Life Insurance Provisions Quiz & Flashcards

Questions and Answers

A life insurance policy can only be voided if discovered during the Contestable period and proven to be material.

True

What feature in a life insurance policy states that the policy will not cover certain risks?

Waiver

Inclusion

Endorsement

Exclusion (correct)

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

Entire Contract provision

In the scenario where P dies in a scuba-related accident, what will the insurer pay to P's beneficiary?

$50,000 minus any outstanding policy loans Signup and view all the answers

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

Assign policy ownership to the bank Signup and view all the answers

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

Payor clause Signup and view all the answers

What will happen under the Misstatement of Age provision if L understated her age on the application?

Adjust the death benefit to a reduced amount Signup and view all the answers

Past-due interest on a policy loan is not added to the total debt.

False Signup and view all the answers

Which of the following is NOT an example of a Nonforfeiture option?

Life Income Signup and view all the answers

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

True Signup and view all the answers

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

Deducted when the policy is discontinued Signup and view all the answers

The Consideration clause in a life insurance policy indicates that a policyowner's consideration consists of what?

The initial premium Signup and view all the answers

What provision will keep a Whole Life policy in force if payment is not made?

Automatic Policy Loan provision Signup and view all the answers

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

An insurer's basic promise Signup and view all the answers

What is the Accelerated Death Benefit provision in a life insurance policy also known as?

Living Benefit Signup and view all the answers

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 Signup and view all the answers

Accelerated death benefits do not provide for the early payment of the policy face amount.

False Signup and view all the answers

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

Insuring clause Signup and view all the answers

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

Child Signup and view all the answers

What feature would limit the insurer's obligation if N is killed while flying as a student pilot?

Exclusion Signup and view all the answers

What provision of life insurance policy pays a stated benefit amount if the insured is blinded in an industrial accident?

Accidental Death and Dismemberment clause Signup and view all the answers

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

Who the policyowner is and what rights the policyowner is entitled to. Signup and view all the answers

If an insured dies within the grace period without making the premium payment, what action will the insurer take?

Pay face amount minus the past due premium. Signup and view all the answers

If an individual covered by a Term Life policy does not make the required premium payment and dies, what action will the insurer take?

Claim will be denied. Signup and view all the answers

A policy loan is made possible by which life insurance policy feature?

Cash value provision. Signup and view all the answers

What is the purpose of the Suicide provision in life insurance?

Safeguard the insurer from an applicant who is contemplating suicide. Signup and view all the answers

Which Whole Life policy accumulates cash value faster in the early years?

20-Pay Life. Signup and view all the answers

What does the Accidental Death and Dismemberment (AD&D) provision pay?

Additional benefits if the insured is blinded in an accident. Signup and view all the answers

What rider ensures premium will be paid if the insured becomes disabled?

Waiver of Premium. Signup and view all the answers

Which statement about a policy's Grace period is NOT true?

Past due premiums are waived Signup and view all the answers

What may trigger a benefit under a long-term care rider?

Inability to perform more than 2 Activities of Daily Living (ADLs). Signup and view all the answers

Which statement about Settlement Options is NOT true?

Only the insurance agent may select options Signup and view all the answers

What benefit does the Payor clause on a Juvenile Life policy provide?

Premiums are waived if payor becomes disabled. Signup and view all the answers

Which rider typically appears on a Juvenile life insurance policy?

Payor Benefit rider. Signup and view all the answers

Inability to perform two or more activities of daily living may trigger which type of policy rider?

Long term care. Signup and view all the answers

How can Variable Whole Life Insurance be described?

It is both an insurance and securities product. Signup and view all the answers

Which type of policy may NOT have the Automatic Premium Loan provision?

Decreasing Term. Signup and view all the answers

What is the Reinstatement provision used for?

Put an insurance policy back in force after it has lapsed due to nonpayment. Signup and view all the answers

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

Child term rider. Signup and view all the answers

What is the insuring agreement in a life insurance contract?

A specific sum of money will be paid to a designated person upon an insured's death. Signup and view all the answers

What amount will D's beneficiary receive if he dies while covered under a Whole Life policy with a War Exclusion clause?

The full face amount. Signup and view all the answers

What will the beneficiary receive if an insured dies during the Grace Period without paying past due premiums?

Full face amount minus any past due premiums. Signup and view all the answers

What is an exclusion in an insurance policy?

A feature stating that the policy will not cover certain risks. Signup and view all the answers

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

At future dates specified in the contract with no evidence of insurability required. Signup and view all the answers

Which Dividend Option should a teacher select for an increasing Death Benefit?

Paid-Up Additional Insurance. Signup and view all the answers

What kind of rider did S include on the policy if the insurer paid the beneficiary $10,500?

Return of premium rider. Signup and view all the answers

If T commits suicide five years after taking a life insurance policy with AD&D rider, how much will the insurer pay?

$50,000. Signup and view all the answers

What does B's guaranteed insurability option allow him to purchase?

Additional Whole Life coverage at specified times. Signup and view all the answers

What information does the Consideration clause contain?

Amount of premium payments and when they are due. Signup and view all the answers

What is a Return of Premium life insurance policy?

Whole life and Increasing term. Signup and view all the answers

If D remarries and transfers ownership of his policy, who will the policy proceeds be paid to if he dies?

Ex-wife. Signup and view all the answers

What action is taken when a policyowner uses a Life Insurance policy as collateral for a bank loan?

Collateral assignment. Signup and view all the answers

How is accumulated interest earned on dividends from an insurance policy taxed?

It is taxed as ordinary income. Signup and view all the answers

Which Dividend option results in taxable income to the policyowner?

Accumulation at Interest. Signup and view all the answers

What type of life insurance allows level premiums and investment choices?

Variable Life. Signup and view all the answers

What does the Owner's Rights provision state?

Who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy. Signup and view all the answers

How can additional coverage be added to a Whole Life policy?

By adding a decreasing term rider. Signup and view all the answers

What action will an insurer take if interest payment on a policy loan is late?

Automatically add the amount of interest due to the loan balance. Signup and view all the answers

What is the purpose of the automatic premium loan provision?

Avoid a policy lapse. Signup and view all the answers

Which statement about the Waiver of Premium provision is NOT true?

It eliminates future premium payments forever Signup and view all the answers

What does a policy loan provision state?

It pays the policyowner an amount that does not surpass the guaranteed cash value. Signup and view all the answers

Which life insurance rider allows the applicant to have excess coverage?

Term rider. Signup and view all the answers

Which of these is NOT considered a right given to a policyowner?

Modify a provision in the insurance contract Signup and view all the answers

What will happen if premiums are waived due to a disability on a participating life policy?

P will still receive declared dividends. Signup and view all the answers

What type of life policy contains a monthly mortality charge and self-directed investment choices?

Variable Universal Life. Signup and view all the answers

What happens if an insured commits suicide within the contestable period?

Claims are denied under the Suicide clause of the policy. Signup and view all the answers

If material misrepresentations are discovered after a life insurance policy is in force, what action will the insurer take?

Beneficiary will be paid the Death Benefit. Signup and view all the answers

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

The insurer may contest the validity of the policy. Signup and view all the answers

Study Notes

Policy Provisions, Options, and Riders

Accidental Death and Dismemberment Clause pays a specified benefit for accidental death or loss of limbs/sight.
Ownership Clause defines who owns the policy and their rights.
Death within grace period after premium due results in payout minus past-due premiums.
Term Life Policy lapses if premium isn't paid; death claim is denied if lapsed.
Cash Value Provision enables policy loans against accumulated cash value.
Suicide Provision protects insurers from claims made shortly after policy issuance.
20-Pay Life accumulates cash value more rapidly than Straight Life policies.
Waiver of Premium Rider covers premiums if the insured becomes disabled.
Grace Period does not waive past due premiums.
Long-Term Care Rider activates when the insured cannot perform 2+ Activities of Daily Living (ADLs).
Beneficiary clearly selects Settlement Options; other statements regarding them are substantiated.
Payor Clause waives premiums for juvenile policies if the payor becomes disabled.
Child Term Rider offers coverage for children under a parent's life insurance policy.
Variable Whole Life Insurance merges insurance with investment components.
Reinstatement Provision allows lapsed policies to be reinstated with conditions.
Insuring Agreement specifies the sum paid upon the insured's death.
War Exclusion Clause might exempt payout if death occurs while engaged in military service.
Policy Loans can lead to reduced payout if the insured dies with an outstanding loan balance.
Incontestable Clause limits insurer's ability to contest claims after a specific period, typically two years.
Accumulated Interest on Dividends is subject to taxation as ordinary income.
Guaranteed Insurability Option allows purchasing additional coverage without proof of insurability at specified future dates.
Dividend Options impact coverage, such as selecting Paid-Up Additional Insurance to combat inflation.
Return of Premium Rider equates policy's death benefit to premiums paid if the insured passes away within a specific timeframe.
Collateral Assignment is used for securing bank loans with life insurance policies.
Reduced Paid-Up Option maintains a build-up in cash value after ceasing premium payments.
If the insured dies past the Contestable Period with misrepresentations, the claimed benefit is generally honored.
Exclusions in Policies detail certain uninsurable risks.
Entire Contract Provision denotes that the written policy, application, and riders represent the full agreement.
Death benefits can be altered due to misrepresentation regarding age that was understated.
Premiums on a juvenile life policy can be waived if the policyholder becomes disabled due to the Payor Clause.
Policies can be assigned to banks as collateral for loans, providing flexibility to policyowners.### Policy Loans and Interest
Unpaid interest on a policy loan increases the total debt owed under the policy.

Nonforfeiture Options

Options available include Extended Term, Reduced Paid-up, and Cash Surrender.
Life Income is NOT a Nonforfeiture option.

Misstatement of Age

Misstating age can lead to adjustments in coverage to match the insured’s correct age upon discovery.

Surrender Charges

In policies with rear-end loaded provisions, surrender charges are applied when the policy is discontinued.

Consideration Clause

A policyowner’s consideration comprises the completed application and the initial premium payment.

Automatic Policy Loan Provision

This provision ensures a Whole Life policy remains in effect by covering premium payments from available cash value if payments are missed.

Insuring Agreement

The insuring agreement constitutes the insurer's fundamental promise to provide specified benefits under the life insurance contract.

Accelerated Death Benefit

Also referred to as Living Benefits, this provision allows for early payment from the policy face amount in cases of terminal illness or injury.

Life Insurance Contract

The insuring clause specifies the insurance company's commitment to pay designated benefits.

Payor Benefit Clause

This clause applies to policies covering juvenile lives and ensures continuous insurance coverage if the premium-paying adult dies or becomes totally disabled.

Exclusions in Policies

Exclusions identify specific hazards or circumstances, such as flying as a student pilot, that limit the insurer's liability for benefits under the policy.

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Description

Test your knowledge on key life insurance policy provisions, options, and riders with this flashcard quiz. Each question dives into critical concepts such as Accidental Death and Dismemberment clauses and ownership clauses. Perfect for anyone studying life insurance or preparing for relevant exams.

Chapter Exam 2 - Life Insurance Provisions