Unit 6

Question 0

In which of the following situations does the incontestable clause apply?

(A) Impersonation of the applicant by another
(B) No insurable interest
(C) Intent to murder
(D) Concealment of smoking

Answer 0

(D) Concealment of smoking

Question 1

An error in age is discovered after the death of an insured but before any policy death proceeds are distributed. The insured was older than previously assumed. How would an insurance company handle such a situation?

(A) No adjustment would be made because the contestable period had passed.
(B) The amount of death proceeds would be reduced to reflect the statistically diminished mortality risk.
(C) The amount of death proceeds would be reduced to reflect whatever benefit the premium paid would have purchased at the correct age.
(D) The beneficiary would be required to pay all underpaid back premiums before the death benefit is received.

Answer 1

(D) The beneficiary would be required to pay all underpaid back premiums before the death benefit is received.

Question 2

Which of the following allows 30 days during which premiums may be paid to keep policies in force?

(A) Grace period
(B) Reinstatement clause
(C) Incontestable clause
(D) Waiting period

Answer 2

(A) Grace period

Question 3

Which of the following statements regarding the assignment of a life insurance policy is NOT correct?

(A) Absolute assignment involves a complete transfer, giving the assignee full control over the policy.
(B) Under a collateral assignment, a creditor is entitled to be reimbursed out of the policy’s proceeds only for the amount of the outstanding credit balance.
(C) Under a collateral assignment, policy proceeds in excess of the collateral amount pass to the insured’s beneficiary.
(D) All beneficiaries must expressly approve any assignments of life insurance policies.

Answer 3

(D) All beneficiaries must expressly approve any assignments of life insurance policies.

Question 4

Which of the following is (are) a common life insurance policy exclusion?

(A) Death from war
(B) Death by accidental means
(C) Death by commercial aviation
(D) All of the above

Answer 4

(A) Death from war

Question 5

All of the following are standard life insurance policy nonforfeiture options EXCEPT:

(A) cash surrender option
(B) 1-year term insurance option
(C) extended term insurance option
(D) reduced paid-up (permanent) insurance option

Answer 5

(B) 1-year term insurance option

Question 6

Which of the following statements best describes life insurance policy dividends?

(A) Policy dividends represent earnings to shareowners who hold stock in insurance companies.
(B) Policy dividends affect the cost of virtually all insurance policies issued today.
(C) Policy dividends are an intentional return of a portion of the premiums paid.
(D) Policy dividends provide policyowners with a level, known annual cash inflow.

Answer 6

(C) Policy dividends are an intentional return of a portion of the premiums paid.

Question 7

The most common guaranteed insurability riders allow additional life insurance to be purchased on the insured within a range of ages. The common age range in which guaranteed insurability is available is from:

(A) 16 to 65
(B) 21 to 59.5
(C) 25 to 40
(D) 30 to 70.5

Answer 7

(C) 24 to 40

Question 8

Which life insurance provision allows the policyholder to inspect and, if dissatisfied, to return the policy for a full refund?

(A) Waiver of premium
(B) Facility of payments
(C) Probationary period
(D) Free look

Answer 8

(D) Free look

Question 9

Which of the following statements regarding a cost of living (COL) rider on a life insurance policy is CORRECT?

(A) A cost of living rider provides for a level premium even if the cost of living increases.
(B) An inflation index, usually the Consumer Price Index, determines the amount of inflation adjustment that is made to the policy up to a maximum percentage increase.
(C) To acquire additional amounts of life insurance under a COL rider, evidence of insurability must be provided.
(D) Declines in the CPI cause corresponding declines in the amount of insurance coverage.

Answer 9

(B) An inflation index, usually the Consumer Price Index, determines the amount of inflation adjustment that is made to the policy up to a maximum percentage increase.

Question 10

“If an insurance company determines that the insured is totally disabled, the policyowner is relieved of paying the policy premiums as long as the disability continues.” This statement describes:

(A) the premium suspension clause
(B) the waiting period exemption
(C) the disability income rider
(D) the waiver of premium rider

Answer 10

(D) the waiver of premium rider

Question 11

To what period would a 14-day free-look provision apply in Florida?

(A) The first 14 days after the application has been signed by the applicant.
(B) The first 14 days after the application has been received by the insurer.
(C) The first 14 days after the policy has been issued by the insurer.
(D) The first 14 days after the issued policy has been received by the insured.

Answer 11

(D) The first 14 days after the issued policy has been received by the insured.

Question 12

All of the following statements regarding assignment of a life insurance policy are correct EXCEPT:

(A) to secure a loan, the policy can be transferred temporarily to the lender as security for the loan
(B) the policyowner must obtain approval from the insurance company before a policy can be assigned
(C) the life insurance company assumes no responsibility for the validity of an assignment
(D) the life insurance company must be notified in writing by the policyowner of any assignment

Answer 12

(B) the policyowner must obtain approval from the insurance company before a policy can be assigned

Question 13

Which provision of a life insurance policy states that the application is part of the contract?

(A) Consideration clause
(B) Insuring clause
(C) Entire contract clause
(D) Incontestable clause

Answer 13

(C) Entire contract clause

Question 14

Ron, the insured under a $100,000 life insurance policy, dies during the grace period. What happens, considering that the premium on the policy has not been paid?

(A) The premium is cancelled because the insured died during the grace period.
(B) The amount of the premium is deducted from the policy proceeds paid to the beneficiary.
(C) The premium due, plus a 10% penalty, is charged against the policy.
(D) The beneficiary must pay the premium after the death claim is paid.

Answer 14

(B) The amount of the premium is deducted from the policy proceeds paid to the beneficiary.

Question 15

Which of the following is stated in the consideration clause of a life insurance policy?

(A) Insured’s risk classification
(B) Insured’s general health condition
(C) Amount and frequency of premium payments
(D) Benefits payable upon the insured’s death

Answer 15

(C) Amount and frequency of premium payments

Question 16

John stopped paying premiums on his permanent life insurance policy 8 years ago though he never surrendered it. He is still insurable and has no outstanding loan against the policy. The company probably will decline to reinstate the policy because the time limit for reinstatement has expired. The limit usually is:

(A) 6 months
(B) 1 year
(C) 2 years
(D) 3 years or as long as 7 years

Answer 16

(D) 3 years or as long as 7 years

Question 17

All of the following statements pertaining to reinstatement of a life insurance policy are correct EXCEPT:

(A) a suicide exclusion period is renewed with a reinstated policy
(B) when reinstating a policy, the insurer will charge the policyowner for past-due premiums
(C) when reinstating a policy, the insurer will charge the policyowner for interest on past-due premiums
(D) a new contestable period becomes effective in a reinstated policy

Answer 17

(A) a suicide exclusion period is renewed with a reinstated policy

Question 18

Leland elects to surrender his whole life policy for a reduced paid-up policy. The cash value of his new policy will:

(A) continue to increase
(B) decrease gradually
(C) remain the same as in the old policy
(D) be forfeited

Answer 18

(A) continue to increase

Question 19

If error is discovered after an insured dies and the insured was younger than the insurance policy stated, the insurance company will:

(A) reduce the death benefits
(B) reduce premiums
(C) waive the difference
(D) increase the death benefits

Answer 19

(D) increase the death benefits

Question 20

Each of the following statements about the incontestable clause in a life insurance policy is correct EXCEPT:

(A) the clause gives people assurance that when their policies become claims, they will be paid without delays or protests
(B) the incontestable clause means that after a certain period, an insurer cannot refuse to pay the proceeds of a policy or void the contract
(C) incontestable clauses usually become effective 2 years from the issue date of the policy
(D) insurers can void a contract even after the specified period, provided they can prove the policy was purchased fraudulently

Answer 20

(D) insurers can void a contract even after the specified period, provided they can prove the policy was purchased fraudulently

Question 21

If an error is discovered while an insured is living and the insured is older than the policy states, the insurance company can:

(A) increase the premium
(B) reduce the premium
(C) waive the difference
(D) increase the benefits

Answer 21

(A) increase the premium

Question 22

The rider that provides for a waiver of premiums on a juvenile policy if the adult payor dies or becomes disabled is:

(A) a guaranteed insurability rider
(B) a payor rider
(C) a waiver of premium rider
(D) an automatic premium loan rider

Answer 22

(B) a payor rider

Question 23

Which of the following statements about a life insurance policy’s cash value is CORRECT?

(A) In many states (but not all), policyowners are entitled to the accrued cash values of their whole life policies.
(B) When a whole life insurance policy is active, the owner can borrow from the cash value.
(C) Owners of both term and whole life insurance are entitled to the cash surrender value when a policy is lapsed or surrendered.
(D) If a policyowner lets her whole life policy lapse, the beneficiary will be entitled to part of the policy’s cash value.

Answer 23

(B) When a whole life insurance policy is active, the owner can borrow from the cash value.