Insurance: Chapter 3 Questions
Terms in this set (62)
j applied for a life insurance policy one January. the policy was issued January 31. j's agent was vacationing at the time the policy was issued, so j did not receive the policy until February 18. j decides that he does not want the policy. when would j need to return to the insurer in order to receive a full refund of premium paid?
1. February 28th, or 10 days after the time the policy is delivered
2. the time varies from one policy to another
3. it was already to late when j received the policy because the 10-day free-look period has expired
4. anytime, because the agent did not deliver the policy promptly
February 28th, or 10 days after the time the policy is delivered
which of the following riders would NOT cause death benefit to increase?
1. accidental death rider
2. payor benefit rider
3. guaranteed insurability rider
4. cost of living rider
payor benefit rider
if an insured continually uses the automatic premium loan option to pay the policy premium
1. the policy will terminate when the cash value is reduced to nothing
2. the face amount of the policy will be reduced by the automatic premium loan amount
3. the cash value will continue to increase
4. the insurer will increase the premium amount
the policy will terminate when the cash value is reduced to nothing
in a case where the primary beneficiary predeceases the insured, in the event of the insured's death, the death benefit proceeds will be paid to
2. insurance company
3. contingent beneficiary
4. insured's spouse
under which nonforfeiture option does the company pay the surrender value and have no further obligations to the policyowner?
1. reduced paid-up
2. paid-up option
3. extended term
4. cash surrender
when a life insurance was issued, the policyowner designated a primary and a contingent beneficiary. several years later, both the insured and the primary died in the same car accident, and it was impossible to determine who died first. which of the following would receive the death benefit?
1. insured's estate
2. primary beneficiary's estate
3. insured's contingent beneficiary
4. insurance company
insured's contingent beneficiary
an insured has a life insurance policy from a participating company and receives quarterly dividends. he has instructed the company to apply the policy dividends to increase the death benefit. the dividend option that the insured has chosen is called
1. one-year term purchase
2. accumulation at interest
3. reduction of premiums
4. paid-up additions
what is the benefit of choosing extended term as a nonforfeiture option?
1. it can be converted to a fixed annuity
2. it has the highest amount of insurance protection
3. it matures at age 100
4. it allows for coverage to continue beyond maturity date
it has the highest amount of insurance
according to the entire contract provision, the policy must contain
1. listing of the insured's former insurer(s) for incontestability provisions
2. a copy of the original application for insurance
3. a declaration page with summary of insureds
4. buyer's guide to life insurance
a copy of the original application for insurance
a father purchases a life insurance policy on his teenage daughter and adds the pay benefit rider. in which of the following scenarios will the rider waive the payment of premium?
1. if the daughter for any length of time
2. if the father is disabled for more than 6 months
3. if the father is disabled for at least a year
4. if the daughter is disabled for more than 3 months
if the father is disabled for more than 6 months
which nonforfeiture option provides coverage for the longest period of time?
1. paid-up option
2. accumulation of interest
3. reduced paid-up
4. extended term
which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
1. jumping juvenile
2. juvenile premium provision
3. waiver of premium
4. payor benefit
all of the following are true regarding insurability rider EXCEPT
1. insured may purchase additional coverage at attained age
2. insured may purchase insurance up to the amount specified in the base policy
3. allows the insured to purchase additional amounts of insurance without providing insurability only at specified dates or events
4. rider is available to all insureds with no additional premium
rider is available to all insureds with no additional premium
which of the following is TRUE about nonforfeiture values?
1. policyowners do not have the authority to decide how to exercise nonforfeiture values
2. they are required by state law to be included in the policy
3. they are optional provisions
4. table showing nonforfeiture values for the next 10 years must be included in the policy
they are required by state law to be included in the policy
an insured misstates her age at the time the life insurance application is taken. this misstatement may result in
1. automatic lapse
2. recession of the policy
3. adjustment in the amount of death benefit
4. no change whatsoever
adjustment in the amount of death benefit
if a policy has an automatic premium loan provision, what happens if the insured dies before the loan is paid back?
1. the balance of the loan will be taken out of the death benefit
2. the policy beneficiary receives the full death benefit
3. the policy beneficiary takes over the loan payments
4. the policy is rendered null and void
the balance of the loan will be taken out of the death benefit
when a reduced-paid up nonforfeiture option is chosen, what happens to the face amount of the policy?
1. it is reduced to the amount of what the cash value would buy as a single premium
2. it is increased when extra premiums are paid
3. it decreases over the term of the policy
4. it remains the same as the original policy, regardless of any differences in value
it is reduced to the amount of what the cash value would buy as a single premium
type of settlement option which pays throughout the lifetimes of two or more beneficiaries is called
1. joint and survivor
2. fixed period
3. fixed amount
4. joint life
joint and survivor
which of the following statements is TRUE about a policy assignment?
1. it authorizes an agent to modify the policy
2. it transfers rights of ownership from the owner to another person
3. it is the same as a beneficiary designation
4. it permits the beneficiary to designate the person to receive the benefits
it transfers rights of ownership from the owner to another person
the rider in a whole life policy allows the company to forgo collecting the premium if the insured is disabled is called
1. waiver of premium
2. guaranteed insurability
3. waiver of cost of insurance
4. payor benefit
waiver of premium
items stipulated in the contract that the insurer will not provide coverage for are found in the
1. benefit payment clause
2. consideration clause
3. exclusions clause
4. insuring clause
what type of insurance would be used for return of premium rider?
1. level term
2. decreasing term
3. annually renewable term
4. increasing term
an insured has chosen joint and 2/3 survivor as the settlement option. what does this mean to the beneficiaries
1. one of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies
2. the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
3. the beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time
4. the beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies
the surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive
what is the purpose of a fixed-period settlement option?
1. to provide a guaranteed income for a certain amount of time
2. to settle the insurance company's liability
3. to provide a guaranteed income for life
4. to provide a guaranteed amount of money each month
to provide a guaranteed income for a certain amount of time
an insured purchases a policy 2008 and died in 2013. the insurance company discovers at that time that the insured concealed information during the application process. what can they do?
1. sue for the right to not pay the death benefit
2. pay the death benefit
3. refuse to pay the death benefit
4. pay a decrease death benefit
pay the death benefit
a policyowner who is the insured wants to name her husband as the beneficiary of her life policy. she also wishes to retain all of the rights of ownership. the policyowner should have her husband named as the
1. primary beneficiary
2. irrevocable beneficiary
3. revocable beneficiary
4. secondary beneficiary
which of the following is TRUE concerning irrevocable beneficiaries?
1. can be changed only with the written consent of that beneficiary
2. may be changed at any time
3. can never be changed
4. may be changed only on the anniversary date of the policy
can be changed only with the consent of that beneficiary
which provision of a life insurance policy states the insurer's duty to pay benefits upon the death of the insure, and to whom the benefits will be paid?
1. entire contract clause
2. beneficiary clause
3. consideration clause
4. insuring clause
the policyower wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
1. fixed amount option
2. interest only option
3. life income with period certain
4. joint and survivor
interest only option
an insured committed suicide one year after his life insurance policy was issued. the insurer will
1. pay the policy's cash value
2. pay the full death benefit to the beneficiary
3. pay nothing
4. refund the premiums paid
refund the premiums paid
which of the following policy components contains the company's promise to pay?
1. premium mode
2. consideration clause
3. entire contract provision
4. insuring clause
interest earned on policy dividends is
1. tax deductible
2. 40% taxable, similar to capital gain
all of the following statements concerning dividends are true EXCEPT
1. lower insurance company costs generate higher dividends
2. they stem from favorable underwriting experience
3. favorable investment results generate higher dividends
4. dividend amounts are guaranteed in the policy
dividend amounts are guaranteed in the policy
what is the waiting period on waiver of premium rider in life insurance policies?
1. 30 days
2. 3 months
3. 5 months
4. 6 months
which of the following applies to the 10-day free-look privilege?
1. it is granted only at the option of the agent
2. it permits the insured to return the policy for a full refund of premiums paid
3. it allows the insured 10 days to pay the initial premium
4. it can be waived only by the insurance company
it permits the insured to return the policy for a full refund of premiums paid
which of the following protects insured from an unintentional policy lapse due to a nonpayment of premium?
1. automatic premium loan
2. extended term
4. reduced-paid up
automatic premium loan
which of the following is NOT typically excluded from life policies?
1. death that occurs while involved in a felony
2. death due to war and military service
3. death due to plane crash for a fare-paying passenger
4. self-inflicted death
death due to plane crash for fare-paying passenger
an absolute assignment is a
1. change of insurer
2. transfer all ownership rights in a policy
3. transfer some ownership rights in a policy
4. change of beneficiary
transfer of all ownership rights in a policy
a rider attached to a life insurance policy that provides coverage on the insured's family members is called the
1. juvenile rider
2. payor rider
3. other-insured rider
4. change of insured rider
what is the term for how frequently a policyowner is required to pay the policy premium?
2. grace period
the life insurance policy clause that prevents an insurance company from denying payment of a death claim after a specified period of time is known as the
1. incontestability clause
2. reinstatement clause
3. insuring clause
4. misstatement of age clause
which of the following factors determines the maount of each installment paid in a life income option arrangement?
1. projected life insurance and health insurance
2. recipient's life expectancy and amount of principal
3. projected income
4. recipient's health and death benefits
recipient's life expectancy and amount of principal
if a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?
1. interest only
2. fixed period
3. life with period certain
4. fixed amount
what is the other term for the cash payment settlement option?
1. principal amount
2. face amount
4. lump sum
all of the following are dividend options EXCEPT
1. reduction of premiums
2. paid-up additions
3. fixed-period installments
4. accumulated at interest
what required provision protects against unintentional lapse of the policy?
2. grace period
4. payment of premiums
all of the following are TRUE statements regarding the accumulation at interest option EXCEPT
1. the policyholder has the right to withdraw the accumulation at any time
2. interest credited under this option is not taxable since it remains inside the insurance policy
3. annual dividend is retained by the company
4. interest is credited at a rate specified by the policy
interest credited under this option is not taxable since it remains inside the insurance policy
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?
1. business partner of the insured
2. wife of the decease insured
3. former wife of the deceased insured
4. minor son of the insured
minor son of the insured
the dividend option in which the policyowner uses dividends to purchase a term policy for one year is referred to as the
1. accelerated endowment
2. paid-up additions
3. one-year term option
4. paid-up option
one-year term option
when a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount
1. equal to the original policy as long as a period of time that the cash values will purchase
2. in lesser amounts for the remaining policy term of age 100
3. equal to the cash value surrender from the policy
4. the same as the original policy minus the cash value
equal to the original policy as long as a period of time that the cash values will purchase
which is TRUE about the cash surrender nonforfeiture option?
1. funds exceeding the premium paid are taxable as ordinary income
2. after the cash surrender, the insured is covered for a grace period of 1 month
3. the policy remains active for sometime after the policyholder opts for cash surrender
4. policyholder receives the original cash value of the policy
funds exceeding the premium paid are taxable as ordinary income
which of the following premium payment modes will incur the lowest overall payment?
an insured owns a $50,000 whole life policy. at age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. what would be the face amount of the new term policy?
4. the face amount will be determined by the insurer
which nonforfeiture option has the highest amount of insurance protection?
1. extended term
3. decreasing term
4. reduced paid-up
the automatic premium loan provision is activated at the end of the
1. grace period
2. free-look period
3. elimination period
4. policy period
an insured receives an annual life insurance dividend check. what term best describe this arrangement?
1. accumulation at interest
2. cash option
3. reduction of premium
4. annual dividend provision
when a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to
1. pay back all premiums owned plus interest
2. receive payments for a fixed amount
3. purchase a single premium policy for a reduced face amount
4. purchase a term rider attach to the policy
purchase a single premium policy for a reduced face amount
an insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. which policy provision allows this?
1. grace period
2. reinstatement provision
3. waiver of premium provision
4. incontestable clause
who can request changes in premium payments, face value, loans, and policy plans?
3. contingent beneficiary
an insured has had a life insurance policy that he purchased 3 years ago when he was 40 years old. he is killed in an automobile accident and it is discovered that he is actually 45 years old, and not 43, as stated on the application. what will the company do?
1. pay the full death benefit and refund excess premium
2. pay a reduced death benefit
3. pay the full death benefit
4. pay nothing; there was a misrepresentation on the application
pay a reduced death benefit
what is the advantage of reinstating a policy instead of applying for a new one?
1. the face amount can be increased
2. the cash values have gained interest while the policy was lapsed
3. the original age is used for premium determination
4. proof of insurability is not require
the original age is used for premium determination
which of the following explains the policyowner's rights to change beneficiaries, choose options, and receive proceeds of a policy?
1. the consideration clause
2. assignment rights
3. owner's right
4. the entire contract provision
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