Insurance Concepts Quiz

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.