Incorrect Answers:
Term riders may be used to customize a permanent life insurance policy to meet the needs of the policyowner.1: Which of the following is true about warranties?
When the reduced option is written as “joint and 2/3 survivor,” the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.
5: When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?
When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.
3: A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible?
1: Which is TRUE about the cash surrender nonforfeiture option?
Q: What are the dividend options in life insurance policies?
A: Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment
A: Cash, reduced premium, accumulation at interest, paid-up additions, paid-up option, one-year term, and acceleration of endowment
Q: What are the three nonforfeiture options in life insurance policies?
A: Cash surrender, reduced paid-up, and extended term
A: Cash surrender, reduced paid-up, and extended term
Q: What type of assignment is used to secure the payment of a debt with an existing life insurance policy?
A: Collateral assignment
A: Collateral assignment
Q: What settlement options are available in life insurance policies?
A: Lump-sum/cash, fixed period, fixed amount, life income, interest only
A: Lump-sum/cash, fixed period, fixed amount, life income, interest only
Q: What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
A: Waiver of premium
A: Waiver of premium
Q: Which of the two types of policy assignments requires transfer of all ownership rights in the policy to a third party?
A: Absolute assignment
A: Absolute assignment
Q: What is the name for a life insurance policy rider that provides coverage on the insured's family members?
A: Other-insured rider
A: Other-insured rider
Q: What type of beneficiary can be changed at any point by the policyowner?
A: Revocable
A: Revocable
4: What type of beneficiary designation allows the benefit to pass from a deceased primary beneficiary to the beneficiary’s heirs, instead of splitting the benefit among surviving primary beneficiaries?
A By the head
B Per capita
C Per stirpes
D By class
Per stirpes class designation provides distribution by family line or branch in the event a beneficiary predeceases the insured.
5: Which of the following, when attached to a permanent life insurance policy, allows the policyowner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members?
A Guaranteed insurability rider
B Change of insured rider
C Term rider
D Accidental death and dismemberment rider
A If they aren’t true, the insurer must file with court to void the policy.
B They are true to the best of the agent’s knowledge.
C They are true to the best of the applicant’s knowledge.
D They are guaranteed to be true.
Warranties are statements that are guaranteed to be true. Representations are true to the best of the insurance applicant’s knowledge.
3: If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a
A Nonforfeiture option.
B Guaranteed insurability rider.
C Paid-up additions option.
D Cost of living provision.
The Guaranteed Insurability rider allows the policyowner to purchase specific amounts of additional insurance at specific dates or events, without proving continued insurability. Rates for the additions are based upon attained age.
10: The policyowner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principal will be paid to their children when they reach a certain age. Which settlement option should the policyowner choose?
A Joint and survivor
B Fixed amount option
C Interest only option
D Life income with period certain
With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.
13: An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
A The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies.
B One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies.
C The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
D The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time.
5: When the insured selects the extended term nonforfeiture option, the cash value will be used to purchase term insurance with what face amount?
A The same as the original policy minus the cash value
B Equal to the original policy for as long as the cash values will purchase.
C In lesser amounts for the remaining policy term of age 100.
D Equal to the cash value surrendered from the policy
With this option, the cash value is used as a single premium to purchase the same face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.
8: The sole beneficiary of a life insurance policy dies before the insured. If the policyowner fails to change the beneficiary before the insured's death, the proceeds of the policy will go to
A Probate.
B The state.
C The beneficiary's estate.
D The insured's estate.
In the absence of a viable beneficiary, proceeds will be paid to the estate of the insured.
12: When a whole life policy lapses or is surrendered prior to maturity, the cash value can be used to
A Purchase a single premium policy for a reduced face amount.
B Purchase a term rider to attach to the policy.
C Pay back all premiums owed plus interest.
D Receive payments for a fixed amount.
3: A business owner was trying to obtain a bank loan to fund the purchase of a new business facility, but the bank required proof of additional assets to secure the loan. The business owner then decided to use her $250,000 life insurance policy to secure the loan. Which provision makes this possible?
A Ownership provision
B Collateral assignment
C Insurable interest
D Modification clause
The business owner could make a collateral assignment of his or her life insurance policy to the bank.
4: Which nonforfeiture option has the highest amount of insurance protection?
A Extended Term
B Conversion
C Decreasing Term
D Reduced Paid-up
The Extended Term nonforfeiture option has the same face amount as the original policy, but for a shorter period of time.
5: The Waiver of Cost of Insurance rider is found in what type of insurance?
A Whole Life
B Joint and Survivor
C Juvenile Life
D Universal Life
The Waiver of Cost of Insurance rider is found in Universal Life policies. If the insured becomes disabled, the rider allows the cost of insurance to be waived, with the exception of premium costs required to accumulate cash value.
8: All of the following are true regarding the guaranteed insurability rider EXCEPT
A This rider is available to all insureds with no additional premium.
B The insured may purchase additional coverage at the attained age.
C The insured may purchase additional insurance up to the amount specified in the base policy.
D It allows the insured to purchase additional amounts of insurance without proving insurability only at specified dates or events.
The guaranteed insurability rider may be structured to allow for specific additional amounts of insurance to be purchased at specific ages, dates and events without proving insurability; however, the coverage is purchased at the insured's attained age and the maximum allowable purchase is specified in the base policy. This rider usually expires at the insured's age 40.
A After the cash surrender, the insured is covered for a grace period of 1 month.
B The policy remains active for some time after the policyholder opts for cash surrender.
C The policyholder receives the original cash value of the policy.
D Funds exceeding the premium paid are taxable as ordinary income.
The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.
3: Which of the following is true regarding a single life settlement option?
A Payments continue until the entire principal is exhausted.
B Proceeds are paid out in a lump sum.
C It provides income for a specified period of time.
D It provides income the beneficiary cannot outlive.
The Single Life Option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop.
8: An insured had a $10,000 term life policy. The annual premium of $200 was due on February 1; however, the insured failed to pay the premium. He died on February 28. How much would the beneficiary receive from the policy?
A $0
B $200
C $9,800
D $10,000
In this scenario, the death occurred within the mandatory 30-day grace period. Past due premium would be subtracted from the face amount of the policy.
9: The interest earned on policy dividends is
A Tax deductible.
B 40% taxable, similar to a capital gain.
C Taxable.
D Nontaxable.
Dividends are a return of unused premiums on which the insured has already paid taxes. Any interest earned is taxable as ordinary income.
10: All of the following are beneficiary designations EXCEPT
A Primary.
B Specified.
C Tertiary.
D Contingent.
Beneficiary designations determine the order in which benefits will be paid: primary or contingent, which includes secondary and tertiary.
11: An insured has chosen joint and 2/3 survivor as the settlement option. What does this mean to the beneficiaries?
A One of the beneficiaries will receive 1/3 and the other 2/3 of the proceeds when the insured dies.
B The surviving beneficiary will continue receiving 2/3 of the benefit paid when both beneficiaries were alive.
C The beneficiary will receive 2/3 of the lump sum up front, and the remaining 1/3 will be paid over time.
D The beneficiary will receive 2/3 of the total benefit, with the final 1/3 payable when the first beneficiary dies.
When the reduced option is written as “joint and 2/3 survivor,” the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive.
13: Regarding the free-look provision, the insurance company
A Must issue a free policy for 30/31 days.
B Must issue a free policy for 10 days.
C Must allow the policyowner to return the policy for a full refund.
D Cannot charge a premium after 10 days.
This provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The beginning of this free-look period starts when the policyowner receives the policy, not when the insurer issues the policy.2: Which of the following allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled?
A Waiver of Premium
B Payor Benefit
C Jumping Juvenile
D Juvenile Premium Provision
If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.
4: When a life insurance policy is cancelled and the insured has selected the extended term nonforfeiture option, the cash value will be used to purchase term insurance that has a face amount
A The same as the original policy minus the cash value.
B Equal to the original policy for as long a period of time that the cash values will purchase.
C In lesser amounts for the remaining policy term of age 100.
D Equal to the cash value surrendered from the policy.
With this option, the cash value is used as a single premium to purchase the SAME face amount as the original policy for as long a period of time as the cash will buy at the insured's current age.6: Which of the following riders would NOT cause the Death Benefit to increase?
A Guaranteed Insurability Rider
B Cost of Living Rider
C Accidental Death Rider
D Payor Benefit Rider
Payor Benefit Rider does not increase the Death Benefit; it only pays the premium if the payor is disabled or dies. With Guaranteed Insurability Rider, the policyowner can increase DB at specified ages or events, i.e. marriage or birth of a child; Cost of Living Rider increases DB to keep pace with inflation; in Accidental Death Rider, if the insured dies from an accident, DB is a multiple of the Face Amount.1: A rider that may be attached to a life insurance policy that will adjust the face amount based upon a specific index, such as the Consumer Price Index, is called
A Payor rider.
B Cost of living rider.
C Accelerated benefit rider.
D Living need rider.
A "cost of living" rider adjusts the face amount of a policy to maintain the relationship of the face amount and increases in the cost of living.
4: Which nonforfeiture option provides coverage for the longest period of time?
A Accumulated at interest
B Reduced paid-up
C Extended term
D Paid-up option
The reduced paid-up nonforfeiture option would provide protection until the insured reaches 100, but the face amount is reduced to what the cash would buy.
10: What required provision protects against unintentional lapse of the policy?
A Reinstatement
B Grace period
C Assignment
D Payment of premiums
The grace period is the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose of the grace period provision is to protect the policyholder against an unintentional lapse of the policy.
13: What type of insurance would be used for a Return of Premium rider?
A Level Term
B Decreasing Term
C Annually Renewable Term
D Increasing Term
The Return of Premium Rider is achieved by using increasing term insurance. When added to a whole life policy it provides that at death prior to a given age, not only is the original face amount payable, but also all premiums previously paid are payable to the beneficiary.
8: An insured owns a $50,000 whole life policy. At age 47, the insured decides to cancel his policy and exercise the extended term option for the policy's cash value, which is currently $20,000. What would be the face amount of the new term policy?
A $20,000
B $25,000
C $50,000
D The face amount will be determined by the insurer.
The face of the term policy would be the same as the face amount provided under the whole life policy.
9: A life insurance policy does not have a war clause. If the insured is killed during a time of war, what will the beneficiary receive from the policy?
A A refund of premiums
B Nothing, since the insured was killed as a result of a war
C The full death benefit
D The policy’s cash value
War or Military Service Clause specifically excludes or limits the insurer's liability for losses caused by war or active military service. If a life insurance policy does not have that exclusion, the benefits are paid to the beneficiary, as if the insured died of any other cause