Chapter 3.2

Which of these actions is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?

Collateral assignment

The Consideration clause in a life insurance contract contains what pertinent information?

Amount of premium payments and when they are due

P purchases a $50,000 whole life insurance policy in 2005. One of the questions on the application asks if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P’s beneficiary?

$50,000 minus any outstanding policy loans

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions?

Reinstatement provision

The Consideration clause in a life insurance policy indicates that a policyowner’s consideration consists of a completed application and

the initial premium

What provision in a life insurance policy states that the application is considered part of the contract?

Entire Contract provision

What does the insuring agreement in a Life insurance contract establish?

An insurer’s basic promise

An insured is past due on his life insurance premium, but is still within the Grace Period. What will the beneficiary receive if the insured dies during this Grace Period?

Full face amount minus any past due premiums

What action will an insurer take if an interest payment on a policy loan is not made on time?

automatically add the amount of interest due to the loan balance

What does the ownership clause in a life insurance policy state?

Who the policyowner is and what rights the policyowner is entitled to

What is the Suicide provision designed to do?

safeguard the insurer from an applicant who is contemplating suicide

A provision in a life insurance policy that pays the policyowner an amount that does not surpass the guaranteed cash value is called the

Policy Loan provision

Which of the following provisions guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?

Payor Clause

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take?

Pay face amount minus the past due premium

P died five years after purchasing a life policy. While investigating the claim, the insurer discovered material misrepresentations made by P during the application process. Which of these actions will the insurer take?

Beneficiary will be paid the Death Benefit

In a life insurance policy, which feature states that the policy will not cover certain risks?

Exclusion

Which of these Nonforfeiture Options continue a build-up of cash value?
Waiver of Premium
Extended Term
Reduced Paid-Up
Cash Surrender

Reduced Paid-Up

A Return of Premium life insurance policy is

Whole life and Increasing term

When a misrepresentation on a life insurance policy application is discovered, what action may an insurance company take?

Void the policy only if it is discovered during the Contestable period and proven to be material

All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured’s death EXCEPT
Fixed Period
Interest Only
Fixed Amount
Life Income

Interest only

Which of the following Dividend options results in taxable income to the policyowner?
Paid-up Additions
Cash
Accumulation at Interest
Reduced Premium

Accumulation at Interest

A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following?

Inability of the insured to perform more than 2 Activities of Daily Living (ADL’s)

The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured

is blinded in an accident

What action can a policyowner take if an application for a bank loan requires collateral?

Assign policy ownership to the bank

Which of the following statements is CORRECT about accelerated death benefits?
The full face amount is available as an accelerated benefit
Those on Social Security disability automatically qualify for this benefit
This provision is usually provided with an increase in premium
Must have a terminal illness to qualify

Must have a terminal illness to qualify

S has a Whole Life policy with a premium payment due soon. Which provision would keep the policy in force if S does not make the required payment and the policy has adequate cash value from which the premium payment can be made?

Automatic Policy Loan

A young, married teacher has two children and owns a Whole Life policy. If the teacher wants an increasing Death Benefit to protect against inflation, the teacher should select which of the following Dividend Options?

Paid-Up Additional Insurance

How do life insurance companies handle cases where the insured commits suicide within the contract’s stated Contestable period?

Claims are denied under the Suicide clause of the policy

Which of these statements about a Guaranteed Insurability Option rider is NOT TRUE?
Coverage can be added at specific events such as marriage or having a child
Evidence of insurability is not required when the option is exercised
Evidence of insurability is required when the option is exercised
Coverage can be added at specific ages

Evidence of insurability is required when the option is exercised

Which statement regarding the Misstatement of Age provision is considered to be true?

Coverage will be adjusted to reflect the insured’s true age if a misstatement of age is discovered

How are surrender charges deducted in a life policy with a rear-end loaded provision?

Deducted when the policy is discontinued

N is a student pilot with a large life insurance policy. Which of these features would limit the insurer’s obligation in the event N was killed while flying as a student pilot?

Exclusion

Which life insurance rider typically appears on a Juvenile life insurance policy?

Payor Benefit rider

The automatic premium loan provision is designed to

avoid a policy lapse

All of these statements concerning Settlement Options are true EXCEPT
Increased proceeds can be provided through accumulation of interest
Rapid depletion of proceeds can be avoided
Proceeds can be administered by the insurance company
Only the beneficiary may select

Only the beneficiary may select

In a Life insurance contract, an insurance company’s promise to pay stated benefits is called the

Insuring clause

Which provision prevents an insurer from changing the terms of the contract with the policyowner by referring to documents not found within the policy itself?

Entire contract provision

Which type of life policy contains a monthly mortality charge as well as self-directed investment choices?

Variable Universal Life

How are policyowner dividends treated in regards to income tax?

Interest on accumulations is taxed

Which of these types of life insurance allows the policyowner to have level premiums and to also choose from a selection of investment options?

Variable Life

T took out a $50,000 life insurance policy with an Accidental Death and Dismemberment rider. Five years later, T commits suicide. How much will the insurer pay?

$50,000

S buys a $50,000 whole life policy with a $50,000 Accidental Death and Dismemberment rider. S dies 1 year later of natural causes. How much will the insurer pay the beneficiary?
$100,000

$50,000

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will

adjust the death benefit to a reduced amount

The incontestable clause allows an insurer to

contest a claim during the contestable period

In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy?

owner’s rights

Which of these provisions require proof of insurability after a policy has lapsed?

Reinstatement

A policy loan is made possible by which of these life insurance policy features?

Cash Value Provision

B owns a Whole Life policy with a guaranteed insurability option that allows him to purchase, without evidence of insurability, stated amounts of

additional Whole Life coverage at specified times

N is covered by a Term Life policy and does not make the required premium payment which was due August 1. N dies September 15. What action will the insurer take?

Claim will be denied

The Accelerated Death Benefit provision in a life insurance policy is also known as a(n)

Living Benefit

Which statement is TRUE in regards to a policy loan?
Past-due interest payments not paid after 3 months will void the policy
Past-due interest on a policy loan is added to the total debt
Insurance companies can send delinquent interest accounts to a collection agency
Insurance companies can charge an interest rate based on the policyowner’s credit report

Past-due interest on a policy loan is added to the total debt

S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy?

Return of premium rider

The option that provides an additional death benefit for a limited amount of time at the lowest possible cost is called a(n)

Accidental Death and Dismemberment rider (AD&D)

Which of these life insurance riders allows the applicant to have excess coverage?

Term Rider

D is the policyowner and insured for a $50,000 life insurance policy. The beneficiary is D’s wife. D and his wife divorce and D remarries, transferring ownership of his policy to his new wife. If D dies without making any further changes, to whom will the policy proceeds be paid to?

Ex-wife

When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?

at future dates specified in the contract with no evidence of insurability required

Additional coverage can be added to a Whole Life policy by adding a(n)

decreasing term rider

Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it?

decreasing term

Whose life is covered on a life insurance policy that contains a payor benefit clause?

child

A life insurance policy which ensures that the premium will be paid if the insured becomes disabled has what kind of rider attached?

Waiver of Premium

S would like to use dividends from her life insurance policy to purchase paid-up additions. All of these would be factors that determine how much coverage can be purchased EXCEPT
type of life insurance
S’s attained age
dividend amount used toward purchase
beneficiary’s age

beneficiary’s age

M has an insurance policy that also has an outstanding policy loan at the time of M’s death. The insurer will deduct the outstanding loan balance from the

policy proceeds

When is the face amount of a Whole Life policy paid?

When the insured dies or at the policy’s maturity date, whichever happens first

The provision that can be used to put an insurance policy back in force after it has lapsed due to nonpayment is called

Reinstatement

All of these statements about the Waiver of Premium provision are correct EXCEPT
A waiting period must pass before becoming eligible for benefits
Waiver of Premium is available on both permanent and term insurance policies
Insured must be eligible for Social Security disability for claim to be accepted
Insured must be totally disabled to qualify

Insured must be eligible for Social Security disability for claim to be accepted

Which rider provides coverage for a child under a parent’s life insurance policy?

child term rider

P is the insured on a participating life policy. Which statement is true if P’s premiums are waived due to a disability?
P cannot borrow against the policy’s cash value while disabled
P will have to pay income taxes on the amount of premiums waived
P will still receive declared dividends
P cannot assign ownership of the policy while premiums are being waived

P will still receive declared dividends

Which of these are NOT an example of a Nonforfeiture option?
Extended Term
Reduced Paid-up
Cash Surrender
Life Income

Life Income

All of the following statements are true regarding a policy’s Grace period EXCEPT
Past due premiums are waived
Policy loans may still be made
Full coverage continues
Grace period terms are stated in the policy

Past due premiums are waived

An insured’s inability to perform two or more activities of daily living may trigger which type of policy rider?

Long term care

The agreement in a life insurance contract that states a specific sum of money will be paid to a designated person upon an insured’s death is called a(n)

Insuring agreement

Which of these is NOT considered to be a right given to a policyowner?
Surrendering the policy’s cash value
Modify a provision in the insurance contract
Assignment of ownership
Change the beneficiary, if revocable

Modify a provision in the insurance contract

D was actively serving in the Marines when he was killed in an automobile accident while on leave. His $100,000 Whole life policy contains a War Exclusion clause. How much will D’s beneficiary’s receive?

The full face amount

Which of the following statements about accumulated interest earned on dividends from an insurance policy is TRUE?
It is not taxable
It is tax deductible
It is taxed as capital gains
It is taxed as ordinary income

It is taxed as ordinary income