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Life Insurance > Policy Provisions,Options, and Other Features > Flashcards

Policy Provisions,Options, and Other Features Flashcards

1
Q

What required provision protects against unintentional policy lapse?

A

Grace period

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2
Q

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

A

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

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3
Q

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

A

Absolute assignment

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4
Q

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

A

Settlement options

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5
Q

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

A

Contingent beneficiary

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6
Q

What is the purpose of the Automatic Premium Loan provision?

A

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

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7
Q

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

A

Other-insured rider

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8
Q

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

A

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

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9
Q

What are the three nonforfeiture options in life insurance polices?

A

Cash surrender, reduced paid-up, and extended term

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10
Q

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

A

The proceeds are paid to the insured’s estate.

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11
Q

What are the most common exclusions in life insurance policies?

A

War and military service, hazardous occupation and aviation.

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12
Q

What does the term double indemnity mean?

A

The insurer will pay a benefit of twice the face amount.

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13
Q

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

A

Collateral assignment

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14
Q

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

A

When the primary beneficiary dies before the insured.

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15
Q

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

A

Revocable

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16
Q

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?

A

It will be paid to the insured’s estate.

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17
Q

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

A

Entire contract

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18
Q

What is the purpose of the free-look period?

A

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

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19
Q

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

A

Paid-up additions

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20
Q

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

A

Primary beneficiary

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21
Q

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

A

Grace period

22
Q

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

A

The longer the period selected, the smaller each installment will be.

23
Q

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?

A

The amount of the loan will be subtracted from the death benefit.

24
Q

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

A

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

25
Q

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

A

Paid-up additions

26
Q

What life policy rider allows the company to forgo collecting the premium if the insured became disabled?

A

Waiver of premium

27
Q

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

A

Policyowner

28
Q

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

A

Reinstatement

29
Q

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

A

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

30
Q

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

A

Extended term

31
Q

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

A

Reduced paid-up

32
Q

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

A

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

33
Q

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

A

Cash surrender

34
Q

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

A

No. Beneficiaries do not have insurable interest in the insured.

35
Q

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

A

A copy of the original insurance application.

36
Q

What are policy dividends?

A

Return of unused premiums.

37
Q

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?

A

Pay a reduced death benefit

38
Q

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

A

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

39
Q

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

A

Lump-sum payment

40
Q

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?

A

Incontestability

41
Q

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

A

Policyowner

42
Q

What are dividend options in life insurance polices?

A

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

43
Q

What settlement option are available in life insurance policies?

A

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

44
Q

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

A

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

45
Q

Who does the Common disaster clause protect?

A

The contingent beneficiary

46
Q

Policy Loan Option

A

Is found only in policies that contain cash value. The policyowner is entitled to borrow an amount equal to the available cash value. Any outstanding loans, and accrued interest, will be deducted from the policy proceeds upon the insured’s death. The policy will not lapse with an outstanding policy loan unless the amount of the loan and accrued interest exceeds the available cash value. However, the insurer must provide 30 days’ written notice to the policyowner that the policy is going to lapse. Insurance companies may defer a policy loan request for up to 6 months, unless the reason for the loan to pay the policy premium. Policy loans are not subject to income taxation.

47
Q

Viatical Settlements

A

Allows someone with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death. Viators (or the owners of the original policy) usually receive a percentage of the policy’s face value from a third party who purchases the policy. The new owner continues to maintain the premium payments and will eventually collect the entire death benefit.

48
Q

Noncontributory Plan

A

The insurer will require that 100% of the eligible employees be included in the plan.

49
Q

Contributory Plan

A

The insurer will require that 75% of eligible employees be included in the plan.

50
Q

Qualified retirement plan

A

Approved by the IRS, which then gives both the employer and employee benefits such as deductible contributions and tax-deferred growth.

Life Insurance (8 decks)

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