Life Insurance Policy Provisions, Riders, and Options Flashcards

1
Q

What is the difference between absolute and collateral assignment?

A

An absolute assignment permanently transfers all rights of ownership to another person or entity. A collateral assignment is a transfer of partial rights to another person.

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2
Q

What constitutes the entire contract?

A

The policy and a copy of the application, along with any riders or amendments, form the entire contract.

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3
Q

What is the free-look period, and when does it begin?

A

The free-look period allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. It starts when the policyowner receives the policy, not when the insurer issues the policy.

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4
Q

What is the purpose of a grace period?

A

To prevent unintentional policy lapse for nonpayment of premiums.

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5
Q

What is the difference between a revocable and irrevocable beneficiary?

A

The policyowner may change a revocable beneficiary at anytime. An irrevocable designation, however, may not be changed without the written consent of the beneficiary.

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6
Q

What happens to an unpaid policy at insured’s death?

A

If there are outstanding loans at the time of the insured’s death, the amount will be considered a debt to the policy and the death benefit will be reduced by the amount of indebtedness.

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7
Q

What is the purpose of the Automatic Premium Loan provision?

A

It prevents the unintentional lapse of a policy due to nonpayment of the premium.

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8
Q

Which riders increase the amount of the death benefit?

A

Accident death rider - pays double or triple the amount of face value; Cost of Living rider - automatically increase the amount of insurance based on an inflation index; Return of Premium - pays back all the premiums in addition to the death benefit.

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9
Q

Which rider allows the early payment of a portion of the death benefit to the insured?

A

Accelerated death benefits rider.

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10
Q

What are the 3 nonforfeiture options in life insurance polices?

A

Cash surrender value, reduced paid-up insurance or extended term option

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11
Q

Which nonforfeiture option is automatically selected if the policyowner has not made a selection?

A

If the policyowner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy.

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12
Q

Which dividend option increases the death benefit?

A

Paid-up additions increase the death benefit of the original policy by whatever amount the dividend will buy.

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13
Q

What settlement options are available in life insurance policies?

A

Cash payment (lump-sum), life income, interest only, fixed-amount installments.

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14
Q

Under what circumstances will the contingent beneficiary receive the death benefit?

A

If the primary beneficiary dies before the insured.

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15
Q

A life insurance policy clause that prevent an insurance company from denying payment of a death claim after a specified period of time is known as the

A

Incontestability clause.

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16
Q

When a death claim is submitted, the insurer discovered that the insured understated her age on the application for a life policy. What action will the insurer take?

A

Pay a reduced death benefit based on the insured’s actual age.

17
Q

Which of the following terms refers to the transfer of some or all of the ownership rights of a life insurance policy from one individual to another?

A

Assignment

18
Q

Which of the following is true about the mandatory free-look period in a life insurance policy have been paid out. Which settlement option did this beneficiary choose?

A

Fixed amount

19
Q

Which of the following features allows an insurance policy to remain in the force for a specific number of days beyond the premium due date?

A

Grace period provision

20
Q

The insured pays $1,200 annually for her life insurance premium. This year, she has accumulated $175 worth of dividends, which she applies to her next premium, thus reducing it to $1,025. What dividend option has the insured chosen?

A

Reduction of premium

21
Q

All the following are nonforfeiture options in life insurance policies EXCEPT

A

Automatic Premium Loans.

22
Q

In order to reinstate a life insurance policy the insured must do all of the following EXCEPT

A

Pay next year’s premium in advance.

23
Q

Which of the following statements is true of both the fixed-period and fixed-amount settlement options?

A

Both guarantee that the principal and interest will be fully paid out.

24
Q

Which of the following is NOT a standard exclusion in life insurance policies?

A

Disability

25
Q

Which of the following is a characteristic of a revocable beneficiary designation?

A

Policyowner can change beneficiary designation anytime without consent of beneficiary.

26
Q

Because of an injury, an insured has been unable to work for 7 months. He wasn’t able to pay his life insurance policy premium, yet the policy remained in force. The policy includes

A

Waiver of premium rider.

27
Q

All of the following are true regarding the guaranteed insurability rider EXCEPT

A

It is available automatically, for no extra premium.