Life Insurance Policies Quiz
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Life Insurance Policies Quiz

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Questions and Answers

What happens to the amount of insurance in case of misstatement of age?

  • It increases by a predefined percentage
  • It is adjusted based on the amount paid at the correct age (correct)
  • It is voided and no insurance is provided
  • It remains the same regardless of the age stated

    • Which type of policy guarantees cash values and provides additional distributions to the insured?

  • Participating endowment (correct)
  • Term life insurance
  • Universal life insurance
  • Whole life insurance

    • What is one main assumption in group insurance regarding the insurability of each member?

  • All members must have a prior insurance history
  • Age is not a consideration in insurability
  • Members must work at least a minimum number of hours weekly (correct)
  • Every member must be a high-risk individual

    • What occurs when a policyholder misstates their age?

    <p>The policy remains valid, but the amount may be adjusted</p> Signup and view all the answers

    In most life insurance applications, which type of information is primarily requested?

    <p>Data that identifies the applicant</p> Signup and view all the answers

    What factors determine the extent of medical evidences required for life insurance?

    <p>The age of the applicant and the proposed sum to be insured</p> Signup and view all the answers

    Which factor does not influence the conservation of a life insurance policy?

    <p>Pressure selling</p> Signup and view all the answers

    Which of the following is not a source of information for insurability of an applicant?

    <p>Government tax records</p> Signup and view all the answers

    What happens if a life insurance applicant misrepresents material facts?

    <p>The contract is void from the beginning</p> Signup and view all the answers

    Which is not a settlement option provided by the policy?

    <p>Proceeds held by the company, with interest payable to the beneficiary on request</p> Signup and view all the answers

    What do non-forfeiture provisions guarantee for a policyowner?

    <p>Guaranteed policy values will remain with the policyowner</p> Signup and view all the answers

    Purchasing a continuous-premium whole life policy offers which advantage to the policyowner?

    <p>More insurance protection for the same annual premium outlay</p> Signup and view all the answers

    Which option is the least important reason for requiring that insurance agents be licensed?

    <p>To provide additional income to the government through licensing</p> Signup and view all the answers

    What happens when the policy owner elects the paid up insurance option?

    <p>The premiums cease and protection continues with a reduced amount of coverage</p> Signup and view all the answers

    What is required for a policy change from a higher premium to a lower premium?

    <p>Presents satisfactory evidence of insurability</p> Signup and view all the answers

    What is a policy that allows variation in premiums, sum insured, and cash values based on investment performance?

    <p>Universal life</p> Signup and view all the answers

    Which statement about the 'Disability Waiver of Premium Rider' is false?

    <p>Insured has to die while disabled</p> Signup and view all the answers

    What is the largest amount of information requested in most life insurance applications?

    <p>Relates to the insurability of the applicant</p> Signup and view all the answers

    How do paid-up additions affect the policy?

    <p>Affect both cash and loan value of the policy</p> Signup and view all the answers

    What is the purpose of interpleader actions that a company may file with the court?

    <p>Decide conflicting claims on the same insurance proceeds</p> Signup and view all the answers

    Which rider significantly increases the total life coverage of a permanent basic policy?

    <p>An accident death benefit rider</p> Signup and view all the answers

    Which statement about the cash value growth of different policies is false?

    <p>The cash value of a yearly renewable term policy grows very fast</p> Signup and view all the answers

    Which scenario does not demonstrate a legitimate insurable interest?

    <p>An individual on the life of his mistress</p> Signup and view all the answers

    What are the provisions that supplement basic life insurance coverage called?

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

    Which statement about insurance premiums is false?

    <p>Premiums paid quarterly are lower than those paid annually</p> Signup and view all the answers

    When is a non-forfeiture option typically selected by a policyowner?

    <p>When discontinuing premium payments for a whole life or endowment policy</p> Signup and view all the answers

    If the interest on a policy loan is not paid at the policy anniversary, what could the insurance company do?

    <p>Refuse to grant future additional loans</p> Signup and view all the answers

    What does an incontestability clause prevent an insurer from doing after a specified period?

    <p>Canceling the policy due to non-disclosure of information</p> Signup and view all the answers

    Which of the following statements is true for both endowment and term life policies?

    <p>A benefit will be paid at the end of the period of coverage if the person is then alive.</p> Signup and view all the answers

    Which option is not a function of an application for life insurance policy?

    <p>To give details pertaining to non-forfeiture options.</p> Signup and view all the answers

    What must a father do to transfer his life insurance policy to his son while protecting from estate tax?

    <p>Appoint the son as an absolute assignee.</p> Signup and view all the answers

    What can an insured do if an irrevocable beneficiary has been designated?

    <p>Borrow against the policy with the beneficiary's permission.</p> Signup and view all the answers

    Which of the following represents basis settlement options for life insurance?

    <p>Fixed amount, fixed period, life income, interest on deposit.</p> Signup and view all the answers

    Under what circumstance can an insurance company rescind a life insurance policy?

    <p>If a material misstatement is found during the contestable period.</p> Signup and view all the answers

    Which statement describes a characteristic of term life insurance?

    <p>It provides coverage for a specified time period only.</p> Signup and view all the answers

    What is usually not included in life insurance applications?

    <p>Details of non-forfeiture options.</p> Signup and view all the answers

    Study Notes

    Life Insurance Policies

    • Endowment and Term Life policies provide limited coverage for a specified period.
    • Term Life policies do not accumulate cash value.
    • Endowment policies pay a benefit to the policy owner if they are alive at the end of the coverage period.

    Applications for Life Insurance

    • The application is used to gather information for underwriting the insurance policy.
    • Applications provide information on the applicant's insurability, including health history, occupation, and lifestyle.
    • Applications do not give details pertaining to non-forfeiture options.

    Beneficiaries and Policy Ownership

    • Irrevocable Beneficiaries have rights to the policy proceeds and cannot be changed without their consent.
    • Absolute Assignee has full ownership of the policy and can control all aspects of it.
    • Revocable Beneficiary can be changed by the policy owner at any time.

    Settlement Options

    • Settlement Options outline how the death benefits will be paid out to the beneficiary.
    • Common settlement options include:
      • Fixed Amount: Lump sum payment.
      • Fixed Period: Payments over a specified period.
      • Life Income: Payments for the life of the beneficiary.
      • Interest on Deposit: Proceeds held by the company and interest paid to the beneficiary.

    Insurance Company Rights

    • Insurance companies can rescind (cancel) a policy if there are material misrepresentations or fraud in the application.
    • This applies even if the policy has been in force for less than two years.

    Insurance Agents

    • Licensing insurance agents helps to:
      • Establish professional standards.
      • Protect the public.
      • Provide additional government revenue.

    Policy Changes

    • Policy owners can typically change to a plan with lower premiums, provided they provide evidence of insurability.

    Universal Life

    • Universal Life policies allow policyholders to adjust premiums, death benefits, and cash values based on investment performance.

    Disability Waiver of Premium Rider

    • The Disability Waiver of Premium Rider covers your premium payments if you become disabled before a specified age.
    • Paid-up Additions increase the death benefit without increasing premiums.
    • They do not impact the cash value or loan value of the policy.

    Increasing Coverage

    • The coverage of a permanent life insurance policy can be increased by adding a supplement term rider.

    Laws of Probability

    • Insurance companies use laws of probability to:
      • Determine premiums.
      • Set reserves.

    Medical Evidence

    • The amount of medical evidence required depends on:
      • Age of the applicant.
      • Amount of insurance sought.
      • Occupation of the applicant.

    Conservation of Life Insurance

    • Conservation of Life Insurance is the process of retaining policyholders and reducing policy lapses.
    • This can be influenced by:
      • Agent's service-oriented attitude.
      • Effective needs selling.

    Sources of Insurance Information

    • Insurance companies obtain information about applicants from:
      • Medical examination reports.
      • Agent's inspection reports.

    Misstatements and Fraud

    • If an applicant misrepresents material facts or commits fraud, the policy may be void.

    Settlement Options Provision

    • The Settlement Options Provision describes how the death benefit can be paid to the beneficiary.
    • It does not typically include paying the proceeds for the life of the insured.

    Non-Forfeiture Provisions

    • Non-Forfeiture Provisions guarantee that the policy owner will retain some value even if premium payments are discontinued.
    • This does not guarantee that the face amount of the policy will remain the same if the insured's health deteriorates.

    Premium Payment Options

    • Continuous-premium, full life policies have premiums spread out over the policy's duration.
    • This can provide more insurance protection for the same annual premium outlay compared to limited payment life policies.

    Interpleader Actions

    • Insurance companies can initiate interpleader actions when there are conflicting claims on the same insurance proceeds.

    Cash Values

    • Cash values in permanent life insurance policies are guaranteed by the company.
    • Endowment policies have cash values that build up faster than limited pay life policies of the same duration.
    • Yearly renewable term policies have a short duration and their cash values build up slowly.

    Insurable Interest

    • Insurable interest is a legal requirement for life insurance.
    • An individual can have insurable interest in their own life, their spouse's life, or a business partner's life.
    • An individual does not have insurable interest in the life of their mistress.

    Riders

    • Riders are supplemental provisions that can be added to a life insurance policy for an extra premium.
    • They may provide coverage for things like accidental death or disability.

    Premium Payments

    • Premiums are the legal consideration needed for a life insurance policy.
    • Payments made more frequently (quarterly, semi-annually) will typically be higher than annual payments.

    Non-forfeiture Options

    • Policyholders choose non-forfeiture options when they discontinue premium payments on life insurance policies.

    Policy Loans

    • Interest on policy loans is added to the loan balance if not paid at the policy anniversary.

    Incontestability Clause

    • This clause states that the insurance company cannot contest the validity of a policy after a certain period (usually two years) unless there was fraud.

    Other Key Points

    • A participating whole life policy is a type of life insurance policy that offers dividends and participation in the company's profits.
    • A participating endowment policy pays the full amount after a specified time.
    • In group insurance, the assumption is that all members of the group are insurable.
    • The largest amount of information requested in most life insurance applications is data relating to the applicant's insurability.
    • A policy is not rendered void by reason of misstatement of the insured's death.

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    Traditional Life Mock Exam 1 PDF

    Description

    This quiz covers essential aspects of life insurance policies, including Endowment and Term Life policies, their applications, and the concept of beneficiaries. Test your understanding of how these elements interact in the insurance framework, and learn about different settlement options associated with life insurance.

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