Life Insurance Policy Provisions, Options, and Riders (CH 5)

Question 1

Absolute Assignment

Answer 1

The assignment by the policy owner of all control and rights to a third party. This differs from collateral assignment, which allows all the rights and control to revert to the owner once a loan is paid off.

Question 2

ADB

Answer 2

Accidental Death Benefit, also known as double Indemnity. There is another variation called triple indemnity.

Question 3

Beneficiary

Answer 3

A person or entity who may become eligible to receive, or is receiving, benefits under an insurance plan, other than as a participant.

Question 4

Cash Surrender Value

Answer 4

The value reposing in a policy that is the legal property of the policy owner and that may be expected should the policy be surrendered for cash. Synonymous with cash value.

Question 5

Collateral Assignment

Answer 5

The assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured’s death. This agreement is temporary.

Question 6

Double Indemnity

Answer 6

Payment of twice the basic benefit in the event of loss resulting from specified cause or under specific circumstances.

Question 7

Exclusions

Answer 7

Causes, conditions, or property listed in the policy that are not covered and for which no benefits are payable.

Question 8

Execution Clause

Answer 8

A statement in a life insurance policy that specifies the proof needed for a payment of the proceeds.

Question 9

Extended Term Option

Answer 9

A Life Insurance non-forfeiture option, under which the insured uses the policy’s cash value accumulation to purchase single-premium Term Insurance in an amount equal to the original policy face amount.

Question 10

Facility of Payments Clause

Answer 10

A statement found in weekly premium policies that allows the insurer to pay up to $1,00 of benefits or proceeds to any relative appearing entitled to it if there is not beneficiary, or if the insured or beneficiary is a minor or legally incompetent.

Question 11

Grace Period

Answer 11

A period of time after the premium due date during which a policy remains in force without penalty, even though the premium due has not been paid.

Question 12

Consideration Clause

Answer 12

A clause in a Life policy specifying the premium due for the insurance protection and the frequency of payment (also called mode).

Question 13

Guaranteed Insurability

Answer 13

A rider in Life and Health Insurance contracts that permits the insured to buy additional prescribed amounts of insurance, at prescribed intervals, without evidence of insurability.

Question 14

Incontestability Clause

Answer 14

Provides that, after the policy has been in force a certain length of time, the company can no longer contest or void it, except for nonpayments of premiums or the insurer proving fraud. That time period is usually two years.

Question 15

Insuring Clause

Answer 15

The clause in a policy that specifies, in brief, the contract’s intent and benefits.

Question 16

Irrevocable Beneficiary

Answer 16

Cannot be changed without the named beneficiary’s consent, and the irrevocable beneficiary takes over the owner-like rights to the policy.

Question 17

Life Income Option

Answer 17

A settlement option that provides for payments during the entire life of the payee. There are four methods: 1) Straight life income- the payee receives a specified income for life, with no refunds upon death; 2) Refund Annuity- income is paid for the lifetime of the payee and a remainder goes to a second payee in installments or a lump sum if the first dies before receiving the full proceeds of the policy; 3) Life income certain- the payee receives installments for life with a second payee receiving the payments if the first dies before the end of the time specified in the certain period; 4) Joint and reduced survivor life income- two payees are recipients of the income for the life of the first. The surviving payee then receives a lesser amount.

Question 18

Misstatement of Age

Answer 18

Provides that, if misstatement of age is discovered after policy issue, the company can, if the insured is currently alive, adjust the premium amount on future premiums and request payment of the additional premium the policy owner should have paid. If the insured has died, the company can adjust the face amount of the policy to fit the premium that was paid at the correct age before paying the claim.

Question 19

Non-forfeiture Option

Answer 19

A legal provision whereby the policy owner may take the accumulated values in a policy as: 1) Paid up permanent insurance for a lesser amount, 2) Extended Term Insurance, or 3) Lump sum payments of cash value, less and unpaid premiums or outstanding loans.

Question 20

Premium Mode

Answer 20

The frequency with which premiums are paid.

Question 21

Reduced Paid-Up Insurance Option

Answer 21

A non-forfeiture option under which the insured uses the cash value of his present policy to purchase a single-premium Whole Life policy, at attained-age rates, for a reduced face amount. The policy will then stay in force to age 121.

Question 22

Reinstatement Clause

Answer 22

Provides the conditions under which a lapsed policy may be reinstated, if approved by the insurance company.

Question 23

Revocable Beneficiary

Answer 23

A named beneficiary on a policy in which the policy owner has the right to change at any time and for any reason.

Question 24

Viatical Settlement

Answer 24

A situation in which a terminally ill policy owner gives up his or her rights to a life insurance policy in exchange for an advance payment of a portion of the death proceeds.

Question 25

What is the maximum fixed interest rate a loan company can charge on on a loan against a whole life policy?

Answer 25

8%

Question 26

If a policy is going to be exchanged, altered or converted, the new policy must be

Answer 26

for the amount of the original policy.

Question 27

A trust can be set up as the beneficiary of a life policy. An Inter vivos trust setup while the insured is alive. What is created upon the insured’s death?

Answer 27

Testamentary

Question 28

What nonforfeiture option will still accumulate cash values?

Answer 28

Reduced paid up

Question 29

If an insured becomes totally disabled under a Universal Life Policy, what benefit may be available if the proper rider was purchased?

Answer 29

Waiver of cost of insurance

Question 30

An insurer can defer payment on what for 6 months?

Answer 30

Withdrawals or partial surrenders

Question 31

Which rider would pay the loss of net earned income?

Answer 31

Disability Income Benefit

Question 32

When a company has been properly notified of a valid death claim, the company is obligated to pay the claim within

Answer 32

2 months

Question 33

What rider helps keep policies up to speed with inflation?

Answer 33

Cost of Living Rider

Question 34

What type of term insurance is used to provide the death benefit of a return of premium rider?

Answer 34

Increasing Term

Question 35

What factor is considered in determining the amount payable under the interest ONLY settlement option in life insurance policies?

Answer 35

The amount of the policy proceeds.

Question 36

The company can contest for policy misstatements or misrepresentations for up to 2 years

Answer 36

after the policy date.

Question 37

Which rider would be included in a policy with whole life insurance on the principal insured and term insurance on the insured’s spouse and children?

Answer 37

Family Rider

Question 38

What clause in an insurance contract says only the items included in the contract can be admitted on court as evidence?

Answer 38

Entire Contract Clause says only the contract can be used in a court of laws. the contract is composed of the main body of the contract or policy; a copy of the application, any exclusion or amendment riders added by the company and agreed to by the policy owner, and any attached riders purchased by the policy owner. Once the contract is issued it may not be modified without the written permission of both the company and the policy owner.

Question 39

What describes a Whole Life policy’s death benefit?

Answer 39

It includes the face amount, interest from the date of death, return of unearned premiums, and the cash value (if left to accumulate) or death benefit value (if paid-up additional insurance) of the dividends.

Question 40

A beneficiary designation that follows family lines is known as

Answer 40

per stirpes- which means by the root or branch. It divides a deceased child’s proceeds equally among any grandchildren.

Question 41

The non-forfeiture option that provides the most life insurance protection is the

Answer 41

extended term option.

This option continues the same face amount for a stated number of years and days.

Question 42

The payor benefit typically waives premiums on a juvenile policy if the

Answer 42

person who pays the premium dies or becomes disabled before the insured child reaches a certain age.

Question 43

What is NOT part of a life insurance policy?

Answer 43

Conditional Receipt

Question 44

If an insured becomes totally disabled under a Universal Life Policy, what benefit may be available if the proper rider was purchased?

Answer 44

Waiver of cost of insurance

Question 45

The amount payable as a death benefit in an accidental death and dismemberment policy is known as the

Answer 45

principal sum

Question 46

All of the following statements about the ownership provision in a life insurance policy are true, EXCEPT:

Answer 46

it states the insurer will pay the proceeds to the beneficiary upon receiving proof of the insured’s death

Question 47

A Family Income plan is designed by adding what type of insurance as a rider to a whole life policy?

Answer 47

Decreasing Term