
Claim won’t be paid out if insured dies doing something dangerous
TF: Felony Clause - claims won’t be paid out if death results of the insured committing a felony
True
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
D
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
D
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
C
