Questions and Answers
Which nonforfeiture option is the 'automatic' option?
What nonforfeiture option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the policy's existing cash value?
Reduced paid-up insurance
Which of the following is a guarantee that is required by law to be a part of life insurance policies that build cash value?
Which of the following nonforfeiture options does not allow the insured to reinstate the policy?
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Which life insurance dividend option does not increase a policy's cash value?
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What nonforfeiture option permits the policyowner to use the cash values to purchase paid-up term life insurance coverage?
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This dividend option provides additional permanent coverage:
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Which nonforfeiture option may Eddie not use?
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Which option would best suit Rick, who wants to increase his life insurance while keeping his costs down?
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Which of the following is not a dividend option?
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All of the following are nonforfeiture options, EXCEPT:
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Which of the following provisions allows a life insurance policy to continue beyond the grace period when a premium is overdue and not paid?
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What is the automatic dividend option?
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What factor determines the rate of the additional coverage when the policyholder purchases additional insurance?
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When the extended term option is used, the face amount is?
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Which of the following is a true statement about dividends in participating policies?
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Which dividend option allows the policyowner to use the dividend to offset the cost of a future premium payment?
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If used, which nonforfeiture option does not allow the policyowner to reinstate the original policy?
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What nonforfeiture option allows the policyowner to receive the policy's cash value?
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Which dividend option allows the policyowner to use the dividend as a single premium to purchase additional face amounts of permanent coverage?
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Which of the following is NOT an option available to Mr. George regarding his dividend?
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Which nonforfeiture option(s) may Jenny select if she has a rated whole life insurance policy?
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What is the automatic nonforfeiture option?
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How will Mr. Johnson's decision to surrender his whole life policy affect the cash value of his new policy?
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What is the provision to access the cash value of the policy called?
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Which option is not available to Charlotte if she decides to exercise a nonforfeiture option?
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Which of the following is not true about the accumulation of interest dividend option?
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How should Marie use her dividend for one year of extra term life insurance protection valued at $10,000?
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Study Notes
Nonforfeiture Options
- The extended term option is the automatic nonforfeiture option used when the policyowner cannot be contacted and premium payments have ceased.
- Reduced paid-up insurance allows policyowners to purchase paid-up whole life insurance at a reduced face amount, utilizing the existing cash value of the policy.
- Nonforfeiture values are legally required guarantees in life insurance policies that accumulate cash value.
Cash Surrender
- The cash surrender option does not allow policy reinstatement as it results in surrendering the policy for its cash value, leading to no remaining coverage.
Dividend Options
- The cash payment dividend option involves the policyholder receiving a check for dividends, which does not enhance the policy’s cash value.
- Paid-up additions permit using dividends to increase coverage without significant cost, with dividends acting as a single premium for additional whole life coverage.
- Accumulation at interest is classified as a dividend option and is not a nonforfeiture option.
Additional Insurance and Policy Terms
- The attained age of the insured affects the rate of additional insurance purchased, particularly during major life events like marriage or childbirth.
- Using the extended term option, the face amount equals the original coverage, as the cash value purchases term coverage equivalent to the initial policy face value.
- Participating policies yield dividends that are not taxable, are typically paid annually, and reflect a return of premium overcharges.
Miscellaneous Provisions
- Premium offsets can be managed through a reduction of premium payments option, allowing dividends to cover future premium costs.
- Dividends cannot be applied to past due premiums from previous years, only to future premium payments or for purchasing additional insurance.
- Policy cash values continue to grow under a reduced paid-up policy despite a decrease in face value following surrender.
Special Cases and Considerations
- Jenny, with a rated whole life insurance policy, can only choose the reduced paid-up or cash options since extended term options are not available for such policies.
- The nonforfeiture provision safeguards policyholders against total loss of investment if premiums are not paid or if the policy is surrendered.
Summary Points
- The one-year term option allows policyholders to use dividends for temporary term life insurance, providing additional coverage as needed.
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Description
Test your knowledge with these flashcards covering key nonforfeiture options in insurance from Chapter 5. Understand terms like extended term option and reduced paid-up insurance. Perfect for anyone studying insurance fundamentals!
