Policcy Provisions, Options, Riders Flashcards by Erich Nelson

What happens when a policyowner borrows against the cash value of his life insurance policy?

The interest on the loan is tax-deductible
The policy proceeds would be reduced by the outstanding loan balance
No additional loans can be taken out in the future
The amount borrowed is added to the policyowner’s gross income for tax purposes

If a life insurance policyowner borrows against the cash value of a policy, the outstanding loan balance is deducted from the policy proceeds.

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A life insurance policyowner would like a dividend option that results in a limited current outlay of funds. Which dividend option would be chosen?

Reduction of premium payment
Accumulation at interest
1-year term
Paid-up additions

The reduction of premium payment option allows a policyowner to use the dividend to pay all or part of the next premium due on the policy.

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In what way is a life insurance policy affected by an accelerated benefit payment?

Increases the policy loan balance
Decreases the death benefit
Decreases the premiums
Extends the grace period

An accelerated death benefit decreases the death benefit.

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Which of the following is NOT subject to the promise to pay in an insuring clause?

Policy provisions
Policy conditions
Policy exclusions
How the premium is calculated

An insuring clause might state that the promise to pay is subject to any of these EXCEPT how the premium is determined

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The automatic premium loan provision can be accurately described as a

provision that automatically waives an unpaid premium at the end of the grace period
provision that provides a policy loan to pay any premiums by the end of the grace period
provision that charges a premium for the right to borrow against the cash value
provision that provides a loan for necessary expenditures such as hospital bills, mortgage payments etc.

The automatic premium loan provision authorizes a policy loan to pay an overdue premium at the end of the grace period.

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Which of the these is NOT a true statement of the war exclusion?

Civil insurrections apply
War risk is typically uninsurable
Prevents an insurer’s financial catastrophe
Typically applies to declared and undeclared wars

Civil insurrections fall under an illegal act or felony, which are typically excluded from coverage as well.

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Tim is confined to a nursing home but doesn’t have a terminal illness. Which life insurance rider is designed to help pay for this type of expense?

Viatical rider
Cash value rider
Long-term care benefit rider
Accelerated (living) benefit rider

A long-term care benefit rider can help pay for nursing home expenses by decreasing the amount of the life insurance policy’s death benefit.

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What could be the potential result of taking out a cash value loan under a life insurance policy?

Interest that accrues on policy loan is tax-deductible to the policyowner
Loan amount will be added to the policyowner’s gross income
Death benefit will be subject to income taxes if insured dies with an outstanding loan balance
Reduces the amount receivable upon surrender of the contract

Taking out a policy loan reduces the amount receivable upon surrender of the contract.

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A life insurance policy’s waiver of premium rider has the ability to

waive the premiums on this policy as well as any other insurance policies belonging to the insured in the event of total disability
relieve the insured of premium payments following an initial waiting period after the insured becomes totally disabled
waive the premium payments in the event the insured becomes financially insolvent
provide a policy loan to cover the premium payments in the event the insured becomes totally disabled

The waiver of premium relieves the insured of premium payments following an initial waiting period after the insured becomes totally disabled.

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What effect can a long-term care benefit rider have on a life insurance policy?

Decreased cash value
Increased cash value
Reduced death benefit
Increased death benefit

If used toward the costs associated with assisted living or nursing home confinement, a long-term care benefit will reduce a life insurance policy’s death benefit.

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After the extended term life nonforfeiture option is chosen, the available insurance will be

decreasing term for a stated period of time
renewable for a stated period of time
increasing term for a stated period of time
level term for a stated period of time

level term for a stated period of time”. Under the extended term life insurance nonforfeiture option, the available insurance is level term for a stated period of time. The amount of coverage is the same as the original face amount.

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What happens to a life insurance policy when the policy loan balance exceeds the cash value?

Nonforfeiture options are offered
Automatic premium loan provision is utilized
Policy will no longer be in force
Policy becomes paid-up

In the event a policy loan balance exceeds a life insurance policy’s cash value, the policy is no longer in force.

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What is the name of the rider that provides an additional purchase option in a life insurance policy?

Cost of living rider
Guaranteed insurability rider
Payor rider
Waiver of premium rider

An additional purchase option in a life insurance policy is also known as a guaranteed insurability rider.

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Which life insurance policy provision allows a policyowner to cancel the policy and receive a full refund within a limited time period after policy delivery?

Grace period
Free-look period
Elimination period
Incontestable period

The free-look period provision in a life insurance policy permits a policyowner to cancel the policy within a stated time period after policy delivery and be given a full refund.

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In the event of premium default, which life insurance provision will use the cash value to keep the policy in force?

Policy loan
Reinstatement
Automatic premium loan
Waiver of premium

The automatic premium loan provision uses the cash value to keep the original policy in force in case of premium default.

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Which life insurance policy would be eligible to include an automatic premium loan provision?

Whole life
Level term
Decreasing term
Increasing term

An automatic premium loan provision is possible in whole life insurance because of the cash value that builds.

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Joe is a life insurance policyowner who has failed to pay interest on his policy loan. What will result from this nonpayment?

Loan amount is increased to reflect the amount of interest due
The loan balance becomes due immediately
The insurer can charge a higher rate of interest
Future loan privileges will be suspended

When an interest payment is not made, the policy loan amount is increased to reflect the amount of interest due.

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Which of the following is NOT a dividend option for a life insurance policy?

Elect to take the dividends in cash
Receiving the entire policy cash value
Use the dividends to pay all or part of the next premium due
Allow the dividends to accumulate with interest

All of these are considered dividend options in a life insurance policy EXCEPT “Receiving the entire policy cash value”.

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What is considered the collateral on a life insurance policy loan?

The policy’s face value
The equity in a policyowner’s home
The policy’s cash value
No collateral is needed

The policy’s cash value”. When a life insurance policyowner obtains a policy loan, the collateral for the loan is the cash value of the policy.

Which benefit is normally payable to a life insurance policyowner when the insured’s life expectancy has been severely limited?

Extended term option
Accelerated (living) benefit
Return of Premium benefit
Reduced paid-up optio

An accelerated (living) benefit is often payable to a policyowner who is terminally ill.

Which of these is NOT a common life insurance nonforfeiture option?

Extended term option
Cash surrender option
Reduced paid-up insurance
Life income annuity

All of these are common life insurance nonforfeiture options EXCEPT a life income annuity.

Which of these statements is NOT true regarding a cash value loan against a life insurance policy?

Loan cannot exceed the policy’s cash value
Interest normally accrues on unpaid balances
Interest payments made by policyowner are deductible
Policy contract terms dictate the interest rate

The policyowner’s interest payments are NOT tax deductible.

Which statement regarding the life insurance premium for a children’s rider is true?

Premium remains the same no matter how many children
No premium is normally charged for a children’s rider
Decreasing premium as each child becomes an adult
Increasing premium as additional children are born

Premium remains the same no matter how many children”. The life premium for a child rider remains the same regardless of the number of children.

Which of these would NOT be a valid reason to add the waiver of premium rider to a life insurance policy?

Policy’s cash value would still increase as policy premiums are being waived
It allows a policy loan to cover premium payments if the policyowner becomes totally disabled
Premiums waived by the insurer do not have to be repaid by the policyowner
Prevents a policy from lapsing in the event of total disability

All of these are valid reasons for including the waiver of premium rider to a life insurance policy EXCEPT “Allows a policyowner to take out a policy loan to cover premium payments in the event of total disability”.

Which statement regarding the waiver of premium rider is accurate? Cash payment is not directly provided to the policyowner Premiums are waived in the event of bankruptcy Policy loans are used to keep the policy active Insurance companies are required to offer this to all policyowners

Cash payments are not involved with the waiver of premium. If the company determines that the insured is totally disabled, the policyowner is relieved of paying premiums as long as the disability continues.

A policyowner has a life insurance policy where she had listed her age on the application as 5 years younger than her actual age. If she dies and the insurer discovers the misstatement of age, how much will the insurance company pay? Nothing Less than the face amount More than the face amount Full face amount

In this situation, the insurance company will pay less than the face amount.

An insured has a $25,000 whole life insurance policy with $6,000 cash value available. Under the extended term nonforfeiture option, what is the amount of insurance available to the insured? $31,000 $19,000 $6,000 $25,000

The correct answer is "$25,000". The extended term option uses the policy's cash value to purchase a level term insurance policy in an amount equal to the original policy's face value, for as long a period as the cash value will purchase.

How is a collateral assignment used in a life insurance contract? Transfers permanent ownership rights to a creditor Assigns complete ownership rights to a creditor Assigns ownership rights to the primary beneficiary Transfers specific ownership rights to a creditor

A collateral assignment entitles a creditor to be reimbursed out of policy proceeds for the amount owed.

How is the insured protected if a payor benefit rider is attached to the life insurance policy? Premium payments are waived in the event the premium payor dies or becomes disabled Policy loan will automatically cover the premiums if payor becomes financially insolvent Premiums are waived if the payor becomes financially insolvent Policy loan will automatically cover the premiums if payor becomes disabled or dies

The insured in a life insurance policy with a payor benefit rider is protected from the cost of premium payments if the premium payor dies or becomes disabled.

How long can an insurer legally defer paying the cash value of a surrendered life insurance policy? 12 months 2 months 6 months 4 months

The maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is normally six months.

A life insurance policy provision that has the ability to reduce the death benefit is called the payor benefit insuring clause accelerated (living) benefit spendthrift clause

Whatever amount is withdrawn from an accelerated benefit will be deducted from the face amount when death occurs.

A life insurance policy that contains an accelerated (living) benefit rider will provide funds if the insured recently had a minor heart attack insured has lost use of one arm insured is having dire financial problems insured is expected to be confined to a nursing home for life

An insured may qualify for accelerated benefits if he/she has an illness or physical condition that can reasonably be expected to result in death within 24 months.

When a lapsed policy's premium has been paid current, it has the potential of being reinstated restored renewed reinstituted

A policy that has lapsed may be reinstated by paying the back premiums, interest, and any outstanding loans. Evidence of insurability must also be provided.

A life insurance policy that includes a return of premium rider will pay the beneficiary how much upon the insured's death? Face amount plus interest accrued Interest accrued plus total premiums paid Face amount minus any outstanding loan balances Total premiums paid plus the policy face amount

Total premiums paid plus the policy face amount". A life insurance policy that includes a return of premium rider will pay the face amount plus total premiums paid upon the insured's death.

Which benefit supplement added to a life insurance policy insures an entire family? Family term rider Household term rider Kin term rider Group term rider

The family term rider is attached to a life policy to insure all members of a family.

A policyowner is permitted to take out a policy loan on a whole life policy at what point? When the policy has a cash value When the cash value equals the face amount When the policyowner has demonstrated financial need When the policy has been in force 2 years

A policy loan can be obtained from a whole life insurance policy once it has accrued cash value.

A source of supplemental income for a life insurance policyowner can be derived from the face amount cash value payor benefit consideration

Cash value may be used as a source to supplement a policyowner's income.

How may an insurance company classify an accidental death benefit on a life policy? As a mandatory policy rider As a nonforfeiture option As an optional policy rider As a provision of the policy

The accidental death benefit provided by a life insurance policy may be classified as an optional policy rider.

Which life insurance clause prohibits an insurance company from questioning the validity of the contract after a stated period of time has passed? Insuring clause Entire contract provision Grace period provision Incontestable clause

The incontestable clause prohibits the insurer from questioning the validity of the contract after a stated period of time has passed.

Which life insurance policy option allows the policyowner to have coverage equal to the net death benefit of the lapsed policy? Extended term nonforfeiture option Reduced paid-up nonforfeiture option Accelerated benefits option Cash surrender option

The extended term nonforfeiture option provides coverage equal to the death benefit of the lapsed policy.

Which of the following is NOT a condition that must be met for an accidental death benefit to be paid? Accidental bodily injury must have been the cause of death Injury must have been suffered prior to a stated age Death must occur within a stated number of days after the accident Cause of death must be from a job-related injury

Death from a job-related injury is not a requirement for a life insurance accidental death benefit to be paid.

Scott has a life insurance policy in which the dividends are left with the insurance company. This particular policy may be paid up when the cash value plus accumulated dividends equal the net single premium for the same face amount at the insured's attained age can purchase a paid-addition can purchase extended term coverage for a period of two years or more equal the nonforfeiture value of the policy

If life insurance policy dividends are left with the insurance company, the policy may be paid up when the cash value plus accumulated dividends equal the net single premium for the same face amount at the insured's attained age.

Which of the following is NOT guaranteed in a whole life policy? Settlement options Dividend scale Nonforfeiture options Policy loan values

Life insurance policies guarantee all of these except a dividend scale.

The absolute assignment of a life insurance policy results in evidence of insurability must be proven before ownership is transferred the assignee receives partial incidents of ownership the transfer of ownership is revocable at the discretion of the original policyowner all incidents of ownership transferred to the assignee

Under the absolute assignment of a life insurance policy, all incidents of ownership are transferred to the assignee.

Which of these statements regarding the extended term insurance nonforfeiture option in a life policy is accurate? Cash value will continue to grow Evidence of insurability is required Coverage remains until death of the insured The premium to purchase the coverage comes from the policy's cash value

With the extended term insurance nonforfeiture option, the cash value is used as a premium to purchase the coverage.

A life insurance guaranteed insurability rider gives the insured the right, without proving insurability, to purchase additional life insurance at anytime periodically purchase additional insurance purchase life insurance policies on his children as they are born purchase life insurance on a spouse after becoming married

The correct answer is "periodically purchase additional insurance". Under a typical life insurance guaranteed insurability rider, an insured has the ability to purchase additional insurance at stated intervals without providing evidence of insurability.