Life Insurance Policy Provisions, Riders, and Options Flashcards
What is the difference between absolute and collateral assignment?
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.
What constitutes the entire contract?
The policy and a copy of the application, along with any riders or amendments, form the entire contract.
What is the free-look period, and when does it begin?
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.
What is the purpose of a grace period?
To prevent unintentional policy lapse for nonpayment of premiums.
What is the difference between a revocable and irrevocable beneficiary?
The policyowner may change a revocable beneficiary at anytime. An irrevocable designation, however, may not be changed without the written consent of the beneficiary.
What happens to an unpaid policy at insured’s death?
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.
What is the purpose of the Automatic Premium Loan provision?
It prevents the unintentional lapse of a policy due to nonpayment of the premium.
Which riders increase the amount of the death benefit?
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.
Which rider allows the early payment of a portion of the death benefit to the insured?
Accelerated death benefits rider.
What are the 3 nonforfeiture options in life insurance polices?
Cash surrender value, reduced paid-up insurance or extended term option
Which nonforfeiture option is automatically selected if the policyowner has not made a selection?
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.
Which dividend option increases the death benefit?
Paid-up additions increase the death benefit of the original policy by whatever amount the dividend will buy.
What settlement options are available in life insurance policies?
Cash payment (lump-sum), life income, interest only, fixed-amount installments.
Under what circumstances will the contingent beneficiary receive the death benefit?
If the primary beneficiary dies before the insured.
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
Incontestability clause.
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?
Pay a reduced death benefit based on the insured’s actual age.
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?
Assignment
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?
Fixed amount
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?
Grace period provision
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?
Reduction of premium
All the following are nonforfeiture options in life insurance policies EXCEPT
Automatic Premium Loans.
In order to reinstate a life insurance policy the insured must do all of the following EXCEPT
Pay next year’s premium in advance.
Which of the following statements is true of both the fixed-period and fixed-amount settlement options?
Both guarantee that the principal and interest will be fully paid out.
Which of the following is NOT a standard exclusion in life insurance policies?
Disability
Which of the following is a characteristic of a revocable beneficiary designation?
Policyowner can change beneficiary designation anytime without consent of beneficiary.
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
Waiver of premium rider.
All of the following are true regarding the guaranteed insurability rider EXCEPT
It is available automatically, for no extra premium.