Life Insurance Concepts Chapter 3

Questions and Answers

What kind of life insurance policy should N purchase to have level premiums, permanent protection, and be paid-up at retirement?

30 Pay Life (correct)

Whole Life

Term Life

Decreasing Term Life

What kind of life policy pays the face value upon the death of the insured or when the insured reaches age 100?

Whole Life

Which of these is an element of a Variable Life policy?

A fixed, level premium

Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?

Policyowner Signup and view all the answers

A Limited-Pay Life policy has what kind of premium payments?

Limited to a specified number of years Signup and view all the answers

Which statement about a whole life policy is correct?

Cash value may be borrowed against Signup and view all the answers

What type of life insurance gives the greatest amount of coverage for a limited period of time?

Term life Signup and view all the answers

What type of insurance offers permanent life coverage with premiums that are payable for life?

Whole Life Signup and view all the answers

What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?

Decreasing term Signup and view all the answers

How does a typical Variable Life Policy investment account grow?

Through mutual funds, stocks, bonds Signup and view all the answers

Which of these life products is NOT considered interest-sensitive?

Modified Whole Life Signup and view all the answers

If G purchased a Family Income policy at age 40 and died at age 50 with a 20-year rider period, how long would G's family receive an income?

10 years Signup and view all the answers

What kind of policy should Q purchase for $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy?

Whole life policy with other insured rider Signup and view all the answers

Which is true concerning a Variable Universal Life policy?

Policyowner controls where the investment will go and selects the amount of the premium payment Signup and view all the answers

Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health?

Conversion Signup and view all the answers

Which type of policy is considered to be overfunded, as stated by IRS guidelines?

Modified Endowment Contract Signup and view all the answers

Which of these statements describe a Modified Endowment Contract (MEC)?

Exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract Signup and view all the answers

Which of these would be considered a Limited-Pay Life policy?

Life Paid-Up at Age 70 Signup and view all the answers

Which statement is correct regarding the premium payment schedule for whole life policies?

Premiums are payable throughout the insured's lifetime and coverage lasts until the death of the insured Signup and view all the answers

What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?

Family Maintenance Policy Signup and view all the answers

All of these insurance products require a producer to have proper FINRA securities registration to sell them EXCEPT for what?

Modified Whole Life Signup and view all the answers

What kind of policy does K buy where the premium stays fixed for the first 5 years, then increases in year 6 and stays level thereafter?

Modified Whole Life Signup and view all the answers

All of these are characteristics of an Adjustable Life policy EXCEPT for what?

Face amount can be adjusted using policy dividends Signup and view all the answers

When is the face amount paid under a Joint Life and Survivor policy?

Upon death of the last insured Signup and view all the answers

Which of these characteristics is consistent with a Straight Life policy?

Premiums are payable for as long as there is insurance coverage in force Signup and view all the answers

What kind of policy does F need for only a limited amount of time with a death benefit that changes regularly?

Decreasing term policy Signup and view all the answers

When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?

At future dates specified in the contract with no evidence of insurability required Signup and view all the answers

Which of the following would be factors that determine how much coverage can be purchased with dividends?

Beneficiary's age Signup and view all the answers

When an insurer issues a policy that refuses to cover certain risks, this is referred to as what?

Exclusion Signup and view all the answers

What provision in a life insurance policy states that the application is considered part of the contract?

Entire Contract provision Signup and view all the answers

Which provision guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?

Payor clause Signup and view all the answers

Which of these is NOT considered to be a right given to a policyowner?

Modify a provision in the insurance contract Signup and view all the answers

How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?

Claims are denied under the Suicide clause of the policy Signup and view all the answers

What action will the insurer take if M dies without making the premium payment that was due?

Pay face amount minus the past due premium Signup and view all the answers

In a life insurance contract, an insurance company's promise to pay stated benefits is called the what?

Insuring clause Signup and view all the answers

What does the ownership clause in a life insurance policy state?

Who the policyowner is and what rights the policyowner is entitled to Signup and view all the answers

The automatic premium loan provision is designed to do what?

Avoid a policy lapse Signup and view all the answers

How much will the insurer pay the beneficiary if S dies one year after purchasing a whole life policy with an Accidental Death and Dismemberment rider?

$50,000 Signup and view all the answers

What will the beneficiary receive if the insured dies during the Grace Period while past due on his life insurance premium?

Full face amount minus any past due premiums Signup and view all the answers

What is the Policy Loan provision described as?

A provision that pays the policyowner an amount that does not surpass the guaranteed cash value Signup and view all the answers

The Consideration clause in a life insurance contract contains what pertinent information?

Amount of premium payments and when they are due Signup and view all the answers

What does the incontestable clause allow an insurer to do?

Contest a claim during the contestable period Signup and view all the answers

All of these statements about the Waiver of Premium provision are correct EXCEPT what?

Insured must be eligible for Social Security disability for claim to be accepted Signup and view all the answers

Which of the following statements is CORRECT about accelerated death benefits?

Must have a terminal illness to qualify Signup and view all the answers

Which statement regarding the Misstatement of Age provision is considered to be true?

Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered Signup and view all the answers

Which provision would keep S's Whole Life policy in force if payment is not made?

Automatic Policy Loan Signup and view all the answers

Which of these life insurance riders allows the applicant to have excess coverage?

Term rider Signup and view all the answers

What will the insurer pay to P's beneficiary if he dies in a scuba-related accident after failing to disclose scuba diving on his application?

$50,000 minus any outstanding policy loans Signup and view all the answers

Which statement about a Guaranteed Insurability Option rider is NOT TRUE?

Evidence of insurability is required when the option is exercised Signup and view all the answers

To whom will the policy proceeds be paid if D transfers ownership of his policy to his new wife after divorcing and dies without making changes?

Ex-wife Signup and view all the answers

Which of these are NOT an example of a Nonforfeiture option?

Life Income Signup and view all the answers

What is true if P's premiums are waived due to a disability on a participating life policy?

P will still receive declared dividends Signup and view all the answers

What action will the insurer take if N does not make the required premium payment and dies afterward?

Claim will be denied Signup and view all the answers

Which of these Nonforfeiture Options continue a build-up of cash value?

Reduced Paid-Up Signup and view all the answers

What action will an insurer take if an interest payment on a policy loan is not made on time?

Automatically add the amount of interest due to the loan balance Signup and view all the answers

What is the Suicide provision designed to do?

Safeguard the insurer from an applicant who is contemplating suicide Signup and view all the answers

What is the provision that can be used to put an insurance policy back in force after it has lapsed?

Reinstatement Signup and view all the answers

If T commits suicide five years after taking out a life insurance policy with an AD&D rider, how much will the insurer pay?

$50,000 Signup and view all the answers

Which feature would limit the insurer's obligation if N dies while flying as a student pilot with a large life insurance policy?

Exclusion Signup and view all the answers

How are surrender charges deducted in a life policy with a rear-end loaded provision?

Deducted when the policy is discontinued Signup and view all the answers

What is the option that provides an additional death benefit for a limited amount of time at the lowest possible cost?

An Accidental Death and Dismemberment (AD&D) rider Signup and view all the answers

What action will the insurer take if the beneficiary is to be paid the Death Benefit after discovering material misrepresentations during the application process?

Beneficiary will be paid the Death Benefit Signup and view all the answers

Which types of policies may NOT have the Automatic Premium Loan provision attached to them?

Decreasing term Signup and view all the answers

Study Notes

Life Insurance Policies Overview

30 Pay Life: Suitable for individuals like N who want level premiums, permanent protection, and to be paid-up at retirement.
Whole Life Policy: Offers death benefit either upon the insured's death or upon reaching age 100. Provides permanent life coverage with lifetime premium payments.
Variable Life Policy: Characterized by a fixed, level premium, allows policyowners to control investment allocations.
IOLI (Investor-Originated Life Insurance): Benefits the policyowner upon the death of the insured.

Types of Life Policies

Limited-Pay Life Policy: Requires premium payments over a specified number of years.
Decreasing Term Policy: Features an adjustable death benefit that decreases over time.
Term Life Insurance: Provides maximum coverage for a limited period.
Modified Whole Life Policy: Premiums are fixed for an initial period before increasing; offers a straightforward payment plan.

Policy Ownership and Provisions

Conversion Provision: Allows the policyowner to switch from a term life policy to a permanent one without health proof.
Modified Endowment Contract (MEC): Overfunded policy, violating IRS premium limits.
Entire Contract Provision: States that the application is part of the policy contract.
Payor Clause: Waives premiums if the juvenile policyowner becomes disabled.

Claims and Premium Payments

Grace Period: Beneficiaries receive full face amount minus past due premiums if the insured dies during this period.
Suicide Clause: Claims may be denied under this clause if the insured commits suicide within the contestable period.
Automatic Premium Loan: Prevents policy lapse by using cash value to cover unpaid premiums.
Insuring Clause: Clarifies the insurance company's promise to pay benefits.

Additional Riders and Options

Accidental Death and Dismemberment (AD&D) Rider: Provides extra death benefits at a low cost.
Guaranteed Insurability Option: Allows purchase of additional coverage without proof of insurability at specified future dates.
Family Maintenance Policy: Offers an income stream for a fixed period after the insured dies.

Nonforfeiture Options

Reduced Paid-Up: Continues cash value build-up without premium payments.
Life Income: Not considered a nonforfeiture option.

Claims and Contingencies

Material Misrepresentation: Insurer may still pay the death benefit even if misrepresentations are found after claim investigation.
Exclusions: Specific risks, like flying as a student pilot, may be excluded, limiting insurer's obligation.
Surrender Charges: Deducted when the policy is canceled; these are especially relevant in rear-end loaded provisions.

Rights and Responsibilities

Policyowner Rights: Include the ability to designate beneficiaries and receive dividends; cannot modify contract provisions unilaterally.
Waiver of Premium: Premiums waived due to disability without needing to qualify for Social Security disability.
Reinstatement Provision: Allows a lapsed policy to be reinstated by meeting certain conditions.

These notes provide a comprehensive overview of essential concepts related to various life insurance policies, their characteristics, and key provisions.

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Life Insurance Concepts Chapter 3

Questions and Answers

What kind of life insurance policy should N purchase to have level premiums, permanent protection, and be paid-up at retirement?

What kind of life policy pays the face value upon the death of the insured or when the insured reaches age 100?

Which of these is an element of a Variable Life policy?

Who benefits in Investor-Originated Life Insurance (IOLI) when the insured dies?

A Limited-Pay Life policy has what kind of premium payments?

Which statement about a whole life policy is correct?

What type of life insurance gives the greatest amount of coverage for a limited period of time?

What type of insurance offers permanent life coverage with premiums that are payable for life?

What type of life policy has a death benefit that adjusts periodically and is written for a specific period of time?

How does a typical Variable Life Policy investment account grow?

Which of these life products is NOT considered interest-sensitive?

If G purchased a Family Income policy at age 40 and died at age 50 with a 20-year rider period, how long would G's family receive an income?

What kind of policy should Q purchase for $100,000 of permanent protection on his wife and $50,000 of Term coverage on himself under the same policy?

Which is true concerning a Variable Universal Life policy?

Which provision allows the policyowner to change a term life policy to a permanent one without providing proof of good health?

Which type of policy is considered to be overfunded, as stated by IRS guidelines?

Which of these statements describe a Modified Endowment Contract (MEC)?

Which of these would be considered a Limited-Pay Life policy?

Which statement is correct regarding the premium payment schedule for whole life policies?

What kind of insurance policy supplies an income stream over a set period of time that starts when the insured dies?

All of these insurance products require a producer to have proper FINRA securities registration to sell them EXCEPT for what?

What kind of policy does K buy where the premium stays fixed for the first 5 years, then increases in year 6 and stays level thereafter?

All of these are characteristics of an Adjustable Life policy EXCEPT for what?

When is the face amount paid under a Joint Life and Survivor policy?

Which of these characteristics is consistent with a Straight Life policy?

What kind of policy does F need for only a limited amount of time with a death benefit that changes regularly?

When does a Guaranteed Insurability Rider allow the insured to buy additional coverage?

Which of the following would be factors that determine how much coverage can be purchased with dividends?

When an insurer issues a policy that refuses to cover certain risks, this is referred to as what?

What provision in a life insurance policy states that the application is considered part of the contract?

Which provision guarantees that premiums will be waived if a Juvenile Life policyowner becomes disabled?

Which of these is NOT considered to be a right given to a policyowner?

How do life insurance companies handle cases where the insured commits suicide within the contract's stated Contestable period?

What action will the insurer take if M dies without making the premium payment that was due?

In a life insurance contract, an insurance company's promise to pay stated benefits is called the what?

What does the ownership clause in a life insurance policy state?

The automatic premium loan provision is designed to do what?

How much will the insurer pay the beneficiary if S dies one year after purchasing a whole life policy with an Accidental Death and Dismemberment rider?

What will the beneficiary receive if the insured dies during the Grace Period while past due on his life insurance premium?

What is the Policy Loan provision described as?

The Consideration clause in a life insurance contract contains what pertinent information?

What does the incontestable clause allow an insurer to do?

All of these statements about the Waiver of Premium provision are correct EXCEPT what?

Which of the following statements is CORRECT about accelerated death benefits?

Which statement regarding the Misstatement of Age provision is considered to be true?

Which provision would keep S's Whole Life policy in force if payment is not made?

Which of these life insurance riders allows the applicant to have excess coverage?

What will the insurer pay to P's beneficiary if he dies in a scuba-related accident after failing to disclose scuba diving on his application?

Which statement about a Guaranteed Insurability Option rider is NOT TRUE?

To whom will the policy proceeds be paid if D transfers ownership of his policy to his new wife after divorcing and dies without making changes?

Which of these are NOT an example of a Nonforfeiture option?

What is true if P's premiums are waived due to a disability on a participating life policy?

What action will the insurer take if N does not make the required premium payment and dies afterward?

Which of these Nonforfeiture Options continue a build-up of cash value?

What action will an insurer take if an interest payment on a policy loan is not made on time?

What is the Suicide provision designed to do?

What is the provision that can be used to put an insurance policy back in force after it has lapsed?

If T commits suicide five years after taking out a life insurance policy with an AD&D rider, how much will the insurer pay?

Which feature would limit the insurer's obligation if N dies while flying as a student pilot with a large life insurance policy?

How are surrender charges deducted in a life policy with a rear-end loaded provision?

What is the option that provides an additional death benefit for a limited amount of time at the lowest possible cost?

What action will the insurer take if the beneficiary is to be paid the Death Benefit after discovering material misrepresentations during the application process?

Which types of policies may NOT have the Automatic Premium Loan provision attached to them?

Study Notes

Life Insurance Policies Overview

Types of Life Policies

Policy Ownership and Provisions

Claims and Premium Payments

Additional Riders and Options

Nonforfeiture Options

Claims and Contingencies

Rights and Responsibilities

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