Deck 14: Standard Life Insurance Contract Provisions And Options

Question 1

Which modern insurance policy contract provision resulted from an early insurance law that required insurers to buy term insurance for the insured if the owner allowed the policy to lapse?

A)nonforfeiture provision
B)preliminary term reserve system
C)settlement option provision
D)incontestable clause

Answer 1

A

Question 2

A Tontine is:

A)a form of endowment insurance
B)used frequently to provide retirement income
C)a life insurance contract paying a death claim on the second person to die
D)one reason for the divisible surplus provision

Answer 2

D

Question 3

The gender of the person receiving periodic income payments is a factor in the settlement of life insurance proceeds under the:

A)fixed period option
B)interest option
C)fixed amount option
D)life income option

Answer 3

D

Question 4

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:

A)settlement options in a new policy may be less favorable than those in the old policy
B)he will not 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 5

Choose the false statement:

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 6

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?

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 7

McCartney lied on his life insurance application. He said he was 40,but he was really 60. McCartney dies during the seventh year his policy is in force. When the insurance company finds out about the misstatement of age,what will it do?

A)Deny the claim, based on fraud
B)Pay the face value of McCartney's policy to his beneficiary
C)Pay some fraction of the face value of McCartney's policy to his beneficiary
D)Pay the face value of McCartney's policy to his beneficiary if the beneficiary submits documentation attesting to the fact that he/she knew nothing of the misstatement

Question 8

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

A)grace period
B)incontestable clause
C)provision for misstatement of age
D)immediate notice of loss provision

Question 9

Which of the following is false regarding the incontestable clause?

A)applies to misstatement of age
B)does not restrict suits challenging accidental death benefits
C)eliminates suits by the insurer if a more hazardous occupation is discovered by the insurer 3 years after the policy has been in force
D)was voluntarily added to policies by some insurers

Question 10

The automatic premium loan provision in life insurance:

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 11

Mike is dying of AIDS and knows it,but does not tell his agent when applying for life insurance.The contract is issued and Mike dies three years later,at which time the insurer learns of Mikes condition. In this case the insurer must:

A)pay the face of the policy to the beneficiary
B)return all premiums plus interest
C)return all premiums without interest
D)pay the beneficiary, but the insurer can then subrogate against the insured's estate

Question 12

In the settlement of policy proceeds under an installment option,each payment includes (where principle equals proceeds at the date of death)

A)principle only
B)interest only
C)cash value, principle, interest and dividends
D)principle and interest

Question 13

Which of the following is not a life insurance nonforfeiture option?

A)cash
B)reduced face paid up term insurance
C)extended term insurance
D)reduced face paid up whole life insurance

Question 14

Which of the following is not an advantage of using dividends to purchase paid?up additions of life insurance?

A)there are no medical exams
B)there are no acquisition fees and expenses are minimal
C)paid up additions have their own cash value
D)they produce taxable income

Question 15

The entire contract clause in life insurance is designed to:

A)make sure the entire contract (written and oral)influences the interpretation of the contract
B)bar any incorporation by reference of any documents not attached to the contract
C)require that the policy application be forwarded directly to the beneficiary
D)require that any policy illustrations provided by the agent become a part of the contract

Question 16

Which of the following is not a standard settlement option?

A)interest-only payment amounts
B)fixed payment amounts
C)fixed period amounts
D)fixed payments that in sum will equal the policy's initial face value

Question 17

The incontestable clause states that the insurer:

A)may not contest the policy after it has been in force for five years
B)cannot void or contest the policy after it is issued
C)may contest the policy at any time
D)may not contest the policy after it has been in force one or two years

Question 18

Brak purchased a $25,000 life insurance policy from INSCO on January 1. After failing his introductory insurance class,he committed suicide on December 15 of the same year. At the time of his death,he had paid $1,500 in premiums,and his policy had a cash value of $600. How much will INSCO pay Brak's beneficiary,assuming that the policy contained a 2?year suicide clause?

A)$600
B)$1,500
C)$23,500
D)$1,500 plus interest

Question 19

The contract feature that waives life insurance premiums if the insured becomes permanently disabled is the:

A)disability assignment rider
B)premium waiver clause
C)disability income option rider
D)waiver of premium rider

Question 20

Which of the following is true?

A)The life insurance grace period gives the insured two months during which to correct any misinformation supplied in the application for coverage
B)If the insured misstates his/her age on a life insurance application, the insurer has grounds for voiding the contract
C)The purpose of the beneficiary clause in life insurance is to enable the policy owner to designate to whom the proceeds shall be paid when the insured dies.
D)The life insurance assignment clause requires that the policy owner get the insurer's consent before assigning policy ownership to someone else.

Question 21

What is/are the advantage(s)to purchasing an annuity from your life insurer by using the cash value in your whole life policy,rather than cashing in the policy and using the withdrawn cash values to purchase an annuity from another company?

A)no new acquisition costs are charged, and, possibly better annuity assumptions
B)no new acquisition costs are charged, and, annuity prices are guaranteed to be low
C)no new acquisition costs is the only advantage
D)cheaper annuity pricing is the only advantage

Question 22

The entire?contract provision makes the application for life insurance a part of the contract itself if attached.

Question 23

____________ cannot be a designated life insurance beneficiary.

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

Question 24

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

Question 25

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?

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.

Question 26

Jameson decides to withdraw (not borrow)his life insurance policy's cash value. What happens to the death protection?

A)It matures
B)It ends
C)It is suspended at the discretion of the insurer
D)It is paid up

Question 27

The guaranteed insurability option allows the insured to:

A)purchase additional amounts of life insurance without proof of insurability
B)purchase life insurance for his friends without proof of insurability
C)retain coverage even if the insurer learns that the insured lied on the insurance application
D)receive a discount for taking an extensive physical examination before coverage begins

Question 28

The age of the beneficiary is a factor used to calculate the amount paid from a life insurance policy under the __________ settlement option.

A)life income
B)interest
C)fixed amount
D)fixed

Question 29

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.

Question 30

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 Dallass beneficiary:

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 31

The incontestability clause in life insurance primarily serves to protect the:

A)beneficiary
B)insured
C)insurer
D)annuitant

Question 32

Kayla buys a whole life policy when she is 40,and pays premiums on until she is 60. She decides to retire at 60,and has no dependents,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?

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

Question 33

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

Question 34

Cheryl buys a life insurance policy with a 2?year incontestible clause,and dies three years later. When she dies,her insurer discovers that she lied on application for coverage about her diabetes.What will happen?

A)The insurer will pay the claim
B)The insurer will void the policy and not pay the claim because Cheryl made a material misrepresentation on her application
C)The insurer will void the policy and not pay the claim based on the principle of indemnity
D)Both b and c above

Question 35

The owner of a life insurance policy has which of the following rights under the contract?

A)select the beneficiary
B)discontinue the policy's coverage
C)borrow the cash value
D)all of the above

Question 36

The suicide clause states that the life insurer will not have to pay benefits in the event death is caused by suicide after a short (one or two year)waiting period.

Question 37

Wayne owns a 20-year renewable term life insurance policy. He decides to let the policy lapse. What happens to his cash value in the policy?

A)The insurer retains it
B)The insurer refunds 100% of it
C)The insurer refunds 100% of it, less any loan balances due
D)None of the above

Question 38

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?

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 39

Nonparticipating life insurance will generally have lower initial premiums than participating life insurance.

Question 40

One life insurance dividend option is to allow dividends to accumulate with compound interest with the insurance company.

Question 41

Life insurance policies do not contain deductible provisions.

Question 42

All lapsed life insurance policies may be reinstated.

Question 43

Explain briefly the operation of the guaranteed insurability rider,the waiver of premium rider,and the double indemnity rider.

Question 44

One life insurance nonforfeiture option allows the insured to convert a whole life policy into term insurance.

Question 45

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

Question 46

A life insurer has a legal obligation to make a policyholder loan if requested by an insured.

Question 47

Explain how dividends may be used when distributed to the policy owner in a participating contract.

Question 48

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

Question 49

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.

Question 50

Explain what happens with regard to the insured misstating his/her age? Does the incontestable clause modify this result? Explain.

Question 51

List and describe briefly the various settlement options under life insurance contracts.

Question 52

The insured is the person whose death causes the insurer to pay the claim.

Question 53

An insured must pay the specified interest rate to borrow his own "savings" when a loan is made on a whole life policy.

Question 54

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

Question 55

The typical grace period found in a life insurance policy is 60 days.

Question 56

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

Question 57

Only whole life insurance policies have a grace period.

Question 58

The irrevocable beneficiary cannot be changed by the owner.

Question 59

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

Question 60

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.