Question 1

The beneficiary of a life insurance policy has the right to assign the policy as security for a loan.

Accepted Answer

A) True 
 B)False  False

Question 2

Kelly owns a life insurance policy. On January 1 she pays her annual premium of $20,000 to the insurer. On April 1, Kelly decides that she doesn't want her life insurance any more. She decides to cancel the policy, get back a pro-rata refund of the unused premium ($15,000), and use the money to pay for liposuction and a tummy tuck. What, if anything, is wrong with this scenario?

Accepted Answer

A)  Nothing; Kelly will get back $15,000 and can have her surgery. 
B)  Kelly has made the faulty assumption that she will receive a pro-rata refund; she will instead receive a short-rate refund, which will be an amount less than $15,000. 
C)  Kelly has made the faulty assumption that she will receive any refund; cancellation of a life insurance policy does not result in a refund of premiums paid. 
D)  Kelly has made the faulty assumption that any surgeon can help her. 
A)  Nothing; Kelly will get back $15,000 and can have her surgery. 
B)  Kelly has made the faulty assumption that she will receive a pro-rata refund; she will instead receive a short-rate refund, which will be an amount less than $15,000. 
C)  Kelly has made the faulty assumption that she will receive any refund; cancellation of a life insurance policy does not result in a refund of premiums paid. 
D)  Kelly has made the faulty assumption that any surgeon can help her. C

Question 3

The double indemnity option makes good sense for most families since the cost is low, and the option doubles the face amount of insurance for most causes of death other than accident.

Accepted Answer

A) True 
 B)False  False

Question 4

An insured has a legal right to borrow an amount up to the face amount of insurance with a whole life policy.

Accepted Answer

A) True 
 B)False

Question 5

________ cannot be a designated life insurance beneficiary.

Accepted Answer

A)  The insured's estate 
B)  A business corporation 
C)  The insured 
D)  None of the above 
A)  The insured's estate 
B)  A business corporation 
C)  The insured 
D)  None of the above

Question 6

Dallas took out a loan against her life insurance policy's cash value. She died before the loan could be repaid. The face value of the policy was $150,000. The insurer will pay Dallas' beneficiary:

Accepted Answer

A)  $150,000 
B)  $150,000 minus the amount Dallas owed on the loan 
C)  $0 
D)  the total premiums Dallas paid in before she died 
A)  $150,000 
B)  $150,000 minus the amount Dallas owed on the loan 
C)  $0 
D)  the total premiums Dallas paid in before she died

Question 7

One life insurance nonforfeiture option may result in an insured receiving a new face amount of life insurance.

Accepted Answer

A) True 
 B)False

Question 8

George forgot to pay his monthly life insurance premium that was due on March 1. The policy had a face value of $100,000. On March 21, George died. How much will the insurer pay George's beneficiary for this death claim, assuming the policy contained a standard grace period clause?

Accepted Answer

A)  Whatever cash value has accumulated in the policy 
B)  $100,000 
C)  $0 
D)  An amount equal to the face value of the policy, MINUS the overdue premiums and any interest or late penalties George owed them 
A)  Whatever cash value has accumulated in the policy 
B)  $100,000 
C)  $0 
D)  An amount equal to the face value of the policy, MINUS the overdue premiums and any interest or late penalties George owed them

Question 9

Which of the following is not a standard provision found in U.S. life insurance contracts?

Accepted Answer

A)  Grace period 
B)  Incontestable clause 
C)  Provision for misstatement of age 
D)  Immediate notice of loss provision 
A)  Grace period 
B)  Incontestable clause 
C)  Provision for misstatement of age 
D)  Immediate notice of loss provision

Question 10

Choose the false statement.

Accepted Answer

A)  The insured need never repay a policy loan, nor is he required to pay interest on the loan. 
B)  The insured usually has the right to borrow 80% of the face value of an ordinary life insurance policy. 
C)  Unpaid policy loans are deducted from the beneficiary's proceeds if the insured dies. 
D)  Life insurance companies cannot refuse to make policyholder loans on policies that have loan values. 
A)  The insured need never repay a policy loan, nor is he required to pay interest on the loan. 
B)  The insured usually has the right to borrow 80% of the face value of an ordinary life insurance policy. 
C)  Unpaid policy loans are deducted from the beneficiary's proceeds if the insured dies. 
D)  Life insurance companies cannot refuse to make policyholder loans on policies that have loan values.

Question 11

The waiver of premium option can result in the savings value of a life insurance policy increasing, even if no premiums are currently being paid.

Accepted Answer

A) True 
 B)False

Question 12

The insured must demonstrate good health, among other things, in order to reinstate a lapsed policy.

Accepted Answer

A) True 
 B)False

Question 13

The incontestable clause means that the insurer may uncover an unquestionable fraud and be unable to do anything about it if the incontestable period has expired.

Accepted Answer

A) True 
 B)False

Question 14

If Lindsey lets her life insurance policy lapse, and then decides to later reinstate it, what happens with respect to the two-year suicide clause that was in the original policy?

Accepted Answer

A)  It restarts with the date of reinstatement, and runs for another two years. 
B)  It restarts, but only runs for one year. 
C)  Nothing 
D)  It restarts, but only runs the length of time that passed between the lapse and the reinstatement. 
A)  It restarts with the date of reinstatement, and runs for another two years. 
B)  It restarts, but only runs for one year. 
C)  Nothing 
D)  It restarts, but only runs the length of time that passed between the lapse and the reinstatement.

Question 15

What is the purpose of the reinstatement provision? What are the requirements for reinstatement?

Accepted Answer

The purpose of the reinstatement provisi

Question 16

Mr. Harvey needs life insurance. He is deciding whether to buy a new policy or to reinstate the one that he allowed to lapse last year. He asks you to explain the advantage of reinstatement versus purchasing a new policy, and you tell him:

Accepted Answer

A)  settlement options in a new policy may be less favorable than those in the old policy 
B)  he will not have to present evidence of insurability 
C)  he will not have to pay premiums that are in arrears 
D)  the reinstated policy will not have an incontestability clause 
A)  settlement options in a new policy may be less favorable than those in the old policy 
B)  he will not have to present evidence of insurability 
C)  he will not have to pay premiums that are in arrears 
D)  the reinstated policy will not have an incontestability clause

Question 17

The automatic premium loan provision in life insurance:

Accepted Answer

A)  pays the face amount of a life insurance policy to a terminally ill insured 
B)  pays premiums due out of the policy's cash value if the policy owner forgets to pay 
C)  provides spendable cash to a terminally ill insured out of the cash value 
D)  provides disability income payments as a loan from the cash value 
A)  pays the face amount of a life insurance policy to a terminally ill insured 
B)  pays premiums due out of the policy's cash value if the policy owner forgets to pay 
C)  provides spendable cash to a terminally ill insured out of the cash value 
D)  provides disability income payments as a loan from the cash value

Question 18

The entire-contract clause is one reason the handwritten application for coverage is never attached to the life insurance contract.

Accepted Answer

A) True 
 B)False

Question 19

In a life insurance contract, the owner and the beneficiary may be different individuals.

Accepted Answer

A) True 
 B)False

Question 20

Kayla buys a whole life policy when she is 40 and pays premiums on it until she is 60. She decides to retire at 60, has no dependents and no debts, and realizes she really doesn't need the death protection any longer. She is now concerned about generating a lifetime income during her retirement. What option does a whole life policy typically offer that could best help her with this financial need?

Accepted Answer

A)  Forfeiture of coverage provision (she can surrender the policy and take the cash) 
B)  Paid up whole life option (use the cash value to buy a paid-up whole life with a lower face value) 
C)  Annuity conversion option (buy an annuity from the insurer with her cash value) 
D)  None of the above 
A)  Forfeiture of coverage provision (she can surrender the policy and take the cash) 
B)  Paid up whole life option (use the cash value to buy a paid-up whole life with a lower face value) 
C)  Annuity conversion option (buy an annuity from the insurer with her cash value) 
D)  None of the above

Exam 16: Standard Life Insurance Contract Provisions and Options

The beneficiary of a life insurance policy has the right to assign the policy as security for a loan.

The double indemnity option makes good sense for most families since the cost is low, and the option doubles the face amount of insurance for most causes of death other than accident.

An insured has a legal right to borrow an amount up to the face amount of insurance with a whole life policy.

________ cannot be a designated life insurance beneficiary.

Dallas took out a loan against her life insurance policy's cash value. She died before the loan could be repaid. The face value of the policy was $150,000. The insurer will pay Dallas' beneficiary:

One life insurance nonforfeiture option may result in an insured receiving a new face amount of life insurance.

George forgot to pay his monthly life insurance premium that was due on March 1. The policy had a face value of $100,000. On March 21, George died. How much will the insurer pay George's beneficiary for this death claim, assuming the policy contained a standard grace period clause?

Which of the following is not a standard provision found in U.S. life insurance contracts?

Choose the false statement.

The waiver of premium option can result in the savings value of a life insurance policy increasing, even if no premiums are currently being paid.

The insured must demonstrate good health, among other things, in order to reinstate a lapsed policy.

The incontestable clause means that the insurer may uncover an unquestionable fraud and be unable to do anything about it if the incontestable period has expired.

If Lindsey lets her life insurance policy lapse, and then decides to later reinstate it, what happens with respect to the two-year suicide clause that was in the original policy?

What is the purpose of the reinstatement provision? What are the requirements for reinstatement?

Mr. Harvey needs life insurance. He is deciding whether to buy a new policy or to reinstate the one that he allowed to lapse last year. He asks you to explain the advantage of reinstatement versus purchasing a new policy, and you tell him:

The automatic premium loan provision in life insurance:

The entire-contract clause is one reason the handwritten application for coverage is never attached to the life insurance contract.

In a life insurance contract, the owner and the beneficiary may be different individuals.

Introduction to Enterprise Risk Management and Insurance

Risk Identification

Risk Assessment and Pooling

Risk-Handling Techniques: Loss Control, Risk Transfer, and Loss Financing

Risk-Handling Techniques: Diversification and Hedging

Fundamentals of Insurance

Insurable Perils and Insuring Organizations

Insurance Functions

Insurance Markets: Economics and Issues

Insurance Regulation

Insurance Contracts

The Personal Auto Policy

Homeowners Insurance

Professional Financial Planning

Life Insurance Policies

Annuities

Health Insurance and Disability Income

Employee Benefits

Social Security

Unemployment and Workers Compensation Insurance

Commercial Property Insurance

Commercial Liability Insurance

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