Life Insurance Provisions and Riders Quiz

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Questions and Answers

Which of the following is true about the mandatory free look in a life insurance policy?

It commences when the policy is delivered (correct)

It applies only to term life insurance policies

It commences when the application is assigned

It is optional on all life insurance policies

The automatic premium loan provision is activated at the end of the?

Grace period (correct)

Free-look period

Elimination period

Policy period

All of the following are TRUE statements regarding the accumulation at interest option EXCEPT?

The interest is credited at a rate specified by the policy

The policyholder has the right to withdraw the accumulations at any time

The annual dividend is retained by the company

The interest is not taxable since it remains inside the insurance policy (correct)

An insured stops making payments on a loan taken from his cash value policy. What will most likely happen?

The policy will terminate when the loan amount with interest equals or exceeds the cash value Signup and view all the answers

The Waiver of Cost of Insurance rider is found in what type of insurance?

Universal Life Signup and view all the answers

All of the following are beneficiary designations EXCEPT?

Specified Signup and view all the answers

If the policyowner, the insured, and the beneficiary under a life insurance policy are three different people, who has the ownership rights?

The policyowner Signup and view all the answers

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

The Reinstatement provision Signup and view all the answers

Which nonforfeiture option has the highest amount of insurance protection?

Extended Term Signup and view all the answers

Which is true about a spouse term rider?

The rider is usually level term insurance Signup and view all the answers

Regarding the free-look provision, the insurance company?

Must allow the policyowner to return the policy for a full refund Signup and view all the answers

The law states that an insurer is allowed to pay the entire Death Benefit to the insured if they qualify to use the Accelerated Death Benefit Rider; however, most insurers limit the amount of the Death Benefit paid to?

50% Signup and view all the answers

The paid-up addition option uses the dividend to?

To purchase a smaller amount of the same type of insurance as the original policy Signup and view all the answers

When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?

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

Which of the following named beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insured's death?

A minor son of the insured Signup and view all the answers

Study Notes

Life Insurance Policy Provisions

Mandatory Free Look Provision: Begins when the policy is delivered, allowing policyholders to examine and return it for a full premium refund if dissatisfied.
Automatic Premium Loan Provision: Activated at the end of the grace period to keep the policy in force if sufficient cash value exists.
Accumulation at Interest Option: Interest credited is taxable even if not withdrawn; policyholder can withdraw accumulations at any time.
Loan Policy Termination: If a policyholder doesn't repay a loan, the policy may terminate when the loan amount and accrued interest meet or exceed the cash value.

Riders and Coverage Options

Waiver of Cost of Insurance Rider: Found in Universal Life policies; waives insurance costs during the insured's disability, excluding costs for cash value accumulation.
Beneficiary Designations: Includes primary and contingent (secondary/tertiary) designations; "specified" is not a recognized category.
Reinstatement Provision: Lapsed policies can be reinstated within 3 years by paying back premiums with interest and providing proof of insurability.

Nonforfeiture Options and Riders

Extended Term Nonforfeiture Option: Provides the same face amount as the original policy for a shorter duration; offers the highest insurance protection among nonforfeiture options.
Spouse Term Rider: Typically level term insurance, allows spouse coverage that expires at age 65.

Policy Conditions and Legal Aspects

Free-Look Provision Requirements: Insurers must allow a return for a full premium refund within a specified period (typically 10 days) after the policyholder receives it.
Accelerated Death Benefit Rider: While the law permits up to the entire death benefit to be advanced, most insurers cap it at 50%.

Options for Dividends and Policy Management

Paid-Up Addition Option: Dividends are used to buy additional smaller amounts of the same insurance type, enhancing the policy's benefits.
Cash Value Usage in Extended Term Option: Cash value is used to purchase term insurance equal to the original policy for the duration that the cash value allows.

Beneficiary Considerations

Ineligible Benefit Recipients: A minor son of the insured cannot directly receive the death benefit; benefits are typically managed through a guardian or trustee in such cases.

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Description

Test your knowledge on life insurance policy provisions, options, and riders. This quiz covers important concepts such as the mandatory free look provision and its implications. Perfect for students or professionals in the insurance industry.