Insurance Concepts Quiz

Questions and Answers

What do nonforfeiture values guarantee for the policyowner?

Lower premiums for reinstatement

That the cash value will not be lost (correct)

Guaranteed loans against the policy

That premiums are refundable

What will happen if Y was killed in an automobile accident before the policy was issued?

The insurance company will issue the policy anyway and pay the face value to the beneficiary.

What type of policy can be changed from one that does not accumulate cash value to one that does?

Convertible Term Policy.

Which of the following best defines target premium in a universal life policy?

The recommended amount to keep the policy in force Signup and view all the answers

Which of the following is NOT true regarding the annuitant?

The annuitant can be a corporation Signup and view all the answers

When is the earliest a policy may go into effect?

When the application is signed and a check is given to the agent. Signup and view all the answers

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT:

The interest credited is not taxable Signup and view all the answers

What is true about a spouse term rider?

The rider is usually level term insurance. Signup and view all the answers

What can an insurance company do if they discover that the insured concealed information during the application process after the insured died?

Pay the death benefit. Signup and view all the answers

What is the dividend option when an insured applies dividends to increase the death benefit?

Paid-up additions. Signup and view all the answers

According to the entire contract provision, what document must be part of the insurance policy?

Copy of the original application. Signup and view all the answers

A life insurance policy has a legal purpose if which elements exist?

Insurable interest and consent Signup and view all the answers

Which of the following is called a 'second-to-die' policy?

Survivorship life. Signup and view all the answers

Study Notes

Nonforfeiture Values

Guarantee cash value will not be lost if the policy lapses or is surrendered.
Provides the right to cash value for the policyowner.

Conditional Receipt Scenario

If an applicant pays an initial premium and is later found insurable, the policy will be issued posthumously.
The face value is paid to the beneficiary if the applicant dies before the policy is formally issued.

Convertible Term Policy

Allows policyowners to convert from term insurance (no cash value) to permanent insurance (with cash value).
Provides flexibility for the policyholder in changing insurance needs.

Target Premium in Universal Life Policy

Represents the recommended payment amount to keep the policy active throughout its lifetime.
Covers both insurance protection costs and total premium requirement.

Annuity Owner vs. Annuitant

The annuitant does not have to be the same person as the annuity owner, though they often are.
The annuitant is defined as the individual receiving benefits from the annuity.

Policy Effectiveness

A life insurance policy can become effective upon signing the application and submitting payment.
The policy can take effect as early as the date of application if it meets certain conditions.

Accumulation at Interest Option

The interest credited under this policy option is taxable.
Contrary to some beliefs, taxation occurs regardless of whether the policyowner receives interest.

Spouse Term Rider

A spouse term rider typically offers level term insurance coverage.
Coverage is often temporary, expiring when the spouse reaches age 65.

Incontestability Clause

Protects the death benefit payout after the policy has been in force for two years.
Ensures claims cannot be denied based on misstatements in the application after the two-year period.

Paid-Up Additions Dividend Option

Policy dividends can be used to purchase additional insurance, referred to as paid-up additions.
Each dividend acts as a single premium to acquire more coverage based on the insured’s age.

Entire Contract Provision

Mandates that a copy of the original application is included as part of the insurance policy.
Ensures transparency and accountability in the contract documents.

Legal Purpose of Life Insurance

Requires both insurable interest and consent for the policy to have a legal purpose.
These conditions safeguard against potential moral hazards in insurance contracts.

Second-to-Die Policy

Also known as survivorship life insurance.
Designed to pay out upon the death of the second insured, often used for estate planning.

Description

Test your knowledge on key insurance concepts including nonforfeiture values, conditional receipts, convertible term policies, and target premiums in universal life policies. Understand the roles of annuity owners and annuitants as well. This quiz is designed for students studying insurance principles.