Missed Insurance Questions

Which is TRUE about the cash surrender nonforfeiture option?

• After the cash surrender, the insured is covered for a grace period of one month.

• The policy remains active for some time after the policyholder opts for cash surrender.

• The policyholder receives the original cash value of the policy.

• Funds exceeding the premium paid are taxable as ordinary income.

Answer explanation

The insurers surrender the policy at its current cash value. Only any excess of value is taxable as income. Once the policyholder opts for cash surrender, the policy is immediately inactive.

An insured 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. The insured was severely injured in an auto accident, and after 10 weeks of hospitalization, died from the injuries. How much will the beneficiary receive from the policy?

• $0

• $100,000

• $200,000

• $100,000 plus the total of paid premiums

Answer explanation

The beneficiary will most likely receive twice the face value of the policy, since the insured's fatal injuries were caused by an accident and he died within the 90-day benefit limit stipulated in most policies.

Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?

• Term insurance only

• Permanent insurance only

• Universal life insurance only

• Any form of life insurance

Answer explanation

Any form of Life insurance may be used to fund a buy-sell agreement.

What type of premium do both Universal Life and Variable Universal Life policies have?

• Decreasing

• Increasing

• Flexible

• Level fixed

Answer explanation

Variable universal life, like universal life itself, has a flexible premium that can be increased or decreased as the policyowner chooses, as long as there is enough value in the policy to fund the death benefit.

The policyowner pays for her life insurance annually. Until now, she has collected a nontaxable dividend check each year. She has decided that she would rather use the dividends to help pay for her next premium. What option would allow her to do this?

• Cash option

• Reduction of premium

• Paid-up addition

• Accumulation at interest

Answer explanation

The Reduction of Premium option allows the policyholder to apply policy dividends toward the next year's premium. The dividend is subtracted from the premium amount, yielding the new premium due for the next year.

Under a 20-pay whole life policy, in order for the policy to pay the death benefit to a beneficiary, the premiums must be paid

• Until the policyowner's age 100, when the policy matures.

• For 20 years or until death, whichever occurs first.

• Until the policyowner reaches age 65.

• For at least 20 years.

Answer explanation

Under a 20-pay life policy, all of the premiums necessary to cause the policy to endow at the insured's age 100 are paid during the first 20 years; however, if the insured dies before all of the planned premiums are paid, the beneficiary will receive the face amount as a death benefit.

The authority granted to an agent through the agent's contract is referred to as

• Absolute authority.

• Express authority.

• Apparent authority.

• Implied authority.

Answer explanation

Express powers are written into the contract between the insurer and the agent.

All other factors being equal, which of the following individuals would receive the largest monthly check from a single premium straight life immediate annuity?

• A 50-year-old woman

• A 60-year-old man

• A 60-year-old woman

• 
  A 50-year-old man

Answer explanation

Among other factors, the annuity income amount is based upon the annuitant’s age and gender. An annuitant whose life expectancy is shorter will have the largest income installments. In this example, an older man will have the shortest life expectancy.

All of the following are requirements for life insurance illustrations EXCEPT

• They may only be used as approved.

• They must identify nonguaranteed values.

• They must differentiate between guaranteed and projected amounts.

• They must be part of the contract.

Answer explanation

An illustration may not be altered by an agent and must clearly state that it is not part of the contract. It is legal to list nonguaranteed values in the contract, but they must be specifically labeled as projected, not guaranteed values.

An insured misstates her age at the time the life insurance application is taken. This misstatement may result in

• Automatic lapse.

• Recession of the policy.

• Adjustment in the amount of death benefit.

• No change whatsoever.

Answer explanation

If the applicant has misstated his or her age or gender on the application, the insurer, in the event of a claim, is allowed under this provision to adjust the benefits to an amount that the premium at the correct age or gender would have otherwise purchased.