Questions and Answers
Funds exceeding the premium paid under the cash surrender nonforfeiture option are taxable as ordinary income.
True
What allows the policy holder to apply policy dividends towards the next year's premium?
Reduction of Premium Option
Nonforfeiture values are required by state law to be included in the policy.
True
Which of the following statements about a suicide clause in a life insurance policy is true?
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A single life settlement option provides income that the beneficiary cannot outlive.
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Which nonforfeiture option provides coverage for the longest period of time?
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When a whole life policy lapses or is surrendered prior to maturity, what can the cash value be used to purchase?
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Study Notes
Cash Surrender Nonforfeiture Option
- Tax implications exist for funds exceeding the total premium paid, classified as ordinary income.
Reduction of Premium Option
- Policy dividends can be applied to offset the next year's premium, reducing out-of-pocket expenses for the policyholder.
Nonforfeiture Values
- State law mandates that nonforfeiture values must be included in life insurance policies, ensuring policyholder rights.
Suicide Clause in Life Insurance
- Life insurance policies often have a suicide clause that excludes coverage for a specified period, typically a few years, after which suicide becomes a covered risk.
Single Life Settlement Option
- This option guarantees lifelong income for the beneficiary, ensuring financial stability for as long as they live.
Reduced Paid-Up Nonforfeiture Option
- Among the nonforfeiture options available, the reduced paid-up option offers the longest duration of coverage, allowing the policyholder to maintain insurance without ongoing premiums.
Cash Value Utilization in Whole Life Policies
- In instances where a whole life policy lapses or is surrendered before maturity, the accumulated cash value can be utilized to buy a single premium policy with a lower face amount.
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Description
Test your knowledge on individual life insurance contracts with this quiz. Explore important concepts such as cash surrender options and nonforfeiture values. Perfect for students and professionals in the insurance field.
