Questions and Answers
Which statement is true regarding policy dividends?
Which is NOT a valid policy dividend option?
What option does Mike have regarding his cash value?
He can purchase a reduced amount of paid-up whole life insurance
How does the cost recovery rule apply when a life insurance policy is surrendered?
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Which policy provision protects the policyowner from unintentional lapse of the contract?
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Which provision allows the insured to continue coverage after a policy has lapsed?
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What time period allows an insured's life insurance policy to remain in force even if the premium is not paid on the due date?
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Which provision will pay a portion of the death benefit prior to the insured's death due to a serious illness?
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When does a life insurance policy's waiver of premium take effect?
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An insurer can be protected from adverse selection with which policy provision?
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How is a life insurance policy dividend legally defined?
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A life insurance policy can be surrendered for its cash value under which policy provision?
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Which of the following does a policyowner NOT have a right to change?
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If an insured dies because of an accident, which type of life insurance rider will provide additional coverage?
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What does the guaranteed insurability option allow an insured to do?
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What are collateral assignments normally associated with?
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How are acts of war and aviation treated under a group life insurance policy?
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Which of the following is NOT a common life insurance policy rider?
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In a life insurance policy, what does the entire contract consist of?
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What does the grace period allow a life insurance policyowner to do?
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How will Jerry's adjusted death benefit be calculated if he understated his age?
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Which provision allows the insured to continue coverage after a policy has lapsed?
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Study Notes
Policy Dividends
- A dividend option must be selected by the insured at the time of policy purchase.
- Monthly income payments are not a valid option for policy dividends.
- Life insurance dividends are legally defined as returns of excess premium and are not taxable.
Cash Value and Coverage Options
- Cash value can be used to purchase reduced amounts of paid-up whole life insurance.
- Term policies provide no cash value and have no nonforfeiture benefits.
- Nonforfeiture options allow a policy to be surrendered for cash value.
Provisions and Benefits
- The grace period protects the policyowner from unintentional lapses in the contract.
- Policies remain in force during the grace period, even without premium payment.
- The accelerated death benefit provision pays a portion of the death benefit prior to the insured's death, due to serious illness.
- Waiver of premium takes effect when the insured becomes totally disabled.
Suicide and Exclusions
- The suicide clause protects insurers from adverse selection related to self-inflicted injuries.
- Acts of war and aviation incidents are typically treated as policy exclusions under group life insurance.
Riders and Options
- An accidental death rider provides additional coverage if the insured dies due to an accident.
- Guaranteed insurability option allows purchasing additional coverage without proof of insurability.
- Collateral assignments are commonly associated with bank loans.
Rights and Adjustments
- Policyowners do not have the right to change the dividend schedule.
- Adjusted death benefits for an insured who understated their age are calculated at the ratio of the premium paid to the correct premium.
Entire Contract and Continuation of Coverage
- The entire contract of a life insurance policy includes the policy itself and the attached application.
- Reinstatement provision allows insured individuals to continue coverage after a policy has lapsed.
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Test your knowledge of life insurance policy dividends with these flashcards. Each card covers essential terms and concepts from Chapter 2. Perfect for mastering the different options available for policyholders.