Life Insurance Exam 2 Flashcards
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Questions and Answers

What does the automatic premium loan provision authorize an insurer to withdraw from a policy's cash value?

Past due premiums that have not been paid by the end of the grace period

What happens if an insured dies during the grace period with no premiums paid?

The policy would be payable, minus the premium amount

What is the name of the provision that states a copy of the application must be attached to the policy when issued?

Entire Contract

Which of the following protects a policyowner from a misrepresentation caused by an innocent mistake?

<p>Incontestable Clause</p> Signup and view all the answers

What is the purpose of having an accelerated death benefit on a life insurance policy?

<p>It allows for cash advances to be paid against the death benefit if the insured becomes terminally ill</p> Signup and view all the answers

All of the following are considered nonforfeiture options available to a policyowner EXCEPT:

<p>Reduction of Premium</p> Signup and view all the answers

What is the insurer's liability if an insured's age on a life insurance policy has been misstated and the insured dies?

<p>A prorated death benefit based on the amount of insurance the insured's premiums would have purchased at the correct age</p> Signup and view all the answers

Under a life insurance policy, what does the insuring clause state?

<p>The insurer's obligation to pay a death benefit upon an approved death claim</p> Signup and view all the answers

What are the two major actions required for a policyholder to comply with the Reinstatement Clause?

<p>Provide evidence of insurability, pay past due premiums</p> Signup and view all the answers

What is the correct death benefit amount when a life insurance policy's age was misstated?

<p>The death benefit paid will be what the premium would have purchased at the correct age</p> Signup and view all the answers

What happens when Dorian exercises a nonforfeiture option using his life policy's cash value to purchase an extended term insurance option?

<p>The protection ends when the term insurance expires</p> Signup and view all the answers

What does the common disaster provision state when an insured individual and the policy's beneficiary die from the same accident?

<p>The insurer will continue as if the insured outlived the beneficiary</p> Signup and view all the answers

Which situation accurately describes a reduced paid-up nonforfeiture option?

<p>Policy has a decreased face amount</p> Signup and view all the answers

What condition allows a double indemnity rider benefit to be payable?

<p>If Matt dies instantly from a car accident</p> Signup and view all the answers

What does a whole life insurance policy accumulate that becomes the policy loan value?

<p>Cash value which the insured may borrow against</p> Signup and view all the answers

Which of the following is a reinstatement condition?

<p>Proof of insurability</p> Signup and view all the answers

What period allows an insurer to accept a premium from the insured and continue coverage in full force as though it was not late?

<p>Grace period</p> Signup and view all the answers

What does a waiver of premium rider allow an insured to do?

<p>Waive premium payments if the insured is completely and permanently disabled</p> Signup and view all the answers

How much may Ron increase the face value of his policy if the consumer price index has gone up 4%?

<p>$4,000</p> Signup and view all the answers

How are loans obtained by a policyowner against the cash value of a life insurance policy treated?

<p>Would not be treated as taxable income</p> Signup and view all the answers

All of these are standard exclusions found in a life insurance policy EXCEPT:

<p>Disability</p> Signup and view all the answers

What does the free-look provision give the policyowner?

<p>The right to return the policy for a full refund within a specified number of days</p> Signup and view all the answers

Which of the following is considered to be an alternative to a life settlement?

<p>Accelerated Death Benefit Rider</p> Signup and view all the answers

What provision allows a policyowner to withdraw a policy's cash value interest-free?

<p>Partial surrender</p> Signup and view all the answers

What does the suicide clause of a life insurance policy state?

<p>If an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid minus indebtedness and without interest</p> Signup and view all the answers

Which military service exclusion clause would pay upon the death of an active duty serviceman?

<p>Results</p> Signup and view all the answers

What allows the temporary transfer of ownership of a life insurance policy?

<p>Collateral assignment</p> Signup and view all the answers

Which of these is NOT considered to be a common life insurance nonforfeiture option?

<p>Life Income Annuity</p> Signup and view all the answers

Which rider pays a monthly amount if a policyowner is injured in an automobile accident leading to total and permanent disability?

<p>Disability Income Rider</p> Signup and view all the answers

What must the insured provide to activate the reinstatement clause of a lapsed life insurance policy?

<p>Evidence of insurability to the insurer</p> Signup and view all the answers

What statement about a 20-pay life policy with a paid-up dividend option is true?

<p>The policy may be paid up early by using policy dividends</p> Signup and view all the answers

What is a rider that assures premiums will be paid on a juvenile policy until the child reaches a specific age called?

<p>Payor rider</p> Signup and view all the answers

All of the following riders can increase the death benefit amount EXCEPT:

<p>Waiver of Premium</p> Signup and view all the answers

Which of these is NOT a characteristic of the Accelerated Death Benefit option?

<p>Only available for term life insurance policies</p> Signup and view all the answers

What statement is true about borrowing against the cash value of a whole life policy with accumulated cash value?

<p>Net death benefit will be reduced if the loan is not repaid</p> Signup and view all the answers

What is the definition of the automatic premium loan provision?

<p>Authorizes an insurer to withdraw from a policy's cash value the amount of past due premiums that have not been paid by the end of the grace period.</p> Signup and view all the answers

What are the two major actions required for a policyholder to comply with the Reinstatement Clause?

<p>Provide evidence of insurability, pay past due premiums</p> Signup and view all the answers

What type of rider allows Barbara to purchase additional insurance without evidence of insurability?

<p>Guaranteed insurability rider</p> Signup and view all the answers

Of the following dividend options, which of these is taxable?

<p>Accumulation at Interest</p> Signup and view all the answers

Which dividend option allows an insurer to invest the policyowner's money and add any interest earnings as the dividends accrue?

<p>Accumulation at Interest Option</p> Signup and view all the answers

In which area do errors commonly occur on applications for which the incontestable clause does NOT apply?

<p>Age</p> Signup and view all the answers

What is the provision that allows a policyowner to temporarily give up ownership rights to secure a loan?

<p>Collateral assignment</p> Signup and view all the answers

Which is considered a Living Benefit option in a life insurance policy?

<p>Accelerated death benefit</p> Signup and view all the answers

Study Notes

Automatic Premium Loan Provision

  • Authorizes insurers to withdraw from a policy's cash value for past due premiums after the grace period.

Death During Grace Period

  • If the insured dies during this period without paying premiums, the policy pays out, minus unpaid premiums.

Entire Contract Provision

  • Requires a copy of the application to be attached to the policy upon issuance.

Incontestable Clause

  • Protects policyholders from misrepresentation due to innocent mistakes.

Accelerated Death Benefit

  • Allows policyholders to receive cash advances against the death benefit in case of terminal illness.

Nonforfeiture Options

  • Common options include cash value withdrawals and reduced paid-up insurance, but does not include reduction of premium.

Misstated Age Liability

  • If an insured's age is misstated, benefits are calculated based on what the premiums would have purchased at the correct age.

Insuring Clause

  • Specifies the insurer's obligation to pay a death benefit upon an approved claim.

Reinstatement Clause

  • Requires the policyholder to provide evidence of insurability and pay any past due premiums.

Death Benefit Calculation

  • When the insured has misstated their age, the death benefit will reflect the level of insurance corresponding to correct premiums at the accurate age.

Extended Term Insurance

  • If an insured chooses this nonforfeiture option, protection ends when the term insurance expires.

Common Disaster Provision

  • In cases where both insured and beneficiary die simultaneously, insurer acts as if the insured lived longer than the beneficiary.

Reduced Paid-Up Nonforfeiture Option

  • Results in a policy with a decreased face amount.

Double Indemnity Rider

  • Provides additional benefits if the insured dies immediately from an accident.

Cash Value Accumulation

  • Whole life policies accumulate cash value that can be borrowed against; considered the policy loan value.

Grace Period

  • Insurers continue coverage as if premiums were paid during the grace period even if they were late.

Waiver of Premium Rider

  • Allows insured to waive premium payments if they become totally and permanently disabled.

Cost of Living Rider

  • Allows face value increase based on the consumer price index; for a 4% increase, a policy valued at $100,000 would increase by $4,000.

Tax Implications on Loans

  • Loans taken against the cash value of a life insurance policy are not treated as taxable income.

Standard Exclusions

  • Common exclusions in life insurance policies typically include suicide and risky activities, but disability is not a standard exclusion.

Free-Look Provision

  • Grants policyholders a specific number of days to return the policy for a full refund.

Alternatives to Life Settlements

  • Accelerated death benefit riders can serve as an alternative to life settlements.

Partial Surrender

  • Provides policyowners with a provision to withdraw cash value from their policies interest free.

Suicide Clause

  • Specifies that if suicide occurs within a specified period, the insurer is liable only for returning premiums paid minus any debt.

Military Service Exclusion

  • In cases of death while on military duty, claims are paid under the results clause.

Collateral Assignment

  • A temporary method for policyowners to give up ownership rights to secure a loan.

Nonforfeiture Options

  • Options include choosing between cash value withdrawals, extended term, or reduced paid-up insurance; does not include life income annuities.

Disability Income Rider

  • Provides regular payments to policyholders who become totally and permanently disabled.

Payor Rider

  • Ensures that premiums continue to be paid on a juvenile policy until the child reaches a certain age.

Guaranteed Insurability Rider

  • Allows the purchase of additional insurance at certain times without requiring evidence of insurability.

Accumulation at Interest Option

  • Taxable dividend option in which the insurer collects the policyowner's premiums and invests them, adding interest to them.

Common Error Areas

  • Errors regarding an insured's age on applications are non-contestable and may result in adjustments in benefits.

Living Benefit Option

  • Accelerated death benefits classify as living benefits under life insurance policies.

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Test your knowledge with these flashcards focused on critical terms and provisions in life insurance. This quiz covers essential definitions and concepts relevant to the insurance industry. Perfect for exam prep or reviewing important topics!

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