Question 1

The transfer of all ownership rights in a life insurance policy can be accomplished through a(n)

Accepted Answer

A) absolute assignment. 
B) irrevocable beneficiary designation. 
C) incontestable clause. 
D) participating-policy provision. 
A) absolute assignment. 
B) irrevocable beneficiary designation. 
C) incontestable clause. 
D) participating-policy provision.

Question 2

Cal purchased a whole life policy 6 years ago.The policy requires annual premium payments.Cal forgot to pay the premium that was due 2 weeks ago.He wonders if his life insurance is still in force.Which life insurance policy provision is designed to keep the policy in force for a short time even if the premium payment is late?

Accepted Answer

A) waiting period 
B) grace period 
C) guaranteed purchase option 
D) reinstatement clause 
A) waiting period 
B) grace period 
C) guaranteed purchase option 
D) reinstatement clause

Question 3

Which of the following is a common dividend option found in a participating life insurance policy?

Accepted Answer

A) reduced paid-up insurance 
B) fixed period 
C) paid-up additions 
D) life income 
A) reduced paid-up insurance 
B) fixed period 
C) paid-up additions 
D) life income

Question 4

Which of the following statements about beneficiary designations is (are)true?
I.The primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured.
II.If a revocable beneficiary designation is used,the policyowner must obtain the beneficiary's permission to change the beneficiary.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 5

Lionel purchased a $200,000 ordinary life insurance policy when he was 25 years old and had significant life insurance needs.Now Lionel is 50.His mortgage is almost paid-off and his children have left home and are financially independent.Lionel no longer wants to pay premiums,but he would like to have some permanent life insurance in force.Which nonforfeiture option could Lionel employ to meet these objectives?

Accepted Answer

A) cash value 
B) reduced paid-up insurance 
C) paid-up additions 
D) extended term insurance 
A) cash value 
B) reduced paid-up insurance 
C) paid-up additions 
D) extended term insurance

Question 6

Which of the following statements is (are)true concerning the automatic premium loan provision?
I.Unlike other policy loans,interest is not charged on automatic premium loans.
II.The basic purpose of an automatic premium loan is to prevent a life insurance policy from lapsing.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 7

Which of the following statements about the grace period in a whole life insurance contract is (are)true?
I.The purpose of the grace period is to prevent the policy from lapsing by giving the policyowner additional time to pay an overdue premium.
II.If the insured dies during the grace period,the death benefit is reduced by 50 percent.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 8

The practice of buying the life insurance policy of a terminally ill insured at a discount is referred to as a

Accepted Answer

A) collateral assignment. 
B) viatical settlement. 
C) catastrophic illness conversion. 
D) grace period transaction. 
A) collateral assignment. 
B) viatical settlement. 
C) catastrophic illness conversion. 
D) grace period transaction.

Question 9

Life insurance policy proceeds can be paid to a trustee upon the death of the insured.All of the following statements concerning payment of proceeds to a trustee are true EXCEPT

Accepted Answer

A) Use of a trustee provides flexibility with regard to the timing and amount of the payments. 
B) Trustees are often used when the beneficiary is a minor child or an adult with diminished mental capacity. 
C) The trustee is not permitted to accept a fee for rendering services. 
D) The trustee does not guarantee investment results. 
A) Use of a trustee provides flexibility with regard to the timing and amount of the payments. 
B) Trustees are often used when the beneficiary is a minor child or an adult with diminished mental capacity. 
C) The trustee is not permitted to accept a fee for rendering services. 
D) The trustee does not guarantee investment results.

Question 10

Which of the following statements about life insurance settlement options is true?

Accepted Answer

A) Under the fixed period option,the beneficiary normally has the right to make partial withdrawals in case of emergency. 
B) Under the fixed period option,any remaining proceeds revert to the insurer if the beneficiary dies before the end of the fixed period. 
C) Under the fixed amount option,the beneficiary can be given the right to increase or decrease the fixed amount. 
D) Under the fixed amount option,any interest credited in excess of the guaranteed rate increases the amount of each periodic payment. 
A) Under the fixed period option,the beneficiary normally has the right to make partial withdrawals in case of emergency. 
B) Under the fixed period option,any remaining proceeds revert to the insurer if the beneficiary dies before the end of the fixed period. 
C) Under the fixed amount option,the beneficiary can be given the right to increase or decrease the fixed amount. 
D) Under the fixed amount option,any interest credited in excess of the guaranteed rate increases the amount of each periodic payment.

Question 11

Which of the following statements is (are)true concerning settlement options?
I.A straight life annuity provides the lowest amount of periodic income of all the life income options.
II.Fixed-period and fixed-amount are life income options.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 12

Disadvantages of life insurance settlement options include which of the following?
I.Higher yields can often be obtained elsewhere.
II.Life income options have limited usefulness at younger ages.

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 13

Sources of life insurance dividends include which of the following?
I.Excess interest earned on the assets necessary to maintain legal reserves
II.Favorable mortality experience

Accepted Answer

A) I only 
B) II only 
C) both I and II 
D) neither I nor II 
A) I only 
B) II only 
C) both I and II 
D) neither I nor II

Question 14

Which of the following statements about the entire contract clause is true?

Accepted Answer

A) It allows the insurer to change the policy terms without the insured's consent. 
B) It specifies that all statements in the application are considered warranties. 
C) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties. 
D) It prevents the insurance company from contesting a policy after it has been in force for two years during the lifetime of the insured. 
A) It allows the insurer to change the policy terms without the insured's consent. 
B) It specifies that all statements in the application are considered warranties. 
C) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties. 
D) It prevents the insurance company from contesting a policy after it has been in force for two years during the lifetime of the insured.

Question 15

Marcus is concerned that inflation will erode the purchasing power of the face value of his life insurance policy.His agent suggested that Marcus add a provision that allows him to purchase one-year term insurance equal to the percentage change in the consumer price index without having to demonstrate insurability.This provision is called a(n)

Accepted Answer

A) cost-of-living rider. 
B) guaranteed purchase option. 
C) accelerated death benefit rider. 
D) waiver-of-premium rider. 
A) cost-of-living rider. 
B) guaranteed purchase option. 
C) accelerated death benefit rider. 
D) waiver-of-premium rider.

Question 16

Which of the following statements is true regarding an automatic premium loan provision?

Accepted Answer

A) Its purpose is to prevent a policy from lapsing because of nonpayment of premium. 
B) Interest does not have to be paid on an automatic premium loan. 
C) If the provision is used,the insured must show evidence of insurability to resume regular premium payments. 
D) An automatic premium loan,unlike a regular policy loan,is forgiven if the insured dies before the loan is repaid. 
A) Its purpose is to prevent a policy from lapsing because of nonpayment of premium. 
B) Interest does not have to be paid on an automatic premium loan. 
C) If the provision is used,the insured must show evidence of insurability to resume regular premium payments. 
D) An automatic premium loan,unlike a regular policy loan,is forgiven if the insured dies before the loan is repaid.

Question 17

Beth purchased a participating life insurance policy 6 years ago.Her life insurance needs have increased,but she has developed a medical condition that makes it impossible for her to purchase more life insurance at affordable premiums.Which dividend option makes sense for Beth to use given her medical condition?

Accepted Answer

A) cash 
B) apply to premium 
C) dividend accumulations 
D) paid-up additions 
A) cash 
B) apply to premium 
C) dividend accumulations 
D) paid-up additions

Question 18

All of the following statements about the requirements to reinstate a lapsed life insurance policy are true EXCEPT

Accepted Answer

A) Evidence of insurability is required. 
B) The lapse must have resulted from other than the surrender of the policy for its cash value. 
C) All overdue premiums must be paid along with interest from the premium due dates. 
D) There is no time limit on when the policy may be reinstated. 
A) Evidence of insurability is required. 
B) The lapse must have resulted from other than the surrender of the policy for its cash value. 
C) All overdue premiums must be paid along with interest from the premium due dates. 
D) There is no time limit on when the policy may be reinstated.

Question 19

Which of the following statements about the guaranteed purchase option is true?

Accepted Answer

A) An insured usually has 24 months to exercise an option. 
B) The option cannot be exercised until the insured reaches age 40. 
C) The amount of life insurance that can be purchased at each option is limited to 10 percent of the face amount of the basic policy. 
D) The additional coverage can be purchased without demonstrating insurability. 
A) An insured usually has 24 months to exercise an option. 
B) The option cannot be exercised until the insured reaches age 40. 
C) The amount of life insurance that can be purchased at each option is limited to 10 percent of the face amount of the basic policy. 
D) The additional coverage can be purchased without demonstrating insurability.

Question 20

The cost-of-living rider typically bases increases in the policy face value on changes in the

Accepted Answer

A) gross national product. 
B) interest rate for short-term U.S.government securities. 
C) consumer price index. 
D) national wage level. 
A) gross national product. 
B) interest rate for short-term U.S.government securities. 
C) consumer price index. 
D) national wage level.

Exam 12: Life Insurance and Contractual Provisions

The transfer of all ownership rights in a life insurance policy can be accomplished through a(n)

Which of the following is a common dividend option found in a participating life insurance policy?

Which of the following statements is (are)true concerning the automatic premium loan provision? I.Unlike other policy loans,interest is not charged on automatic premium loans. II.The basic purpose of an automatic premium loan is to prevent a life insurance policy from lapsing.

The practice of buying the life insurance policy of a terminally ill insured at a discount is referred to as a

Life insurance policy proceeds can be paid to a trustee upon the death of the insured.All of the following statements concerning payment of proceeds to a trustee are true EXCEPT

Which of the following statements about life insurance settlement options is true?

Which of the following statements is (are)true concerning settlement options? I.A straight life annuity provides the lowest amount of periodic income of all the life income options. II.Fixed-period and fixed-amount are life income options.

Disadvantages of life insurance settlement options include which of the following? I.Higher yields can often be obtained elsewhere. II.Life income options have limited usefulness at younger ages.

Sources of life insurance dividends include which of the following? I.Excess interest earned on the assets necessary to maintain legal reserves II.Favorable mortality experience

Which of the following statements about the entire contract clause is true?

Which of the following statements is true regarding an automatic premium loan provision?

All of the following statements about the requirements to reinstate a lapsed life insurance policy are true EXCEPT

Which of the following statements about the guaranteed purchase option is true?

The cost-of-living rider typically bases increases in the policy face value on changes in the

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