Question 1

The automatic premium loan provision in life insurance:

Accepted Answer

The automatic premium loan provision in life insurance pays premiums due out of the policy's cash value if the policy owner forgets to pay. The other options are not correct.

Question 2

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?

Accepted Answer

B

Question 3

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

Accepted Answer

Reduced face paid up term insurance is not a standard nonforfeiture option. Nonforfeiture options typically include cash surrender, extended term insurance, and reduced paid-up insurance, but the reduced paid-up option is generally for whole life insurance, not term insurance.

Question 4

Which of the following is not a standard settlement option?

Accepted Answer

Fixed payments that in sum will equal the policy's initial face value is not a standard settlement option. Standard options typically include interest-only, fixed period, and fixed amount payments.

Question 5

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 Dallas' beneficiary:

Accepted Answer

When a policyholder takes out a loan against their life insurance policy's cash value, the outstanding amount is deducted from the death benefit paid out to the beneficiary. Therefore, Dallas' beneficiary will receive the face value of the policy ($150,000) minus the amount Dallas still owed on the loan at the time of her death.

Question 6

Which of the following is false regarding the incontestable clause?

Accepted Answer

The incontestable clause does not apply to misstatements of age or gender; such misstatements can still lead to adjustments in the policy benefits even after the clause becomes effective.

Question 7

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

Accepted Answer

The life income option provides periodic income payments for the lifetime of the recipient, regardless of gender. The other options may have different payout amounts or periods based on gender.

Question 8

The entire contract clause in life insurance is designed to:

Accepted Answer

The entire contract clause ensures that only the documents attached to the policy, such as the policy itself and any riders or endorsements, are considered part of the contract, preventing any external documents from influencing the contract terms.

Question 9

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:

Accepted Answer

Reinstating an old policy may offer more favorable settlement options compared to a new policy, as older policies might have better terms or benefits that are no longer available in new policies.

Question 10

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?

Accepted Answer

The insurance company will adjust the death benefit to what the premiums paid would have purchased at the correct age, resulting in a fraction of the face value being paid to the beneficiary.

Question 11

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?

Accepted Answer

The insurer will pay the beneficiary an amount equal to the face value of the policy, MINUS the overdue premiums and any interest or late penalties George owed them. This is because the policy had a standard grace period clause, which means that the policy does not lapse immediately if the premium is not paid on time. However, the insurer is entitled to deduct the unpaid premiums and any interest or late fees from the death benefit when a claim is made. Therefore, the beneficiary will receive the full face value of the policy minus the overdue premiums and any associated fees.

Question 12

Choose the false statement.

Accepted Answer

The answer of Choose the false statement.
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Question 13

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

Accepted Answer

Using dividends to purchase paid-up additions of life insurance does not require a medical exam and there are no acquisition fees or minimal expenses. Paid-up additions have their own cash value, which can provide additional coverage and investment opportunities. However, using dividends to purchase paid-up additions does produce taxable income, making it important to consider the tax implications before making this decision.

Question 14

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

Accepted Answer

While grace period, incontestable clause and provision for misstatement of age are standard provisions found in U.S. life insurance contracts, immediate notice of loss provision is not a standard provision.

Question 15

The incontestable clause states that the insurer:

Accepted Answer

The incontestable clause typically states that the insurer may not contest the policy after it has been in force for a specified period, usually one or two years, except under certain conditions such as non-payment of premiums or fraud.

Question 16

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 Mike's condition. In this case the insurer must:

Accepted Answer

In this scenario, the insurer is obligated to pay the face value of the policy to the beneficiary. This is because most life insurance policies have a contestability period, typically two years, during which the insurer can challenge the validity of the policy based on misrepresentations or omissions by the insured. Since Mike died three years after the policy was issued, beyond the typical contestability period, the insurer must honor the policy despite the initial nondisclosure of Mike's AIDS condition.

Question 17

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

Accepted Answer

In the settlement of policy proceeds under an installment option, each payment includes principal and interest. The principal is the proceeds at the date of death, and the interest is added to each payment, calculated based on a set interest rate or an adjustable rate. This type of settlement allows the beneficiaries to receive regular income payments instead of a lump sum.

Question 18

Which of the following is true?

Accepted Answer

The beneficiary clause in a life insurance policy allows the policy owner to designate who will receive the death benefit when the insured dies. Option A is incorrect because the grace period is typically 30 days, not two months, and it allows the policy to remain active even if the premium is not paid on time. Option B is also incorrect because a misstatement of age would only result in an adjustment of the death benefit, not a voided contract. Option D is incorrect because some insurance policies allow for an assignment of ownership without the insurer's consent.

Question 19

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

Accepted Answer

The feature described in the question is the waiver of premium rider, which waives the insured's obligation to pay premiums on their life insurance policy in the event they become permanently disabled. The other choices listed are different types of riders that may be available with life insurance policies, but they do not specifically address the premium waiver feature.

Question 20

A tontine is:

Accepted Answer

The answer of A tontine is:
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Quiz 16: Standard Life Insurance Contract Provisions and Options