Question 1

Richard Beck has a life insurance policy which he has altered to include an accidental death benefit payable to his son and daughter. This alteration has most likely been done by attaching a(n) ____ to the policy.

Accepted Answer

The accidental death benefit is commonly added to a life insurance policy through a double indemnity rider, which provides an additional death benefit if the insured dies as the result of an accident. The other answer choices do not apply to the situation described.

Question 2

Which of the following refer to permanent insurance?

Accepted Answer

Each of the options listed are types of permanent life insurance. Whole life, straight life, and ordinary life all refer to the same type of policy that offers coverage for the policyholder's entire life and builds up cash value over time. Cash-value life insurance refers to a broader category that includes these types of policies as well as others that allow for greater flexibility in premium payments and offer more options for investment.

Question 3

John Camey has a life insurance policy that is tied to a separate stock fund. The cash value of his insurance policy depends on the value of this fund. He is guaranteed a minimum death benefit but the death benefit can be higher, depending on the value of the fund. What type of life insurance does John likely have?

Accepted Answer

John's insurance policy's cash value is tied to a separate stock fund, which is a characteristic of variable life insurance. Additionally, the death benefit can vary based on the performance of the fund, further indicating that John likely has a variable life policy.

Question 4

Taylor Jones has a life insurance policy that returns every cent she pays in premiums if she outlives the term of the policy. She knows this policy costs 30 to 50 percent more than a traditional policy but thinks it is worth it. What type of term life insurance does Taylor have?

Accepted Answer

Taylor has a return-of-premium term life insurance policy where she will get a refund of every cent she paid in premiums if she outlives the term of the policy. Although it costs more than a traditional policy (30-50% more), she deems it worth it.

Question 5

Francesca Brown has a life insurance policy that provides her with protection for the next five years. However, she can get five more years of protection at the end of this term without having to have a medical examination because she will be less than 70 years old at that time. Her premiums will rise during each five-year period. What type of term life insurance does Francesca likely have?

Accepted Answer

Francesca likely has a renewable term life insurance policy, which allows her to renew her coverage for an additional term without having to undergo a medical examination. This option is usually available at the end of each term, typically every 5 or 10 years. Since Francesca can renew for five more years without having to undergo a medical examination, this indicates that her policy is renewable.

Question 6

Jane Curtain has a participating life insurance policy that returns part of her premiums at the end of the year. What is the money that is returned to Jane called?

Accepted Answer

The money that is returned to Jane is called a policy dividend. This is a partial refund of the premiums she has paid into the policy. Policy dividends are commonly found in participating life insurance policies, which give policyholders a share of the insurer's profits in addition to their insurance coverage.

Question 7

Tim Bridges has a life insurance policy where he makes payments of $265 per year until he reaches the age of 65. His policy is then 'paid up' for life. His beneficiaries will receive the face value upon his death. What type of life insurance does Tim likely have?

Accepted Answer

Tim Bridges likely has a limited payment life insurance policy, where he pays premiums for a specified period (in this case, until age 65) and the policy becomes paid up for life. This type of policy falls under the category of whole life insurance, but is different from ordinary whole life as the premiums are paid only for a limited time period.

Question 8

Shelley Jackson has a life insurance policy where she makes payments of $185 per year for the rest of her life. This policy has a cash value that increases while she continues to make payments. If she gives up her insurance, the cash value is the amount she would receive from this policy. What type of life insurance does Shelley likely have?

Accepted Answer

Shelley's policy requires her to make payments for the rest of her life, which is a characteristic of ordinary whole life insurance. This type of policy has a cash value that increases over time as premiums are paid, and the policy remains in force until the insured's death or age 100. Limited payment life insurance requires a set number of premium payments, while variable, adjustable, and universal life insurance policies allow for more flexibility in premium payments and often involve investment components.

Question 9

A document attached to the policy that modifies its coverage by adding or deleting a specified condition is called a(n):

Accepted Answer

A rider is a separate document that modifies the policy coverage by adding or deleting specific conditions. It is commonly used to customize a policy to fit the insured's specific needs. The other options listed are not relevant to this definition.

Question 10

Jerry Lewis is thinking about purchasing some life insurance. He goes to a company that is owned by shareholders. What type of life insurance company has he visited?

Accepted Answer

A stock life insurance company is owned by shareholders who invest in the company and expect a return on their investment in the form of dividends. These companies are for-profit and have a primary responsibility to their shareholders, rather than policyholders.

Question 11

Lori Simpson is thinking about purchasing some life insurance. She goes to a company where the policyholders are essentially the owners of the company. What type of life insurance company has she visited?

Accepted Answer

The key phrase in the question is "policyholders are essentially the owners of the company," which describes a mutual life insurance company. In a mutual company, policyholders share in the profits and have a vote in the company's decisions, which is different from stock companies where shareholders own the company and benefit from its profits. Debt, exclusionary, and cooperative are not types of life insurance companies.

Question 12

Russell Lowe has a life insurance policy that allows him to pay his premiums virtually at any time and virtually in any amount, subject to certain minimums. What type of insurance does Russell likely have?

Accepted Answer

Russell likely has a universal life insurance policy, which allows for flexibility in premium payment amounts and timing, and also has a cash value component that can be adjusted over time. The other options, such as ordinary whole life, limited payment life, variable life, and adjustable life, do not typically offer this level of flexibility with premium payments.

Question 13

Lisa Smith has her age listed on her driver's license as being three years younger than it actually is. This is also how old she tells her insurance company she is. Her insurance company has discovered she lied about her age. What provision of her life insurance contract states that her benefits will be what her premium would have bought if she had been truthful about her age?

Accepted Answer

The provision that deals with misstatement of age is known as misstatement of age provision or age correction provision. It states that the benefits payable by the insurer would be based on the premium that would have been charged had the insured person's correct age been known. This provision helps to ensure that premiums are based on accurate age information and that the insurer does not suffer any losses due to inaccurate age information.

Question 14

Frank Keating has a life insurance policy that can be exchanged for a whole life policy without a medical examination. Once it has been exchanged, the premiums will increase. What type of term life insurance does Frank likely have?

Accepted Answer

Frank likely has a convertible term life insurance policy since it allows him to exchange it for a whole life policy without undergoing a medical examination. This option is often included in convertible term policies, which allow policyholders to convert their term life coverage into permanent life coverage without having to qualify for it again. The fact that Frank's premiums will increase after conversion suggests that he has a level premium policy, which means that the premium payments remain the same throughout the policy's term.

Question 15

The grace period normally allows ____________ days to elapse, during which time the premium may be paid on an insurance policy.

Accepted Answer

The grace period normally allows 28 to 31 days to elapse, during which time the premium may be paid on an insurance policy. This is typically the case for most insurance policies.

Question 16

Your life insurance policy is valuable only if it:

Accepted Answer

The value of a life insurance policy is based on whether it meets your objectives. If it provides the coverage you need for your family or loved ones in the event of your death, then it is a valuable policy. Making you or your beneficiaries rich or serving as collateral for a loan are not necessarily the main objectives of a life insurance policy. Paying a certain interest rate is also not a requirement for a valuable policy.

Question 17

Jim Brown has a life insurance policy that allows him to change his policy to fit his changing needs. He can change either the premium he pays or the period of coverage. What type of insurance does Jim likely have?

Accepted Answer

Jim likely has an adjustable life insurance policy, which allows for changes to the policy's premium and period of coverage. This type of policy provides flexibility for the insured to adjust their coverage as their needs change.

Question 18

A beneficiary is a person who:

Accepted Answer

A beneficiary is a person who is designated to receive life insurance proceeds upon the death of the insured.

Question 19

Renee Warning has a life insurance policy where the payments to beneficiaries get smaller as time passes. What type of term life insurance does Renee likely have?

Accepted Answer

The fact that the payments to beneficiaries get smaller as time passes indicates that Renee likely has a decreasing term life insurance policy.

Question 20

A suicide clause means that the insurance company:

Accepted Answer

A suicide clause in an insurance policy means that if the policyholder commits suicide within a certain time frame (usually two years after the policy is issued), the insurance company will pay a death benefit equal to the amount of premiums paid. This clause is designed to prevent people from taking out large life insurance policies with the intention of committing suicide shortly afterwards. After the two-year period, the suicide clause no longer applies, and the policy will pay the full death benefit if the policyholder dies due to suicide.

Quiz 12: Life Insurance