Finance Quiz #2 – C12

7 July 2024
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question
All of the following are dividend options except: dividend accumulations, fixed-period option, paid-up additions, reduction of premiums
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Fixed-period option
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Ned purchased a life insurance policy on his own life. He was concerned that he might not be able to pay premiums if he became disabled. He added a provision to his policy that relieved him from paying premiums if he becomes totally disabled before a specified age. This provision is called
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waiver-of-premium provision
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Which statement is true with regard to the options available in life insurance contracts? I) All life insurance policies provide dividend options. II) All life insurance policies provide nonforfeiture options.
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neither I or II, participating get dividends, cash value provide nonforfeiture
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Barb purchased a whole life policy on her own son, Tom, twelve years ago. She named herself the beneficiary. Tom, now age 19, would like to take out a policy loan to help fund the purchase of a sports car. Barb does not believe that Tom has the right to take out a policy loan. Which contractual provision supports Barb's position?
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ownership clause
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All of the following are settlement options except: fixed period, interest option, extended term insurance, life income
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extended term insurance
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Which statement is true with regard to the incontestable clause? I) It protects the beneficiary if the insurer attempts to deny payment of the death claim more than two years after the policy was purchased. II) It allows the insurer to deny a death claim during the first two years of coverage on the basis of concealment or misrepresentation by the applicant
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both I and II
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Rod committed suicide four months after purchasing a $100,000 life insurance policy. Her insurer must pay
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a refund of the premiums paid
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Christine has paid-up $50,000 whole life policy. She would like to transfer all ownership rights in the policy to her favorite charity. Christine can accomplish the transfer through a(n)
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absolute assignment
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Tom was just diagnosed with an inoperable brain tumor. According to his doctor, Tom has less than three months to live. A life insurance premium notice just arrived. Tom purchased his whole life policy over 40 years ago. Tom does not want to pay the premium. Which nonforfeiture option should Tom exercise?
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extended term insurance
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Mary is concerned that inflation will reduce the purchasing power of her life insurance proceeds when she dies. To provide protection against this risk, she added a rider to her policy that allows her to purchase one-year term insurance equal to the cumulative change in the consumer price index from the issue date of the policy. This provision is called a
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cost-of-living rider
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T/F A change-of-plan provision permits the policyowner to exchange his/her present policy for a different life insurance contract
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True
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T/F Interest is not required on life insurance policy loans
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False
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T/F Reduced paid-up insurance is a divided option
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False, nonforfeiture option
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T/F Settlement options are available on all insurance contracts
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True
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T/F The purpose of the suicide clause is to reduce adverse selection against the insurer
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True
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T/F Failure to pay a life insurance premium by the due date automatically results in a policy lapse
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False, grace period
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T/F All ownership rights in a policy are transferred through a collateral assignment
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False, limited assignment designed to provide security for a loan
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T/F Under a waiver-of-premium provision, if the insured becomes totally disabled before a stated age, all premiums coming due during the period of disability are waived
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True
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T/F Evidence of insurability must be demonstrated to purchase additional life insurance under a guaranteed purchase option
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False
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T/F If a policy loan has not been repaid by the time the insured dies, the amount paid to the beneficiary is reduced by the amount of the debt
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True
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T/F Cash value life insurance contracts include nonforfeiture options
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True
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Ownership clause
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policyowner makes major decisions, not the insured or beneficiary
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Entire Contract clause
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application and the policy constitute the complete agreement between the parties
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Incontestable clause
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insurer cannot deny claims after the policy has been in force for two years
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Suicide clause
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first two years of policy, insurer must only refund the premiums
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Misstatement of Age Clause
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misstatement, not misrepresentation, insurance proceeds are adjusted
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Grace Period
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policyowner has 31 days to pay overdue premium
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Reinstatement clause
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permits policyowner to reinstate lapsed policy, insurability must be established
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Policy loan provision
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can borrow cash value at interest
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Beneficiary designation
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policyowner selects the beneficiary
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Beneficiaries may be
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primary or contingent, revocable or irrevocable, specific or class
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Assignment clause
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policy rights may be fully or partially transferred through an assignment
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Absolute assignment
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transfers all interests in the policy
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Collateral assignment
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limited to amount of the outstanding debt
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Divided options: alternative methods of using policyowner (_____) dividends
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participating
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Dividend options
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cash, apply to premium, accumulate at interest, paid-up additions, one-year term insurances
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Nonforfeiture Options: alternatives for the cash value if a life insurance policy is ____
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surrendered
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Nonforfeiture options only for
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cash value policies
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Nonforfeiture options
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reduced paid-up insurance, cash, extended term insurance
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Settlement options are available for
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all policies
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Settlement options
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cash, fixed amount, interest ("parking"), fixed period, life income
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Waiver of premium rider
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disabled, don't have to pay premium
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Accidental death (double indemnity) rider
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2 times the face value will be paid to beneficiary, illogically