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Flashcards in Ch 12 Deck (60)
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1

Which of the following statements about the ownership of a life insurance policy is (are) true?

I. Under the ownership clause, the policyholder and beneficiary equally share all contractual rights in the policy while the insured is living.

II. The policyholder can designate a new owner by filing an appropriate form with the insurance company.

II only

2

Which of the following statements about the entire contract clause is true?

A) It allows the insurer to change the policy terms without the insured's consent.

B) It specifies that all statements in the application are considered warranties.

C) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties.

D) It prevents the insurance company from contesting a policy after it has been in force for two years during the lifetime of the insured.

C

3

Which of the following would be a valid reason for an insurer to contest a policy after the contestable period has ended?

A) The policyholder made a material misrepresentation in the application process.

B) The insurer's loss ratio is running higher than the insurer anticipated.

C) The applicant had someone else take the medical examination required for policy approval for her.

D) The policyholder concealed a material fact at the time of application.

C

4

Amy purchased a life insurance policy with the intent of committing suicide to pay all the debts that were burdening her family. If she commits suicide 9 months after the policy is purchased, and the insurer is able to prove that her death was a suicide, how much will be paid by the insurance company?

A) nothing, because the policy is void

B) the premiums paid for the policy

C) the policy's cash value

D) the face value of the policy

B

5

Which of the following statements about the grace period in a whole life insurance contract is (are) true?

I. The purpose of the grace period is to prevent the policy from lapsing by giving the policyowner additional time to pay an overdue premium.

II. If the insured dies during the grace period, the death benefit is reduced by 50 percent.

I only

6

All of the following statements about the requirements to reinstate a lapsed life insurance policy are true EXCEPT

A) Evidence of insurability is required.

B) The lapse must have resulted from other than the surrender of the policy for its cash value.

C) All overdue premiums must be paid along with interest from the premium due dates.

D) There is no time limit on when the policy may be reinstated.

D

7

Bert purchased a life insurance policy 4 years ago. He inadvertently stated that he was 1 year younger than his actual age. If Bert dies today, how much will the insurance company pay?

A) nothing

B) less than the policy face value

C) the policy face value

D) more than the policy face value

B

8

Which of the following statements about beneficiary designations is (are) true?

I. The primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured.

II. If a revocable beneficiary designation is used, the insured must obtain the beneficiary's permission of exercise most policy rights.

Neither I nor II

9

A contingent beneficiary in a life insurance policy has the right to

A) receive the policy proceeds if the primary beneficiary dies before the insured.

B) share the policy proceeds with the primary beneficiary.

C) change the beneficiary designation under specified circumstances.

D) exercise policy rights if the insured is incapacitated.

A

10

Which of the following statements about the change of plan provision in a life insurance contract is (are) true?

I. A change to a lower premium policy results in a refund of the difference in the cash values of the two policies.

II. A change to a higher premium policy requires evidence of insurability.

I only

11

Which of the following statements about the assignment of a life insurance policy is true?

A) The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary.

B) Under an absolute assignment, the only right transferred to a new owner is the right to change the beneficiary designation.

C) As long as a collateral assignment exists, a creditor will receive the entire death benefit even if the loan has been repaid.

D) Assignment may be made only with the permission of the insurer and the beneficiary.

A

12

Which of the following statements about the assignment of a life insurance policy is (are) true?

I. Under a collateral assignment, the policyowner assigns a life insurance policy to secure a loan.

II. Under an absolute assignment, only limited ownership rights in a policy are transferred.

I only

13

The transfer of all ownership rights in a life insurance policy can be accomplished through a(n)

A) absolute assignment.

B) irrevocable beneficiary designation.

C) incontestable clause.

D) participating-policy provision.

A

14

Which of the following statements about life insurance policy loans is true?

A) Loans are only permitted for specific reasons listed in the policy.

B) They are forgiven if the insured dies before the loans are repaid.

C) The policyholder must pay interest on a life insurance policy loan.

D) They must be repaid on the basis of a schedule determined at the time of the loan.

C

15

Which of the following statements is true regarding an automatic premium loan provision?

A) Its purpose is to prevent a policy from lapsing because of nonpayment of premium.

B) Interest does not have to be paid on an automatic premium loan.

C) If the provision is used, the insured must show evidence of insurability to resume regular premium payments.

D) An automatic premium loan, unlike a regular policy loan, is forgiven if the insured dies before the loan is repaid.

A

16

What major feature distinguishes a participating policy from a nonparticipating policy?

A) the availability of a waiver-of-premium provision

B) the existence of settlement options

C) the payment of dividends

D) the method by which beneficiaries can be named

C

17

Sources of life insurance dividends include which of the following?

I. Excess interest earned on the assets necessary to maintain legal reserves

II. Favorable mortality experience

Both I and II

18

Which of the following is a common dividend option found in a participating life insurance policy?

A) reduced paid-up insurance

B) fixed period

C) paid-up additions

D) life income

C

19

Which of the following statements about dividend options is (are) true?

I. The interest on dividends left to accumulate with the insurer is not considered to be taxable income.

II. Paid-up additions are additional units of whole life insurance.

II only

20

Advantages of selecting the paid-up additions dividend option in a life insurance policy include which of the following?

I. Evidence of insurability is not required to purchase additional insurance.

II. The additions are purchased at net rates without a loading for expenses.

Both I and II

21

Which of the following dividend options, sometimes called the “fifth dividend option,” is not offered by all insurers that sell participating life insurance coverage?

A) paid-up additions

B) reduction of premiums

C) accumulation of dividends at interest

D) term insurance

D

22

All of the following are nonforfeiture options found in cash value life insurance policies EXCEPT

A) cash value.

B) reduction of premiums.

C) reduced paid-up insurance.

D) extended term insurance.

B

23

Which of the following statements about nonforfeiture options found in life insurance policies is true?

A) Under the reduced paid-up option, the paid-up policy is term insurance.

B) Under the extended term option, the amount of term insurance is less than the face value of the surrendered cash value policy.

C) Under the reduced paid-up option, no additional premiums must be paid.

D) Unless the policyowner has selected another nonforfeiture option, the cash value option goes into effect automatically.

C

24

All of the following statements about the interest settlement option are true EXCEPT

A) The minimum guaranteed interest rate is usually equal to the prime rate.

B) The interest can be paid monthly, quarterly, semiannually, or annually.

C) The beneficiary may be allowed to withdraw part or all of the proceeds.

D) The beneficiary may be allowed to change to another settlement option.

A

25

Which of the following statements about life insurance settlement options is true?

A) Under the fixed period option, the beneficiary normally has the right to make partial withdrawals in case of emergency.

B) Under the fixed period option, any remaining proceeds revert to the insurer if the beneficiary dies before the end of the fixed period.

C) Under the fixed amount option, the beneficiary can be given the right to increase or decrease the fixed amount.

D) Under the fixed amount option, any interest credited in excess of the guaranteed rate increases the amount of each periodic payment.

C

26

Which of the following statements about life income settlement options is (are) true?

I. Under a joint-and-survivor life income option, payments cease at the death of the first annuitant.

II. Under a life income with guaranteed period, a contingent beneficiary is guaranteed a minimum number of payments regardless of when the primary beneficiary dies.

Neither I nor II

27

Disadvantages of life insurance settlement options include which of the following?

I. Higher yields can often be obtained elsewhere.

II. Life income options have limited usefulness at younger ages.

Both I and II

28

Which of the following statements about the waiver-of-premium provision in life insurance is true?

A) Because the probability of becoming disabled exceeds the probability of premature death, the cost to include this provision is usually prohibitive at younger ages.

B) Premiums are usually waived if the insured becomes partially disabled.

C) Life insurance protection continues in force during a period of disability, but dividends cease and cash values are reduced.

D) The disability must occur before a stated age, such as 65, for premiums to be waived.

D

29

All of the following are requirements that must be satisfied before premiums are waived under a waiver-of-premium provision EXCEPT

A) The insured must furnish proof of disability to the insurer.

B) The insured must be disabled before some specified age, such as age 60 or 65.

C) The insured must satisfy the definition of disability.

D) The insured must satisfy a 2-year waiting period.

D

30

Which of the following statements about the guaranteed purchase option is true?

A) An insured usually has 24 months to exercise an option.

B) The option cannot be exercised until the insured reaches age 40.

C) The amount of life insurance that can be purchased at each option is limited to 10 percent of the face amount of the basic policy.

D) The additional coverage can be purchased without demonstrating insurability.

D