Life Insurance Contract Provisions Flashcards

Questions and Answers

What limits the amount that a policy owner may borrow from a whole life insurance policy?

Cash value

What is the benefit of choosing extended term as a non-forfeiture option?

It has the highest amount of insurance protection.

What would be an advantage to naming a contingent or secondary beneficiary in a life insurance policy?

It determines who receives policy benefits if the primary beneficiary is deceased.

What provision allows a policy to remain in force despite non-payment of premium after the grace period?

Automatic premium loan Signup and view all the answers

Dividend amounts are guaranteed in the policy.

False Signup and view all the answers

Beneficiary designations include specified individuals.

False Signup and view all the answers

Which type of beneficiary is changeable at any point?

Revocable beneficiary Signup and view all the answers

When the insured selects the extended term nonforfeiture option, what cash value is used to purchase term insurance?

Equal to the original policy for as long as the cash value will purchase. Signup and view all the answers

What may result from an insured misstatement of age at the time of application?

Adjustment in the amount of death benefit Signup and view all the answers

What settlement option should be chosen if the policy owner wants to pay portions to the spouse and principal to children?

Interest only option Signup and view all the answers

What is the purpose of a fixed period settlement option?

To provide a guaranteed income for a certain amount of time. Signup and view all the answers

What term describes an insured receiving an annual life insurance dividend in check?

Cash option Signup and view all the answers

Which non-forfeiture option involves the company paying the surrender value?

Cash surrender Signup and view all the answers

When must Jay return his policy for a full refund of premium paid?

February 28, or 10 days after the policy is delivered. Signup and view all the answers

Which policy component contains the company's promise to pay?

Insuring clause Signup and view all the answers

What will happen if an insured's application misstates their age?

Pay a reduced death benefit. Signup and view all the answers

Using a class designation for a beneficiary means?

Naming beneficiaries as a group. Signup and view all the answers

What can the cash value of a whole life policy be used for if the policy lapses?

Purchase a single premium policy for a reduced face amount. Signup and view all the answers

What applies to the 10-day free look privilege?

A permit to the insured to return the policy for a full refund of premium paid. Signup and view all the answers

In case of the primary beneficiary predeceasing the insured, who receives the death proceeds?

The contingent beneficiary. Signup and view all the answers

Which option protects the insured from unintentional policy lapse due to non-payment?

Automatic premium loan. Signup and view all the answers

What type of account will most likely be established for a minor?

Trust. Signup and view all the answers

The paid-up addition option uses dividends to purchase?

A smaller amount of the same type of insurance as your original policy. Signup and view all the answers

How does the insured typically decide on which settlement option to choose?

By determining if the beneficiary will need one payment or a steady stream of income. Signup and view all the answers

If an insured does not change the beneficiary after his wife passes, who will the benefits go to?

The insured's estate. Signup and view all the answers

Which of the following is true about nonforfeiture values?

They are required by state law to be included in the policy and cannot be altered by the policy owner. Signup and view all the answers

What provision allows an insured to reactivate a lapsed life insurance policy?

Reinstatement provision. Signup and view all the answers

What happens if a policy has an automatic premium loan provision and the insured dies before the loan is paid back?

Signup and view all the answers

Study Notes

Individual Life Insurance Contract Provisions and Options

Cash value limits borrowing amounts in whole life insurance policies.
Extended term non-forfeiture option offers the highest insurance protection using policy cash value.
Naming a contingent beneficiary ensures benefits are paid if the primary beneficiary is deceased.
Automatic premium loan keeps policy active even if premiums are unpaid after the grace period.
Dividends are not guaranteed in life insurance policies.
Beneficiary designations dictate the order of payouts; "specified" is not a recognized category.
Revocable beneficiaries can be changed at any time, while irrevocable beneficiaries require permission for changes.
The extended term non-forfeiture option uses cash value to purchase term insurance equal to the original policy's face amount.
Misstating age can result in an adjustment to the death benefit amount.
Interest only option allows policy proceeds to generate interest for the spouse while the principal is deferred for children.
Fixed period settlement option provides guaranteed income over a specified time frame.
Cash option refers to receiving dividends as cash payments.
Cash surrender non-forfeiture option pays out the surrender value with no further obligations to the policy owner.
A policy can be returned for a full refund within ten days of its delivery.
The insuring clause contains the company's promise to pay the specified benefits.
If age misrepresentation leads to claims, the death benefit is reduced.
Class designation for a beneficiary means naming a group of beneficiaries.
Cash values from a lapsed whole life policy can purchase a reduced face amount single premium policy.
The 10-day free look privilege allows a full refund upon policy return.
If a primary beneficiary dies before the insured, benefits go to the contingent beneficiary.
Automatic premium loan prevents unintentional lapses due to missed premium payments.
A trust is often established for minors as beneficiaries.
Paid-up additions option allows dividends to buy additional insurance similar to the original policy.
Settlement option selection usually depends on the beneficiary's need for one-time payments versus ongoing income.
Policy proceeds may go to the insured's estate if no beneficiary changes are made after the spouse's death.
Nonforfeiture values must be included in the policy as required by state law and cannot be altered by the policy owner.
Common disaster provision assumes the primary beneficiary dies first if both die in a collision within a specified period.
The daughter can collect death benefits if the primary beneficiary (mother) predeceases the insured.
Cash surrender option means any excess from the premium paid is taxable as ordinary income.
Entire contract provision mandates inclusion of the original application in the policy.
Extended term non-forfeiture option provides the highest insurance coverage.
Reinstatement provision allows a life insurance policy to be reactivated within three years with proof of insurability and repayment of back premiums.
If a policy has an automatic premium loan provision, any unpaid loan amount must be settled from the death benefit if the insured dies.

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Explore the key provisions and options available in individual life insurance contracts with these flashcards. Understand concepts like cash value and non-forfeiture options to enhance your knowledge of life insurance policies.