Chapter 3

Question 1

What dividend option can increase the death benefit of the existing life policy?

Answer 1

Paid-up additions

Question 2

What type of assignment is used to secure the payment of a debt with an existing life insurance policy?

Answer 2

Collateral assignment

Question 3

What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?

Answer 3

Entire contract

Question 4

An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?

Answer 4

The death benefit will be adjusted to the amount that the insured could obtain for her correct age.

Question 5

A policyowner borrowed a portion of cash value from his whole life policy. If the loan is not repaid, how will that affect the death benefit to the beneficiary?

Answer 5

The amount of the loan will be subtracted from the death benefit

Question 6

What are policy dividends?

Answer 6

Return of unused premiums

Question 7

What happens to the proceeds of a life insurance policy if there is no named beneficiary?

Answer 7

The proceeds are paid to the insured’s estate.

Question 8

An insurer has discovered a representation on a life insurance policy application regarding the insured’s age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Answer 8

Pay a reduced death benefit

Question 9

What provision in a life insurance policy extends coverage beyond the premium due date?

Answer 9

Grace period

Question 10

What are the three nonforfeiture options in life insurance policies?

Answer 10

Cash surrender, reduced paid-up, and extended term

Question 11

What term is used to describe methods of payment of the death benefit to the beneficiary upon the insured’s death?

Answer 11

Settlement options

Question 12

Under what nonforfeiture option does the company pay the policy’s surrender value and have no further obligations to the policyowner?

Answer 12

Cash surrender

Question 13

What type of beneficiary is next in line after the primary beneficiary?

Answer 13

Contingent beneficiary

Question 14

When can an insurance company use suicide as a defense against paying a death claim?

Answer 14

When a suicide is committed within a specified period of time after the policy is purchased (usually 2 years)

Question 15

What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?

Answer 15

Waiver of premium

Question 16

What is the advantage of reinstating a life insurance policy as opposed to applying for a new one?

Answer 16

Policy premium in a reinstated policy will be set according to the insured’s original age.

Question 17

What is the name for a life insurance policy rider that provides coverage on the insured’s family members?

Answer 17

Other-insured rider

Question 18

What happens to a policy’s cash value under an extended term nonforfeiture option?

Answer 18

The cash value is converted to the same face amount as in the whole life policy

Question 19

What type of beneficiary can be changed at any point by the policyowner?

Answer 19

Revocable

Question 20

Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?

Answer 20

Absolute assignment

Question 21

What settlement options are available in life insurance policies?

Answer 21

Lump-sum/cash, fixed period, fixed amount, life income, interest only

Question 22

What nonforfeiture option is automatically selected by the company if not chosen by the policyowner?

Answer 22

Extended term

Question 23

What is the purpose of settlement options in life insurance policies?

Answer 23

To determine how the death benefit will be paid to the beneficiary

Question 24

What does the term double indemnity mean?

Answer 24

The insurer will pay a benefit of twice the face amount

Question 25

An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?

Answer 25

Pay a reduced death benefit

Question 26

Is the beneficiary required to have insurable interest in the insured?

Answer 26

No. Beneficiaries do not have insurable interest in the insured

Question 27

The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?

Answer 27

It will be paid to the insured's estate

Question 28

What nonforfeiture option provides coverage for the longest period of time?

Answer 28

Reduced paid-up

Question 29

What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?

Answer 29

Incontestability

Question 30

What are the most common exclusions in life insurance policies?

Answer 30

War and military service, hazardous occupation, and aviation

Question 31

What are the dividend options in life insurance policies?

Answer 31

Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment

Question 32

When will a contingent beneficiary receive death benefits from a life insurance policy?

Answer 32

When the primary beneficiary dies before the insured

Question 33

What is the purpose of the Automatic Premium Loan provision?

Answer 33

To prevent the unintentional lapse of a policy because of nonpayment of the premium

Question 34

To meet the requirement of the entire contract policy provision, an insurance policy must contain what?

Answer 34

A copy of the original insurance application

Question 35

What is the purpose of a free-look period?

Answer 35

To allow the insured to return the policy with a full refund

Question 36

Who has the right to the cash value of a life insurance policy?

Answer 36

Policyowner

Question 37

What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?

Answer 37

Reinstatement

Question 38

With the reduction of premium dividend option, how is the dividend used?

Answer 38

The dividend is applied to the next year's premium (it reduces the next year's premium).

Question 39

Who controls changes in premium payments, face values, and loans in a life insurance policy?

Answer 39

Policyowner

Question 40

What required provision protects against unintentional policy lapse?

Answer 40

Grace period

Question 41

What beneficiary designation has first claim to the death proceeds of a life insurance policy?

Answer 41

Primary beneficiary

Question 42

If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?

Answer 42

Lump-sum payment

Question 43

With the interest only settlement option, what happens to the policy's death benefit?

Answer 43

Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary

Question 44

In the fixed-period settlement option, how will the number of installments for the death benefit proceeds determine the amount of the installments?

Answer 44

The longer the period selected, the smaller each installment will be

Question 45

What dividend option is automatically selected by the company if not chosen by the policyowner?

Answer 45

Paid-up additions