Chapter 13 Life Insurance Policy, Provisions, Options And Ride

1. Jack purchased a 15-year level term life insurance policy with a face amount of $100,000. The policy contained an accidental death rider, offering a double indemnity benefit. Jack was severely injured in an auto accident, and after 12 weeks of hospitalization, he died from the injuries. What amount would his beneficiary receive as a settlement?

$0

$100,000 plus the total of paid premiums

$200,000

$100,000

Jack's beneficiary would receive $200,000 as a settlement. This is because the accidental death rider in his life insurance policy offers a double indemnity benefit, meaning that in the event of accidental death, the face amount of the policy is doubled. Since Jack's policy had a face amount of $100,000, the accidental death rider would increase the settlement amount to $200,000.

Explanation

Jack's beneficiary would receive $200,000 as a settlement. This is because the accidental death rider in his life insurance policy offers a double indemnity benefit, meaning that in the event of accidental death, the face amount of the policy is doubled. Since Jack's policy had a face amount of $100,000, the accidental death rider would increase the settlement amount to $200,000.

2. An insured pays $1,200 annually for her life insurance premium. The insured applies this year's $300 worth of accumulated dividends to the next year's premium, thus reducing it to $900. What option does this describe?

Cash option

Flexible Premium.

Accumulation at Interest

Reduction of Premium

This scenario describes the option of "Reduction of Premium." The insured applies the accumulated dividends of $300 to the next year's premium, reducing it from $1,200 to $900. This option allows the insured to use their dividends to lower their premium payments for the following year.

Explanation

This scenario describes the option of "Reduction of Premium." The insured applies the accumulated dividends of $300 to the next year's premium, reducing it from $1,200 to $900. This option allows the insured to use their dividends to lower their premium payments for the following year.

3. Which of the following is guaranteed to the policy owner through Non-Forfeiture values?

A beneficiary has the right to choose a settlement option

Dividends on the policy are paid yearly.

The cash value in a policy belongs to the insured even if the policy lapses or is surrendered

The premiums on their policy will never increase

The cash value in a policy belongs to the insured even if the policy lapses or is surrendered. This means that even if the policy is terminated or surrendered by the policy owner, they will still have access to the accumulated cash value within the policy. This provides a guarantee to the policy owner that they will not lose the value they have built up in the policy, regardless of its status.

Explanation

The cash value in a policy belongs to the insured even if the policy lapses or is surrendered. This means that even if the policy is terminated or surrendered by the policy owner, they will still have access to the accumulated cash value within the policy. This provides a guarantee to the policy owner that they will not lose the value they have built up in the policy, regardless of its status.

4. Which of the following statements is true about a policy assignment?

It is valid during the insured’s lifetime only, because the death benefit is payable to the named beneficiary.

It transfers the owner’s rights under the policy to the extent expressed in the assignment form

It is the same as a beneficiary designation

It permits the beneficiary to designate the person or persons to receive the benefits

A policy assignment is a legal transfer of the owner's rights to someone else, as specified in the assignment form. This means that the new assignee has the rights and responsibilities of the policy owner to the extent expressed in the assignment form. It is different from a beneficiary designation, where the beneficiary is only entitled to receive the benefits of the policy upon the insured's death. The assignment remains valid during the insured's lifetime, as the death benefit is payable to the named beneficiary.

Explanation

A policy assignment is a legal transfer of the owner's rights to someone else, as specified in the assignment form. This means that the new assignee has the rights and responsibilities of the policy owner to the extent expressed in the assignment form. It is different from a beneficiary designation, where the beneficiary is only entitled to receive the benefits of the policy upon the insured's death. The assignment remains valid during the insured's lifetime, as the death benefit is payable to the named beneficiary.

5. If a policy holder neglects to select a Non-Forfeiture Option, which one is automatically selected by the insurance company?

Reduced paid-up

Cash.

Extended term

Interest

If a policy holder neglects to select a Non-Forfeiture Option, the insurance company automatically selects the Extended term option. This means that the policy will continue for a specified period of time without the need for any further premium payments. The death benefit will also remain the same during this extended term. This option allows the policy holder to maintain coverage without having to pay additional premiums, but it does not accumulate any cash value like the other options.

Explanation

If a policy holder neglects to select a Non-Forfeiture Option, the insurance company automatically selects the Extended term option. This means that the policy will continue for a specified period of time without the need for any further premium payments. The death benefit will also remain the same during this extended term. This option allows the policy holder to maintain coverage without having to pay additional premiums, but it does not accumulate any cash value like the other options.

6. Which settlement option provides the largest monthly income payments?

Life income with Period Certain.

Fixed Amount

Life Income

Joint Survivor

The fixed amount settlement option provides the largest monthly income payments. This option guarantees a fixed amount of money to be paid out each month, regardless of how long the recipient lives. This is different from the other options, such as life income, which may provide larger payments initially but can decrease or stop altogether if the recipient lives longer than expected. The fixed amount option is a more stable and predictable choice for receiving a consistent monthly income.

Explanation

The fixed amount settlement option provides the largest monthly income payments. This option guarantees a fixed amount of money to be paid out each month, regardless of how long the recipient lives. This is different from the other options, such as life income, which may provide larger payments initially but can decrease or stop altogether if the recipient lives longer than expected. The fixed amount option is a more stable and predictable choice for receiving a consistent monthly income.

7. The Waiver of Cost rider is found in what type of insurance?

Whole Life

Joint and Survivor.

Juvenile Life

Universal Life

The Waiver of Cost rider is found in Universal Life insurance. This rider allows the policyholder to waive the premium payments if they become disabled and unable to work. It ensures that the policy remains in force and the benefits are still available even if the policyholder cannot afford to pay the premiums due to their disability.

Explanation

The Waiver of Cost rider is found in Universal Life insurance. This rider allows the policyholder to waive the premium payments if they become disabled and unable to work. It ensures that the policy remains in force and the benefits are still available even if the policyholder cannot afford to pay the premiums due to their disability.