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Questions and Answers
In a life insurance policy, what does the entire contract consist of?
In a life insurance policy, what does the entire contract consist of?
Policy and attached application.
A dividend option is selected by the insured at the time of the policy purchase.
A dividend option is selected by the insured at the time of the policy purchase.
True
Which of the following does a policyowner NOT have a right to change?
Which of the following does a policyowner NOT have a right to change?
How is a life insurance policy dividend legally defined?
How is a life insurance policy dividend legally defined?
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When an accidental death benefit is added to a whole life policy, it affects the policy's cash value.
When an accidental death benefit is added to a whole life policy, it affects the policy's cash value.
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What protects an insurer from adverse selection?
What protects an insurer from adverse selection?
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How does the cost recovery rule apply when a life insurance policy is surrendered?
How does the cost recovery rule apply when a life insurance policy is surrendered?
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Monthly income payments are a valid policy dividend option.
Monthly income payments are a valid policy dividend option.
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What time period allows a life insurance policy to remain in force even if the premium was not paid on the due date?
What time period allows a life insurance policy to remain in force even if the premium was not paid on the due date?
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How will the adjusted death benefit be calculated for an insured who understated his age?
How will the adjusted death benefit be calculated for an insured who understated his age?
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Which provision allows an insured to continue coverage after a policy has lapsed?
Which provision allows an insured to continue coverage after a policy has lapsed?
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A life insurance policy can be surrendered for its cash value under which policy provision?
A life insurance policy can be surrendered for its cash value under which policy provision?
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Which provision protects the policyowner from unintentional lapses of the contract?
Which provision protects the policyowner from unintentional lapses of the contract?
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What are collateral assignments primarily associated with?
What are collateral assignments primarily associated with?
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Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness?
Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness?
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When does a life insurance policy's waiver of premium take effect?
When does a life insurance policy's waiver of premium take effect?
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What does the guaranteed insurability option allow an insured to do?
What does the guaranteed insurability option allow an insured to do?
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What provision ensures that a disabled insured’s policy continues in force without premium payment?
What provision ensures that a disabled insured’s policy continues in force without premium payment?
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Study Notes
Life Insurance Policy Overview
- The entire contract of a life insurance policy comprises the policy itself and the attached application.
- Policyholders choose dividend options at the time of policy purchase, influencing future benefits.
Policyowner Rights
- Policyowners have various rights, including the ability to change certain aspects of their policies; however, they cannot alter the dividend schedule.
- A life insurance policy's cash value remains unaffected when an accidental death benefit is added.
Tax Implications
- Life insurance dividends are classified as a return of excess premium paid and are not subject to taxation.
- Upon surrendering a life insurance policy, the cost basis is exempt from taxation according to the cost recovery rule.
Policy Provisions
- The grace period provision allows life insurance to stay in force even if the premium payment is missed.
- A reinstatement provision permits insured individuals to regain coverage after a policy has lapsed.
- Nonforfeiture options enable policyowners to surrender for cash value without losing their coverage.
Special Provisions and Benefits
- The waiver of premium provision activates if the insured becomes totally disabled, allowing continued coverage without premium payment.
- The accelerated death benefit provision can provide a portion of the death benefit before the insured's death in cases of serious illness.
Adjustments and Assignments
- If an insured understates their age, the adjusted death benefit is calculated at a fraction, based on the premiums paid versus the standard rate.
- Collateral assignments are typically linked to bank loans, allowing lenders to secure interests in the policy.
Unique Situations
- Monthly income payments are not recognized as a valid policy dividend option.
- The guaranteed insurability option permits the insured to acquire additional coverage without submitting evidence of insurability.
Special Cases
- The waiver of premium provision ensures policyholders like Bruce, who become totally and permanently disabled, can maintain their coverage without further payments.
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Description
Test your knowledge on key concepts from Chapter 5 of your life insurance studies. This quiz includes important definitions and statements related to life insurance policies and dividends. Perfect for reinforcing your understanding of the material.
