Insurance Policy Renewal and Insurable Interest Quiz

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Questions and Answers

Which of the following is a correct statement about insurable interest?

Everyone has an insurable interest in his own life.

Insurable interest is important for purposes of underwriting the risk. (correct)

Insurable interest is deemed to exist by virtue of a relationship by blood or marriage.

Insurable interest is deemed to exist if economic loss would occur at the death of the insured.

Under what circumstance must a policyowner furnish evidence of insurability for reinstating a life insurance policy?

Pay future premiums at the rate for his or her attained age at the time of reinstatement (correct)

Furnish evidence of insurability which satisfactory to the insurance company

Assign the policy collaterally to the insurance company for the amount of the overdue premiums plus any outstanding policy loan

Agree to apply future policy dividends toward the payment of premium

What will an insurance company usually pay to the beneficiary if the person whose life is insured dies during the grace period with unpaid premiums?

Total premiums paid up to the date of birth plus interest

The face amount of the policy minus the unpaid premium

Cash surrender value of the policy minus the unpaid premium

Full face amount of the policy (correct)

What are the basic settlement options for an endowment policy?

Cash surrender value, automatic premium loan Signup and view all the answers

Under what circumstance does an insurance company generally have the right to rescind a life insurance policy?

Company discovers during the contestable period that the application contains a material statement Signup and view all the answers

Which of the following is NOT a reason for requiring that insurance agents be licensed?

To provide additional income to the government through license fees Signup and view all the answers

What happens when a policy owner elects the paid-up insurance option?

The insurance continues at a reduced amount and with a reduced premium Signup and view all the answers

Which of the following is NOT a Standard Provision of a life insurance policy?

A misstatement of age clause Signup and view all the answers

Which term policy CANNOT be sold as a basic policy contract?

Six months interim term Signup and view all the answers

If a housewife without gainful employment applies for life coverage, what should the agent do?

Examine the adequacy of the husband’s insurance coverage Signup and view all the answers

According to the law of large numbers, what is the relationship between seemingly chance events and predictability?

They always follow a predictable pattern Signup and view all the answers

What happens in the case of anti-selection in insurance?

Persons in poor health wish to buy insurance Signup and view all the answers

In the case of misstatement of age in an insurance policy, how is the amount of insurance adjusted?

Adjusted based on the premium paid at correct age Signup and view all the answers

Study Notes

Insurable Interest

Insurable interest is a requirement for a policyowner to have a legitimate financial interest in the life of the insured.

Reinstatement of Life Insurance Policy

A policyowner must furnish evidence of insurability when reinstating a lapsed life insurance policy.

Death During Grace Period

If the person whose life is insured dies during the grace period with unpaid premiums, the insurance company will usually pay the beneficiary the full policy death benefit.

Endowment Policy Settlement Options

The basic settlement options for an endowment policy are the lump sum option, the income option, and the annuity option.

Policy Rescission

An insurance company generally has the right to rescind a life insurance policy if the policyowner misrepresented or concealed material facts on the application.

Insurance Agent Licensing

Insurance agents must be licensed to ensure they have the necessary knowledge and skills to advise clients and sell insurance products effectively.

Paid-Up Insurance Option

When a policy owner elects the paid-up insurance option, they surrender part of their policy's face value to purchase a smaller paid-up policy with no further premium payments.

Standard Provisions

The standard provisions of a life insurance policy do not include a "vanishing premium" clause.

Term Policy

A renewable term policy cannot be sold as a basic policy contract, as it is a rider or an addendum to a permanent life insurance policy.

Underwriting Life Insurance

If a housewife without gainful employment applies for life coverage, the agent should determine the basis of insurable interest, as it is likely based on the husband's income.

Law of Large Numbers

According to the law of large numbers, the larger the number of exposures, the more predictable the outcome of seemingly chance events.

Anti-Selection in Insurance

Anti-selection occurs when individuals with a higher risk of loss are more likely to purchase insurance, leading to higher claims and losses for the insurer.

Misstatement of Age

If there is a misstatement of age in an insurance policy, the amount of insurance is adjusted proportionally to the correct age-based premium rate.

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Description

Test your knowledge on insurance policy renewal conditions and insurable interest concepts. The quiz covers topics such as renewing a policy, increasing premiums, requiring evidence of insurability, and cash value growth. Evaluate your understanding of insurable interest in relation to personal relationships and economic loss.