Life Policy Provisions, Riders and Options

Question 1

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Answer 1

Incontestability

Question 2

What is the purpose of a free-look period?

Answer 2

To allow the insured to return the policy with a full refund

Question 3

A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?

Answer 3

The amount of loan I’ll be subtracted from the death benefit

Question 4

What life policy rider allows the company to forgo collections the premium if the insured becomes disabled?

Answer 4

Waiver of premium

Question 5

What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?

Answer 5

Entire contract

Question 6

In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?

Answer 6

The longer period selected, the smaller each installment will be

Question 7

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured’s death?

Answer 7

Settlement options

Question 8

What dividend option is automatically selected by the company if not chosen by the policyowner?

Answer 8

Paid-up additions

Question 9

What is the name for a life insurance policy rider that provides coverage on the insured’s family members?

Answer 9

Other-insured rider

Question 10

An insurer has discovered a representation on a life insurance policy application regarding the insured’s age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Answer 10

Pay a reduced death benefit

Question 11

What does the term double indemnity mean?

Answer 11

The insurer will pay a benefit of twice the face amount

Question 12

When can an insurance company use suicide as a defense against paying a death claim?

Answer 12

When suicide is committed within a specified period of time after the policy is purchased (usually 2 years)

Question 13

An insurer has discovered a representation on a life insurance policy application regarding the insured’s age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Answer 13

Pay a reduced death benefit

Question 14

What settlement options are available in life insurance policies?

Answer 14

Lump-sum/cash, fixed period, fixed amount, life income, interest only

Question 15

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy’s death benefit?

Answer 15

It will be paid to the insured’s estate

Question 16

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

Answer 16

Primary beneficiary

Question 17

What nonforfeiture option provides coverage for the longest period of time?

Answer 17

Reduced paid-up

Question 18

What type of beneficiary is next in line after the primary beneficiary?

Answer 18

Contingent beneficiary

Question 19

Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Answer 19

Absolute assignment

Question 20

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Answer 20

Extended term

Question 21

What provision in a life insurance policy extends coverage beyond the premium due date?

Answer 21

Grace period

Question 22

What are the three nonforfeiture options in life insurance policies?

Answer 22

Cash surrender, reduced paid-up, and extended term

Question 23

When will a contingent beneficiary receive death benefits from a life insurance policy?

Answer 23

When the primary beneficiary dies before the insured

Question 24

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

Answer 24

The proceeds are paid to the insured’s estate

Question 25

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

Answer 25

The death benefit will be adjusted to the amount that the insured could obtain for her correct age.

Question 26

What are the dividend options in life insurance policies?

Answer 26

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment

Question 27

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Answer 27

Collateral assignment

Question 28

Under what nonforfeiture option does the company pay the policy’s surrender value and have no further obligations to the policyowner

Answer 28

Cash surrender

Question 29

If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?

Answer 29

Lump-sum payment

Question 30

What is the purpose of settlement options in life insurance policies?

Answer 30

To determine how the death benefit will be paid to the beneficiary

Question 31

What required provision protects against unintentional policy lapse?

Answer 31

Grace period

Question 32

What are policy dividends?

Answer 32

Return of unused premiums

Question 33

What happens to a policy’s cash value under an extended term nonforfeiture option?

Answer 33

The cash value is converted to the same face amount as in the whole life policy

Question 34

What dividend option can increase the death benefit of the existing life policy?

Answer 34

Paid-up additions

Question 35

To meet the requirement of the entire contract policy provision, an insurance policy must contain what?

Answer 35

A copy of the original insurance application

Question 36

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?

Answer 36

Reinstatement

Question 37

What type of beneficiary can be changed at any point by the policyowner?

Answer 37

Revocable

Question 38

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Answer 38

Policyowner

Question 39

With the interest only settlement option, what happens to the policy’s death benefit?

Answer 39

Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary

Question 40

With the reduction of premium dividend option, how is the dividend used?

Answer 40

The dividend is applied to the next year’s premium (it reduces the next year’s premium)

Question 41

Is the beneficiary required to have insurable interest in the insured?

Answer 41

No. Beneficiaries do not have insurable interest in the insured

Question 42

What are the most common exclusions in life insurance policies?

Answer 42

War and military service, hazardous occupation, and aviation

Question 43

What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?

Answer 43

Policy premium in a reinstated policy will be set according to the insured’s original age

Question 44

What is the purpose of the Automatic Premium Loan provision?

Answer 44

To prevent the unintentional lapse of a policy because of nonpayment of the premium

Question 45

Who has the right to the cash value of a life insurance policy?

Answer 45

Policyowner