Insurance Chapter 5 - Policy Provisions
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Questions and Answers

What is the right to make a policy change in a life insurance policy?

Not an ownership right; only an authorized officer of the insurer can make changes to the policy.

Who can amend a life insurance policy according to the entire contract clause?

Only an authorized officer of the insurance company.

Which option best describes the automatic premium loan provision?

  • Involves the policyowner's decision to pay
  • Is optional for the policyowner
  • Uses the policy's cash value to pay premiums (correct)
  • Uses external funds to pay premiums

    • What does the insuring clause contain?

    <p>The insurer's basic promise to pay benefits.</p> Signup and view all the answers

    What type of assignment involves a voluntary transfer of all ownership rights of a life insurance policy?

    <p>Absolute assignment.</p> Signup and view all the answers

    Helen's life insurance policy will be voided if the insurer discovers she was a smoker.

    <p>True</p> Signup and view all the answers

    What impact does a misstated age have on a life insurance policy's benefits?

    <p>The death benefit would be lowered.</p> Signup and view all the answers

    The insurer's promise to pay benefits is part of the entire contract provision.

    <p>False</p> Signup and view all the answers

    What is the minimum period allowed for a free look on a newly issued life insurance policy?

    <p>10 days.</p> Signup and view all the answers

    The automatic premium loan provision allows the insurer to use the policy cash value to pay overdue premiums.

    <p>True</p> Signup and view all the answers

    What does the policy specify regarding withdrawals from the cash value of a universal life policy?

    <p>How much can be withdrawn, at what frequency, and the service charges applicable.</p> Signup and view all the answers

    What information is identified in the insuring clause of a life insurance policy?

    <p>The named insured, type, and amount of coverage.</p> Signup and view all the answers

    Which of the following best describes the cash loan provision in a life insurance policy?

    <p>The cash loan provision allows loans up to the current cash value, less any existing indebtedness.</p> Signup and view all the answers

    What is the primary purpose of the entire contract provision in a life insurance policy?

    <p>To ensure that the policyholder has all documents pertaining to the policy in their possession.</p> Signup and view all the answers

    Who has the right to change the beneficiary designations in a life insurance policy?

    <p>The policyowner.</p> Signup and view all the answers

    Term insurance builds cash value.

    <p>False</p> Signup and view all the answers

    All of the following are ownership rights, EXCEPT:

    <p>Only an authorized officer of the insurer can make changes to the policy</p> Signup and view all the answers

    Which provision allows the insurer to automatically use the policy cash value to pay an overdue premium?

    <p>Automatic premium loan provision.</p> Signup and view all the answers

    Julie's consideration for her health insurance policy consists of:

    <p>Statements made on the application and the initial premium.</p> Signup and view all the answers

    When Dakota's life insurance policy misstatement was discovered, how did it impact the policy?

    <p>The death benefit was increased.</p> Signup and view all the answers

    The stipulated period of time for overdue payments in life insurance is called the _____________.

    <p>grace period.</p> Signup and view all the answers

    With voluntary and absolute assignment, specifics include:

    <p>All rights are assigned.</p> Signup and view all the answers

    When she feels like it is an accepted payment option for life insurance policies.

    <p>False</p> Signup and view all the answers

    Which provision is mandatory in life insurance policies?

    <p>Grace period provision.</p> Signup and view all the answers

    What part of the insurance contract identifies the named insured, type, and amount of coverage provided?

    <p>Insuring clause.</p> Signup and view all the answers

    In most states, how long is the period of contestability for material misrepresentations made on a life insurance application?

    <p>2 years.</p> Signup and view all the answers

    Which clause states that the policyowner must pay something of value for the insurer's promise to pay benefits?

    <p>Consideration clause</p> Signup and view all the answers

    What will the insurance company do if Marcella's age misstatement is discovered upon her death?

    <p>Pay the death benefit based on Marcella's actual age.</p> Signup and view all the answers

    To prevent reduction in the death benefit due to unpaid policy loans, what should the policyowner do?

    <p>Repay the loan with interest.</p> Signup and view all the answers

    The insuring clause of a policy includes all of the following, EXCEPT:

    <p>Amount of the policy premium</p> Signup and view all the answers

    Withdrawals or partial surrenders in a universal life policy specify:

    <p>How much can be withdrawn.</p> Signup and view all the answers

    How long is the loan period on STOLI arrangements?

    <p>2 years.</p> Signup and view all the answers

    When reinstating a lapsed life insurance policy, which action is NOT required?

    <p>Surrender the policy</p> Signup and view all the answers

    All of the following are ownership rights, EXCEPT:

    <p>Right to change the grace period</p> Signup and view all the answers

    Which of the following provisions is NOT optional?

    <p>Misstatement of age clause.</p> Signup and view all the answers

    Which of the following policies allows partial withdrawals or surrenders?

    <p>Universal life policy</p> Signup and view all the answers

    All of the following are part of the entire contract provision, EXCEPT:

    <p>Insurer's obligation to provide cash value</p> Signup and view all the answers

    If a life insurance policy lapses, what must be done to reinstate it?

    <p>Pay all back due premiums with interest and provide proof of insurability.</p> Signup and view all the answers

    What will happen if a policyholder dies during the grace period of their life insurance policy?

    <p>Coverage will stay in force but the overdue premium will be deducted.</p> Signup and view all the answers

    What happens if no beneficiary is named in a life policy?

    <p>The proceeds go to the estate of the insured.</p> Signup and view all the answers

    Why are STOLI arrangements ethical dilemmas?

    <p>Investors do not have insurable interest in the insured's life.</p> Signup and view all the answers

    The applicant's statements in the application are considered ______________ and not _____________, unless fraudulent.

    <p>representations; warranties.</p> Signup and view all the answers

    The insurance company is relieved of any responsibility to pay a benefit if the insured dies during the grace period of a policy.

    <p>False</p> Signup and view all the answers

    What is the maximum time period the insurer can dispute the applicant's statements on the application?

    <p>2 years</p> Signup and view all the answers

    Which type of assignment is partial and temporary?

    <p>Collateral assignment</p> Signup and view all the answers

    Study Notes

    Policy Provisions, Options, and Riders

    • Cash Loan Provision: Allows policyowners to take a loan against the cash value of their policy up to the current cash value minus existing debts.

    • Entire Contract Provision: Ensures the policyholder holds all necessary documents related to the policy, providing full disclosure.

    • Policyowner Rights: The policyowner has the authority to change beneficiary designations and exercise all ownership rights.

    • Term Insurance vs. Cash Value Insurance: Term insurance provides coverage for a specified duration and does not accumulate cash value, making it generally cheaper for younger policyholders.

    • Ownership Rights: Policyowners can request changes but only an authorized officer can officially amend the policy.

    • Automatic Premium Loan Provision: Allows the insurer to use the policy's cash value to pay overdue premiums automatically, preventing policy lapse.

    • Consideration Clause: States that insurance coverage is effective upon the application's submission and the initial premium payment.

    • Grace Period: A mandatory provision allowing a specified time for policyholders to pay overdue premiums while maintaining coverage.

    • Insuring Clause: Specifies the named insured, type, and amount of coverage, serving as the insurer's promise to pay benefits.

    • Incontestability Period: Typically two years during which insurers can contest material misrepresentations on applications.

    • Collateral Assignment: A temporary type of assignment used to secure loans, involving partial transfer of rights.

    • Misstatement of Age Clause: Allows the insurer to adjust benefits based on the insured's correct age if misrepresented, without voiding the policy.

    • Reinstatement Conditions: Policy lapses can be reinstated within three years if back premiums, interest, and proof of insurability are provided.

    • Assignment Clause: Specifically outlines the rights of the policyowner to transfer ownership rights to another party.

    • Investor-Originated Life Insurance (IOLI): A type of STOLI where investors solicit elderly individuals to secure profits from life insurance death benefits.

    • Weekly Payment Options: Generally not accepted as a premium payment mode in most life insurance policies.

    • Death Benefit Payment during Grace Period: If the insured dies during the grace period, the insurer deducts the overdue premium from the death benefit.

    • Unintentional Misstatements: Insurers can adjust premiums based on age misstatements when the insured is still living.

    • Total Unconditional Assignment: This designation does not exist; assignments can be either absolute or collateral.

    • Impact of Misstatements: Misrepresentation of smoking status will void insurance coverage immediately upon discovery.

    • Policy Loan Responsibilities: Loan amounts may be deducted from the death benefit, but policy loans do not require repayment unless the insured passes away.

    • Proceeds Distribution: If no beneficiary is named, life insurance proceeds are directed to the insured’s estate.

    • Ethical Issues with STOLI: STOLI arrangements raise ethical concerns due to investors lacking insurable interest, aiming for the insured's early death to claim benefits.

    • Examination Period for Policies: Policyholders have a right to examine their insurance policies and receive a full refund if the policy is returned within a specified timeframe.### Life Insurance Policy Details

    • Misstatement of age affects policy benefits; benefits are reduced if the insured is older than stated.

    • Insurer's promise to pay benefits is contingent upon premium payments, forming part of the consideration clause in the policy.

    Free Look Provision

    • The minimum duration for a free look on newly issued life insurance policies is 10 days.
    • Free look periods can vary by state and policy type, allowing policyholders to reconsider their purchase.

    Automatic Premium Loan Provision

    • This provision allows insurers to utilize a policy's cash value to cover overdue premium payments automatically.
    • Ensures that a policy remains in force even if premium payments are missed, by tapping into accumulated cash value.

    Withdrawals from Universal Life Policies

    • Policies specify conditions for withdrawals or partial surrenders from the cash value.
    • Important details include limits on withdrawal amounts, frequencies allowed, and any associated service charges.
    • No expectation exists that withdrawn amounts will be repaid, indicating the potential impact on future policy values.

    Insuring Clause

    • The insuring clause, found on the policy face or title page, details the named insured, coverage type, and amount.
    • It highlights the insurer's fundamental promise to pay benefits and outlines the effective date and coverage period, helping to clarify the policy's intent.

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    Description

    Test your knowledge on key policy provisions, options, and riders in life insurance. This quiz highlights critical terms and definitions necessary for understanding insurance contracts. Perfect for students and professionals alike looking to solidify their insurance policy comprehension.

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