Module 5: Policy Provisions

Question 1

1. For a contract to be legal and binding,

A. parties to the contract must be members of the bar
B. parties to the contract must be legally competent
C. parties to the contract must be above 21
D. parties to the contract must possess blood relationship

Answer 1

B

Question 2

2. For life insurance coverage to be valid, insurable interest must
   exist

A. only at the inception of the policy
B. only at the time of the loan
C. throughout the entire lifetime of the policy
D. both at the time of the policy issue and at the time of the loan but not
necessarily throughout the lifetime of the policy

Answer 2

A

Question 3

3. The insurance code specifies that a contract does not take
   effect unless

A. the policy is delivered to an insured, his assignee or agent, or to a
beneficiary
B. payment of the first premium is made to the insurer or its authorized
agent
C. no change has taken place in the insurability of the life to be insured between
the time of the application was completed and the time the policy was delivered
D. the insured has named in the policy no fewer than two beneficiaries

Answer 3

B

Question 4

4. All of the following would be practicable to become
   beneficiaries except

A. children by former marriage
B. brothers and sisters
C. someone who owes you money
D. someone to whom you owe money

Answer 4

C

Question 5

5. Under the law pertaining to life insurance

A. only minor children can be named irrevocable beneficiaries
B. only the wife can be named irrevocable beneficiary
C. only the wife and the children can be named irrevocable beneficiaries
D. any person with insurable interest can be named irrevocable
beneficiaries

Answer 5

D

Question 6

6. When the proceeds of a life insurance policy are left with the
   company to earn interest

A. income tax is levied on the proceeds
B. income tax is levied on the interest earnings of the proceeds
C. estate tax is levied on the proceeds
D. donor’s tax is levied on the proceeds

Answer 6

B

Question 7

7. A person has insurable interest in the life of

A. his child or grandchild
B. any person upon whom he is wholly or in part dependent on, or from whom
he is receiving support or education
C. any person in whom he has pecuniary interest
D. all of the above

Answer 7

D

Question 8

8. Anybody can be designated a beneficiary except:

A. a creditor
B. minors
C. those expressly prohibited by law to receive donations
D. all of the above

Answer 8

C

Question 9

9. The common practice of most life insurers is that the life
   insurance goes into force

A. when the application is received by the branch office
B. when the policy is delivered to the applicant
C. in accordance with the legal stipulation of the Insurance Code
D. when the agent gives a bind receipt

Answer 9

D

Question 10

10. The parties involved in a life insurance contract are the

A. insurance company and agent
B. insurance company and insured
C. agent and insured
D. insured and beneficiary

Answer 10

B

Question 11

11. According to insurance law, a common-law spouse cannot be
    designated a beneficiary

A. since there is no benefit of marriage in the relationship
B. if his/her legal partner is still living and the previous marriage has not
been legally dissolved
C. since the common-law relationship is an immoral relationship
D. all of the above

Answer 11

B

Question 12

12. Which one of the following provisions in a permanent life
    insurance policy may avoid lapsation for non-payment of
    premium?

A. Guaranteed Insurability
B. Automatic Premium Loan
C. Settlement Options
D. Reinstatement Provision

Answer 12

B

Question 13

13. Within two years of buying a life insurance policy, you are
    accidentally killed when your car hits a tree. In these
    circumstances, the insurance company will

A. refund premiums because it is suicide
B. pay double the face amount
C. pay the face amount
D. pay nothing

Answer 13

C

Question 14

14. A policyholder may obtain money from the insurance
    company and still remain insured by

A. surrendering the policy for its cash value
B. discontinuing payment of premium for some period
C. taking a policy loan
D. taking the extended insurance option

Answer 14

C

Question 15

15. When you bought an insurance policy on your wife’s life, you
    were 27 and she was 26, but you stated that you were 26 and
    she was 27. Five years later your wife died. The insurance
    company will pay

A. the face amount
B. the face amount adjusted for misstatement of age
C. the sum of the premium paid
D. slightly less than the face amount

Answer 15

B

Question 16

16. If the insured dies during the grace period of an unpaid life
    insurance policy, the amount payable to the beneficiary is
    usually the

A. total premiums paid plus interest
B. cash surrender value of the policy minus the unpaid premiums
C. face amount of the policy minus the unpaid premiums
D. full face amount

Answer 16

C

Question 17

17. The typical grace period provision in a life insurance policy
    obliges the life insurance company to

A. establish a policy loan to cover any premium which the policyowners
fails to pay by due date
B. keep the policy in force for duration of any major disability suffered by the
policyowner
C. allow the policyowner a three-month extension beyond the due date to
make the late premium payment without penalty
D. none of the above

Answer 17

D

Question 18

18. An automatic premium loan differs from the other policy loans
    in that an automatic premium loan

A. need not be repaid by the policyowner
B. must be repaid during the policy year in which it is granted
C. goes into effect requiring no separate action from the policyowner
D. involves higher interest payments because of the greater cost of
administration

Answer 18

C

Question 19

19. When a policy is assigned absolutely

A. the assignee acquires all the rights and interests of the original
policyholder
B. the original policyholder still can exercise some of the rights
C. the original beneficiary is not changed
D. none of the above

Answer 19

A

Question 20

20. If a policy did not contain the name of a beneficiary, the
    beneficiary will be

A. the wife
B. the children
C. the insured’s brothers and sisters
D. the insured’s estate

Answer 20

D

Question 21

21. If a policyowner does not pay a premium on the due date, the
    policy will immediately

A. lapse
B. be converted to a paid up policy for a lesser amount
C. go into automatic premium loan
D. continue in full force for a period of grace

Answer 21

D

Question 22

22. If a policyowner whose wife is the irrevocable beneficiary
    wishes to cash in his policy, he must

A. tell his wife what he is going to do
B. first take a loan on the policy
C. have the check issued in the name of his wife
D. have the wife’s consent

Answer 22

D

Question 23

23. Choose the incorrect statement:
    The entire contract between the policyowner and the
    insurance company include

A. the application and the policy
B. any verbal statement made by the agent to the applicant
C. any document attached to the policy when issued
D. any subsequent written amendments to the contract

Answer 23

B

Question 24

24. If a loan is taken on a participating policy, dividends for that
    policy while there is a loan against the policy will be

A. suspended
B. paid a reduced rate
C. unaffected
D. increased

Answer 24

C

Question 25

25. Interest is charged on policy loans A. for registered policies only B. if the loans is outstanding for more than a year, a loan repaid within a year is interest free C. to replace investment income the insurer cannot earn since a loan has been granted D. for participating policies only

Answer 25

C

Question 26

26. In the case of life insurance a sale is considered completed if the application is signed and payment of the first premium is made by the applicant. For the sale to be considered completed, A. a medical examination has to be made first B. payment of the first premium has to be made by the applicant in full or in part, as specified. One of the acceptable methods of settlement is by cash or check in part, with a note for the balance C. payment of the first premium has to be made in full by a note first D. the first premium has to be paid for in full and in cash

Answer 26

A

Question 27

27. Why is it important that the application is the basis of the policy? A. because the completed application is the basis of the policy contract and the company may accept or reject an application based on the information given in the application B. for the agent to have available data of his prospect in connection with future sales C. to avoid the necessity of the insurer putting all relevant details in the contract D. none of the above

Answer 27

A

Question 28

28. The suicide clause is in effect for A. the first 6 months B. the first year C. the first 2 years D. the first 18 months

Answer 28

C

Question 29

29. The three non-forfeiture values in a permanent policy are A. cash dividends, bonus additions and extended term insurance B. cash surrender value, loan value, assignment C. waiver of premium, reinstatement and the policy loan D. cash surrender value, paid value, extended term insurance

Answer 29

D

Question 30

30. In the event that a policy elects the paid up insurance option A. the premiums stop and the policy continues for the full face amount until age 65 B. the premium cease and protection continues with a reduced amount of coverage C. the insurance continues at a reduced amount and with a reduced premium D. the policy will automatically terminate

Answer 30

B

Question 31

31. What are the basic settlement options? A. cash surrender value, automatic premium loan B. fixed amount, fixed period, interest, fixed period and for life C. double indemnity, total disability waiver of premium D. policy loans, assignment, beneficiary designation

Answer 31

B

Question 32

32. In case of misstatement of age, A. the policy is cancelled and a new one is issued for the correct age B. the insured can be changed C. the amount of insurance is adjusted to the amount which the premium paid at the correct age would have purchased D. the policy remains in force and the company cannot contest it

Answer 32

C

Question 33

33. Which of the following is a settlement option? A. policy loan B. cash surrender value C. extended term insurance option D. interest on insurance proceeds

Answer 33

D

Question 34

34. Name the provision in a permanent life insurance policy under which if the premium are discontinued full insurance coverage will be maintained for a specified period. A. extended term insurance B. paid up insurance C. paid up additions D. life income option

Answer 34

A

Question 35

35. Which one of the following is not derived from the non forfeiture values? A. cash surrender value B. paid up insurance C. dividends D. extended term insurance

Answer 35

C

Question 36

36. Mr. Dela Cruz stated in his application that he was 30 years of age and a policy was issued to him on that basis. When he died twenty years later it was found that, in fact, he was 34 years of age at the time of his application. In conformity with the Insurance Code, the company A. paid the amount of insurance payable to his beneficiary reduced in relation to his actual age at the time the contract was signed B. paid one half of the face value of the policy C. need not pay the face value of the policy, but refund all premiums paid D. paid the full face value of the policy without any extra charges

Answer 36

A

Question 37

37. In the event that the policyowner elects the paid-up insurance option, A. premiums stop and the policy continues for a full face amount until age 65 B. premium cease and protection continues for a reduced amount C. insurance continues at a reduced amount and with reduced premium D. the policy will automatically terminate

Answer 37

B