Questions and Answers
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.
True
Which of the following does a policyowner NOT have a right to change?
How is a life insurance policy dividend legally defined?
Signup and view all the answers
When an accidental death benefit is added to a whole life policy, it affects the policy's cash value.
Signup and view all the answers
What protects an insurer from adverse selection?
Signup and view all the answers
How does the cost recovery rule apply when a life insurance policy is surrendered?
Signup and view all the answers
Monthly income payments are a valid policy dividend option.
Signup and view all the answers
What time period allows a life insurance policy to remain in force even if the premium was not paid on the due date?
Signup and view all the answers
How will the adjusted death benefit be calculated for an insured who understated his age?
Signup and view all the answers
Which provision allows an insured to continue coverage after a policy has lapsed?
Signup and view all the answers
A life insurance policy can be surrendered for its cash value under which policy provision?
Signup and view all the answers
Which provision protects the policyowner from unintentional lapses of the contract?
Signup and view all the answers
What are collateral assignments primarily associated with?
Signup and view all the answers
Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness?
Signup and view all the answers
When does a life insurance policy's waiver of premium take effect?
Signup and view all the answers
What does the guaranteed insurability option allow an insured to do?
Signup and view all the answers
What provision ensures that a disabled insured’s policy continues in force without premium payment?
Signup and view all the answers
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.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
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.
