Policcy Provisions, Options, Riders Flashcards
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.
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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”.
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.
