Life Insurance Policies and Riders Quiz

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Questions and Answers

What does a whole life insurance policy accumulate?

Cash value that becomes the policy loan value which the insured may borrow against.

What is a reinstatement condition in insurance?

Proof of insurability.

What does the free-look provision give to the policyowner?

The right to return the policy for a full refund within a specified number of days.

Which of these is NOT considered to be a nonforfeiture option in a whole life insurance policy?

Interest only Signup and view all the answers

What dividend option uses the dividend to pay all or part of the next premium due?

Reduction of premium dividend option. Signup and view all the answers

What rider pays a monthly amount due to total and permanent disability?

Disability income rider. Signup and view all the answers

Which dividend option invests the policyowner's money and adds interest earnings as the dividends accrue?

Accumulation at Interest Option. Signup and view all the answers

What happens when the term insurance from a nonforfeiture option expires?

The protection ends. Signup and view all the answers

What does the suicide clause state regarding insurance payouts?

The insurer will only be liable for a return of premiums paid minus indebtedness and without interest. Signup and view all the answers

What is the rider called that allows the purchase of additional insurance without evidence of insurability?

Guaranteed insurability rider. Signup and view all the answers

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

Accelerated death benefit. Signup and view all the answers

If an insured dies during the grace period with no premiums paid, what happens?

The policy would be payable, minus the premium amount. Signup and view all the answers

What is an insurance policy's grace period?

Period of time after the premium is due but the policy remains in force. Signup and view all the answers

How does the cost recovery rule apply when a life insurance policy is surrendered?

The policy's cost basis is exempt from taxation. Signup and view all the answers

When does a life insurance policy's waiver of premium take effect?

When the insured becomes totally disabled. Signup and view all the answers

Which of these are invalid policy dividend options for a life insurance policyowner?

Accumulation without interest Signup and view all the answers

What limits a company's liability to provide insurance coverage?

Exclusion. Signup and view all the answers

Which of the following is NOT a common life insurance policy rider?

Extended term Signup and view all the answers

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

The policy may be paid up early by using policy dividends. Signup and view all the answers

What is a nonforfeiture provision in a whole life policy?

A provision that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type. Signup and view all the answers

What does the common disaster provision state regarding an insured and beneficiary dying from the same accident?

The insurer will continue as if the insured outlived the beneficiary. Signup and view all the answers

Study Notes

Life Insurance Policies and Riders

Whole life insurance policies accumulate cash value, allowing policyholders to borrow against the policy loan value.
Reinstatement conditions for lapsed policies typically require proof of insurability.
The free-look provision allows policyowners to return the policy for a full refund within a designated period.
Nonforfeiture options in whole life policies include options like cash surrender and reduced paid-up insurance; “interest only” is not included.
The reduction of premium dividend option allows policyowners to use dividends to offset premium payments.

Disability and Living Benefits

A disability income rider provides monthly payments if the insured suffers a total and permanent disability.
The accumulation at interest option invests dividends, adding interest earnings to the policyowner's account.
The accelerated death benefit is an example of a Living Benefit option available in life insurance policies.

Surrender and Grace Period

In instances where a policyowner uses cash value to purchase extended term insurance, policy protection ceases when the term expires.
The suicide clause limits insurer liability to the return of premiums paid (less any debts) if suicide occurs within a specified initial period.
A grace period allows coverage to continue for a set time after the premium due date, even if payment hasn't been received.
Upon policy surrender, the cost basis of the policy is not subject to taxation under the cost recovery rule.

Riders and Provisions

The waiver of premium provision activates when the insured becomes totally disabled, allowing them to retain coverage without premium payments.
Valid dividend options for life insurance policyowners include accumulation at interest and reduction of premium, while “accumulate without interest” is not a recognized option.
Exclusions are specific situations that limit the insurance company's liability, defining what is not covered under the policy.
Common life insurance policy riders include guaranteed insurability, which allows the purchase of additional insurance without requiring proof of insurability.

Additional Considerations

In cases where both the insured and beneficiary die simultaneously in an accident, the common disaster provision operates under the assumption that the insured outlived the beneficiary.
Surrendering a policy and opting for reduced paid-up coverage falls under nonforfeiture provisions, preserving part of the policy's value.

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Description

Test your knowledge on various life insurance policies and riders, including their features, benefits, and important provisions. Understand key concepts such as cash value, nonforfeiture options, and disability income riders. This quiz challenges your understanding of life insurance details and terms.