Life Policy Provisions and Options Flashcards
The incontestability clause states that after 2 years the:
A
Insurer will only pay for suicide if the insured was insane at the time
B
Insurer will not refuse to pay a death claim based on misinformation in the original application for insurance
C
Policyowner cannot sue the insurer for misstatements made by the producer in the sale of the policy
D
Insurer will not argue about which beneficiary is primary or contingent
B Insurer will not refuse to pay a death claim based on misinformation in the original application for insurance
Incontestability means that the insurance company cannot use the statements in the original application for insurance as a reason to avoid paying a death claim. The policy becomes incontestable after two years in most states.
The insuring agreement in a life insurance policy states the:
A
Insurance company will not pay death claims in the event of suicide or other exclusion named in the policy unless all premiums are paid in advance
B
Policyowner will indemnify the insurance company the policy proceeds if the beneficiary is not named in the application
C
Insurance company is obligated to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force
D
Insurance company may refuse to pay a death claim in the event a mistake is found in the original application for insurance at the time of the insured’s death
C
Insurance company is obligated to pay the policy proceeds upon presentation of valid proof of the death of the insured which occurred while the policy is in force
The insuring agreement is the basic promise to pay the benefit described in the policy when a claim is proved. In life insurance, a true certified copy of the death certificate is valid proof of death.
Which clause specifies the amount and frequency of premium paid by the owner as something of value provided in exchange for the company’s promise to pay?
consideration clause
Which clause is considered the most important and is found on the first page of the policy? This clause identifies the parties to the contract and the conditions it will pay.
insuring clause (proof of death) - this is the insurance company’s promise to pay the policy’s death benefit to the named beneficiary.
T/F: the entire contract consists of the policy, riders (endorsements), amendments, and a copy of the application
TRUE - any change to the contract will not be effective until approved by a company officer. the producer may not change the policy or waive any of its provisions.
The grace period in a life insurance policy is typically 31 days and provides for the:
A
Payment of the premium to be received after its due date without a penalty or lapse in coverage
B
Policyowner to reinstate the policy before it lapses
C
Payment of the premium to be received after its due date with a maximum 5% penalty
D
Insurance company to delay payment of the death benefit until it can determine the validity of the proof of death
A -
Payment of the premium to be received after its due date without a penalty or lapse in coverage
the grace period allows payment of the past due premium without a penalty or lapse in coverage. Any claim arising in the grace period is payable, but any unpaid premium will be deducted from the claim when paid.
What is the primary advantage to the policyowner in the reinstatement of a life insurance policy?
A
All policy loans that were outstanding at the time of lapse are forgiven and full cash value is restored
B
The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium
C
The insured is not required to prove insurability if under age 40
D
The insurance company cannot start a new period of contestability
B
The policyowner continues to enjoy the benefits that were provided in the original policy, including the original premium
Reinstatement restores the policy to its original condition as if it were never lapsed. Even though the policy is reinstated at a later age, the original issue premium is all that the insurer will require.
Which of the following beneficiary designations is a class designation?
A
Bank of Springfield - creditor
B
Any children of this marriage
C
Frank Jones - son
D
Mary Smith - spouse
B Any children of this marriage
A class designation is when the beneficiary is not directly identified by name.
Which of the following provisions commence at the time of the delivery of the policy to the insured?
A
Free Look Period
B
Suicide Clause
C
Misstatement of Age or Gender
D
Insuring Clause
A free look period
The insured/owner has the right to examine the policy for 10 days (this may vary by state) after receipt of delivery. If returned within that period, a full refund of premium is granted. It is the insurer’s responsibility to prove date of receipt.
If a beneficiary is designated as irrevocable, then all of the following require the irrevocable beneficiary’s approval, except:
A
Reducing the coverage
B
Changing the mode of premium
C
Taking a policy loan
D
Policy assignment
B
Changing the mode of premium
A married couple is interested in an annuity settlement option that will guarantee them both an income for as long as they live, an amount which reduces to 2/3 of that initial amount after one of them dies. What should they select?
A
Life Income Period Certain
B
Joint Life Income
C
Life Income Joint and Survivor
D
Dual Life Income
C
The Life Income Joint and Survivor Settlement Option pays a periodic benefit until the last surviving recipient dies. However, depending upon which survivor option is chosen (e.g. joint-and-full, joint-and-2/3, joint-and-1/2), the benefit paid following the first death could be different.
Which of the following policies allow for a partial withdrawal or partial surrender?
A
Variable Whole Life
B
Traditional Whole Life
C
Universal Life
D
Current Assumption Life
C Universal life
A partial withdrawal of cash value is permitted in a Universal or a Variable Universal Life policy.
A small business owner used her life insurance policy as collateral for a bank loan. The face amount of the whole life policy was $100,000 and the original amount of the loan was $20,000. If the outstanding loan balance at the time the small business owner died was $10,000, how much will the policy’s named beneficiary receive?
A
$100,000
B
$80,000
C
$70,000
D
$90,000
D $90,000
The collateral assignee, the bank, will take a priority claim on the policy’s death benefit limited to the amount of the loan outstanding at the time of death, the named beneficiary will receive the balance. In this case $90,000 ($100,000 - $10,000).
Which statement is FALSE regarding Nonforfeiture Options?
A
They protect the policyowner against total loss of benefits if the policy should lapse or be cancelled
B
The 3 nonforfeiture options are Cash Surrender, Reduced Paid-Up, and Extended Term
C
They are used when the insured lives to the endowment date of the policy or at the insured’s death
D
They add flexibility to a cash value policy
C
They are used when the insured lives to the endowment date of the policy or at the insured’s death
Distribution options used when the insured lives to the endowment date of the policy or at the insured’s death are Settlement Options, not Nonforfeiture Options.
In a whole life policy, cash value must be made available to borrow against after _____ years.
A
5
B
4
C
2
D
3
D 3
if the premiums are not paid on a Traditional Whole Life policy that has been in force for decades with no loan outstanding, what happens?
A
The policy becomes a reduced paid-up policy
B
The policy lapses and is of no value to the policyowner
C
Unless specified otherwise, the cash values buy extended term
D
The insurer mails a check to the policyowner in the amount of the policy’s cash value
C Unless specified otherwise, the cash values buy extended term
Upon non-payment of premium due, the extended term option kicks in automatically and is paid for by the cash values of the policy. The policy has nonforfeiture values which are available to the policyowner.
An insured, whose policy is in force, intentionally kills herself 7 months after purchasing the policy. How much will the insurer pay?
A
Refund of premiums paid less the costs of policy issuance
B
Nothing
C
Refund of premiums paid only
D
The face amount of the policy
C
Refund of premiums paid only
Suicide within 2 years of policy issue is a common exclusion in life insurance (the time can vary by state). Only premiums paid are refunded.
