Know Everything About Insurance Policies - Insurance Quiz

In the case of misstatement of age, the insurance amount is adjusted to reflect the amount that would have been purchased if the correct age had been stated. This means that if someone provides an incorrect age when applying for insurance, the insurance company will adjust the coverage amount based on the premium that would have been paid at the correct age. Therefore, the statement is true.

The explanation for the given correct answer is that the law of large numbers states that as the number of observations or trials increases, the average or expected value of the outcomes will converge to the true probability or expected value. This means that even though individual events may appear random or unpredictable, when a large enough number of events are observed, a pattern or trend will emerge. Therefore, it is true that events which seem to occur by chance will ultimately follow a predictable pattern when a sufficient number of observations are made.

Riders are additional provisions that can be added to a life insurance policy to provide additional coverage for specific events or circumstances. These riders can include coverage for accidental death, disability, critical illness, or other specific situations. By adding riders to a policy, individuals can customize their coverage to better meet their specific needs and provide extra protection beyond the basic coverage offered by the policy.

The correct answer is the face amount adjusted for misstatement of age. This means that the insurance company will pay the agreed-upon face amount of the policy, but it will be adjusted based on the misstatement of age at the time of purchasing the policy. Since the insured individual was younger than stated, the face amount will be adjusted accordingly.

The basic settlement options for a policyholder are fixed amount, fixed period, life income, and interest on deposit. These options allow the policyholder to choose how they want to receive their settlement. A fixed amount option provides the policyholder with a specific amount of money at regular intervals. A fixed period option allows the policyholder to receive payments for a predetermined number of years. A life income option provides the policyholder with regular payments for the rest of their life. Lastly, an interest on deposit option allows the policyholder to keep their settlement amount with the insurance company and earn interest on it.

The extent of medical evidence required is determined by the age of the applicant and the proposed sum to be insured. This means that the older the applicant is and the higher the sum to be insured, the more medical evidence will be required. This is because older individuals may have a higher risk of health issues and may require more thorough medical evaluations. Additionally, a higher sum to be insured indicates a greater financial risk for the insurance company, so they may require more extensive medical evidence to assess the applicant's health and determine the level of risk involved.

Anti-selection refers to the phenomenon where individuals who are at a higher risk or have poor health are more likely to purchase insurance. In this context, the statement suggests that individuals in poor health are interested in buying insurance. This is true because people with poor health conditions are more likely to anticipate higher medical expenses and therefore have a greater need for insurance coverage. As a result, insurance companies may face a higher number of claims from these individuals, leading to increased costs and potential financial risks for the company.

The conservation of a life insurance policy is dependent on various factors, including the level of first-year commission, the agent's service-oriented attitude, and the use of effective needs selling. However, pressure selling is not a factor that affects the conservation of a life insurance policy. Pressure selling, which involves using aggressive tactics to persuade customers to purchase a policy, may lead to immediate sales but can result in dissatisfied customers who may cancel their policies in the long run. Therefore, pressure selling does not contribute to the conservation of a life insurance policy.

An individual on the life of his mistress does not have a legitimate insurable interest because there is no legal or financial relationship between them that would justify insuring the life of the mistress. Insurable interest typically requires a valid reason for insuring someone's life, such as a familial or financial connection. In this case, the individual's relationship with his mistress does not meet the criteria for a legitimate insurable interest.

A participating endowment is a type of insurance policy that offers guaranteed cash values as well as additional annual distributions. The insured receives the payout after a specified period of time. Therefore, the statement is correct as it accurately describes the features of a participating endowment policy.

Life insurance companies use the laws of probability to estimate future death rates among members of a given group. By analyzing data and trends, they can make predictions about the likelihood of death for individuals within a specific demographic or risk category. This information is crucial for calculating premiums and determining the financial risks associated with insuring a particular group of individuals.

In a group insurance, it is not assumed that every member of the group is insurable based on the number of hours worked each week. Insurability is determined by various factors such as age, health condition, and occupation. The number of hours worked per week is not the sole criteria for determining insurability in a group insurance policy. Therefore, the statement is false.

A supplemental term rider is an additional coverage that can be added to a permanent basic policy to increase the total life coverage. This rider provides extra protection for a specified period of time, usually until a certain age or for a specific number of years. By adding this rider, the policyholder can enhance their life insurance coverage beyond the base policy, ensuring that their loved ones receive a higher death benefit in the event of their passing.

The Disability Waiver of Premium Rider does not require the insured to die while disabled. This rider is designed to waive the premium payments on a life insurance policy if the insured becomes disabled before a stated date. It provides financial protection by ensuring that the policy remains in force even if the insured is unable to pay the premiums due to a disability.

If the interest on a policy loan is not paid at the policy anniversary, the insurance company may increase the present loan by the interest. This means that the unpaid interest will be added to the existing loan amount, resulting in a higher loan balance. This is a common practice by insurance companies to ensure that the unpaid interest is eventually collected from the policyholder.

To achieve his desire and protect his son from Estate Tax Liability, the father will have to appoint his son as the absolute assignee of the life insurance policy. By doing so, the father transfers ownership of the policy to his son, who will assume the premium payments. This ensures that the policy is no longer part of the father's estate and therefore not subject to estate taxes upon his death. The absolute assignee designation allows for the transfer of ownership without the possibility of revocation.

Total needs selling refers to the approach where an agent thoroughly assesses a prospect's financial requirements before presenting them with a suitable policy. This approach involves understanding the prospect's complete financial situation, including their income, expenses, assets, and liabilities. By doing so, the agent can tailor their sales pitch to address the prospect's specific needs and offer them a policy that provides comprehensive coverage. This approach ensures that the prospect receives personalized and relevant recommendations, increasing the likelihood of a successful sale.

A yearly renewable term life insurance policy generally specifies that premiums shall increase every time the policy is renewed. This means that when the policy reaches its renewal date, the policyowner will have to pay higher premiums compared to the previous term. This increase in premiums is typically due to factors such as the insured's age and potential changes in their health status. The purpose of this provision is to reflect the increased risk of insuring an individual as they grow older, making the policy more expensive to maintain over time.

The least important reason for requiring that insurance agents be licensed is to provide additional income to the government through license fees. While license fees may provide some income to the government, the primary purpose of licensing insurance agents is to establish and maintain high professional and ethical standards, protect the public, and give the government adequate control over the conduct of agents. The focus is on ensuring the competence and integrity of insurance agents, rather than generating revenue for the government.

This statement means that even if the insured person's death is misstated or misrepresented, it does not invalidate the insurance policy. In other words, if there is a mistake or falsehood regarding the cause or circumstances of the insured person's death, it does not nullify the policy. The insurance policy remains in effect regardless of any misstatement or misrepresentation regarding the insured person's death.

To change from a higher premium to a lower premium, the insured must present satisfactory evidence of insurability. This means that they need to provide proof that they are in good health and do not pose a high risk to the insurance company. This is important because the insurance company needs to assess the level of risk associated with the insured in order to determine the appropriate premium. Without satisfactory evidence of insurability, the insurance company may not be willing to lower the premium.

In the case of renewable term insurance, the policy owner has the option to renew the coverage based on a higher premium. This means that at the end of the term, the policy owner can choose to continue the insurance coverage by paying a higher premium. This allows the policy owner to extend the coverage for another term without having to go through the process of applying for a new policy. The insurance company agrees to continue coverage as long as the policy owner is willing to pay the increased premium amount.

The given statement is false because the cash value of a yearly renewable term policy does not grow very fast due to its short duration. Unlike permanent policies or endowment policies, a yearly renewable term policy does not have a cash value component that builds up over time. It is a pure protection policy that provides coverage for a specific term and does not accumulate any cash value.

Universal life insurance policies allow policyholders to adjust the level of premiums, the sum insured, and the cash values based on the investment performance and the amount of premium paid. This type of policy provides flexibility for the policyholder to customize their coverage and investment options. Participating whole life and participating endowment policies are different types of policies that may not offer the same level of flexibility as a universal life policy. Therefore, the correct answer is universal life.

The incontestability clause prevents the company from denying a claim after the policy has been in force for 2 years. This means that once the policy has been in effect for 2 years, the company cannot use any grounds to deny a claim, such as misrepresentation or fraud, that occurred prior to the 2-year mark. It provides a level of protection for the policyholder, ensuring that their claims will be honored after the specified time period.

The correct answer is that the insurance company immediately provides interim insurance that remains in effect until the policy is issued or the application is declined. This means that the man is already covered by insurance from the moment he paid the initial premium, even before the policy is officially issued or approved. This interim insurance provides temporary coverage until the application is processed and a final decision is made.

Both endowment life insurance and term life insurance provide life insurance protection for only the period of time specified in the policy contract. This means that the coverage will only be in effect for the duration stated in the policy, and once that period ends, the insurance protection also ends. This distinguishes these types of insurance from other types that may provide coverage for the insured's entire life or for a specific age range.

Government tax records are not a source of information for an insurance company pertaining to the insurability of an applicant. Tax records are primarily used by the government for tax purposes and do not provide relevant information about an individual's health, personal appearance, or property. Insurance companies rely on medical examination reports, agent's inspection reports, and the applicant's personal appearance to assess the risk and determine the insurability of an applicant.

The settlement options provision allows the policyholder to choose how the proceeds of the policy will be paid out after their death. The options typically include payment for the life of the insured, payment over a fixed period, and payments in fixed amounts until exhausted. However, the provision does not include the option of the proceeds being held by the company with interest payable to the beneficiary on request.

The insurance company generally has the right to rescind a life insurance policy if they discover at any time that the policy owner was actually a minor at the time of application. This is because minors are not legally capable of entering into a contract, and therefore the policy would be considered void from the beginning.

The correct answer is that the insured can add a third beneficiary at any time. This means that the insured has the flexibility to change or add beneficiaries to the policy as they see fit.

If the interest on a policy loan is not paid at the policy anniversary, the insurance company may increase the present loan by the interest. This means that the unpaid interest will be added to the principal amount of the loan, resulting in a higher loan balance. This is a common practice by insurance companies to ensure that they are compensated for the interest owed.

The application for a life insurance policy is not responsible for conveying the desire of the applicant to obtain insurance. The purpose of the application is to provide details about non-forfeiture options, furnish information for writing the insurance contract, and gather initial information about the applicant's insurability. The desire to obtain insurance is typically expressed through the act of submitting the application itself.

The largest amount of information requested in most life insurance applications is related to the insurability of the applicant. This includes information about the applicant's age, health history, lifestyle habits, occupation, and other factors that determine their eligibility for insurance coverage. Insurability refers to the likelihood of the applicant being accepted for insurance and the terms and conditions that will apply to their policy. This information is crucial for the insurance company to assess the risk associated with insuring the applicant and to determine the premium rates and coverage options that will be offered.

By purchasing a continuous-premium, whole life policy rather than a limited payment, whole life policy, the policyowner can get more insurance protection for the same annual premiums outlay. This means that they will receive a higher death benefit or coverage amount for the same amount of money they pay each year. This can be beneficial as it provides the policyowner with greater financial protection and security for their loved ones in the event of their death.

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When a policy owner elects the paid-up insurance option, it means that they have chosen to stop paying premiums. However, the policy will still continue, but with a reduced amount of coverage. This means that the policy owner will still have some level of protection, but it will be less than what they had originally purchased. The reduction in coverage is a trade-off for not having to pay any more premiums.

Extended term insurance is a provision in a permanent life insurance policy where the policyholder can discontinue paying premiums, but the full insurance coverage will be maintained for a specified period. This means that even if the premiums are no longer being paid, the policy will continue to provide the same level of coverage for a certain period of time. This can be beneficial for policyholders who are unable or no longer wish to continue paying premiums but still want to maintain their life insurance coverage.

This statement is false. An endowment policy at age 65 with a premium payable for a limited period of 20 years does not pay the full amount after 20 years. An endowment policy typically pays a lump sum amount upon the death of the policyholder or at a specified maturity date, whichever comes first. In this case, the policy would pay out either upon the policyholder's death or at the end of the 20-year premium-paying period, whichever occurs earlier.

The statement is false because the policy is still in force for the full face amount and will remain in force for a further period of four years and 118 days, but it does not mention anything about the payment of premiums. The statement also does not mention anything about availing the paid-up insurance option. Therefore, it cannot be concluded that the policy has availed of the paid-up insurance option.

The given answer correctly states that insurance protection will be limited to a specified period for both endowment and term life policies. This means that the policy will only provide coverage for a specific duration and will expire once that period is over. This is in contrast to permanent life insurance policies, such as whole life or universal life, which provide coverage for the entire lifetime of the insured individual.

A non-forfeiture option is typically chosen when a policyowner stops paying premiums for a whole life or endowment policy. This option allows the policyowner to receive some value from the policy, even if they can no longer afford to pay the premiums. By selecting a non-forfeiture option, the policyowner can either receive a reduced paid-up policy, where the coverage amount is decreased but remains in force, or they can receive a cash surrender value, where they receive a lump sum payment in exchange for surrendering the policy. This option provides some financial protection for the policyowner in case they are unable to continue making premium payments.

Paid-up additions are additional insurance policies that are purchased using dividends from a whole life insurance policy. These additions do not affect the loan or cash value of the policy. Instead, they increase the death benefit and cash value of the policy. Therefore, the correct answer is "Don't affect the loan or cash value of the policy."

In a case where the premium has not been paid and the cash value has been exhausted, the policy cannot avail of the grace period. The grace period is a specified period after the premium due date during which the policyholder can make the payment without the policy lapsing. However, if the premium has not been paid and the cash value has been exhausted, the policy will likely lapse and the grace period will no longer be applicable. Therefore, the statement is false.

If an irrevocable beneficiary has been designated the insured without their permission, it suggests that the insured may not have control over the policy or its benefits. In such a situation, the insured may choose to discontinue premium payments as they may not want to continue investing in a policy that they have no control over. Discontinuing premium payments would allow the insured to stop paying for a policy that they did not consent to.

Based on the given information, the owner of the endowment policy wants to provide his church with a monthly donation for as long as the church exists. The best option in this scenario would be the "Interest option." This option allows the owner to receive regular interest payments from the policy while keeping the principal intact. It ensures a steady income for the church without depleting the policy's value. The other options, such as the fixed income option, periodic annuity option, and life annuity option, may not be suitable as they either involve regular payments that could exhaust the policy or do not provide the desired long-term support for the church.

If the applicant for life insurance fails to disclose or misrepresents a material fact, the contract is considered valid unless the insurer can prove fraud. This means that if the insurer issues a policy and delivers it to the applicant, the contract is initially valid. However, if the insurer can provide evidence of fraud on the part of the applicant, such as intentionally providing false information, the contract can be voided. Otherwise, the contract remains valid.

The statement is false because in most life insurance applications, the largest amount of information requested is not data that identifies the applicant. Instead, the largest amount of information requested typically includes medical history, lifestyle habits, financial information, and beneficiary details. While some identifying information may be required, it is not the primary focus of the application process.

Non-forfeiture provisions in whole life and endowment policies ensure that the policyowner will still receive certain minimum benefits even if certain conditions change. Specifically, the non-forfeiture values guarantee that any guaranteed policy values will still belong to the policy owner, even if premium payments are discounted. This means that even if the policyholder is unable to pay the full premium amount, they will still retain the guaranteed policy values.

In certain situations, when there are multiple parties making conflicting claims on the same insurance proceeds, a company may file interpleader actions with a Court of Law. This legal remedy is used to resolve the issue of conflicting claims and determine the rightful recipient of the insurance proceeds. It allows the court to decide and settle the dispute between the claimants.