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One requirement a policyowner must meet in order to reinstate a life insurance policy is to

• a. Agree to apply future policy dividends toward the payment of premium

• b. Assign the policy collaterally to the insurance company for the amount of the overdue premiums plus any outstanding policy loan

• c. Pay future premiums at the rate for his or her attained age at the time of reinstatement

• d. Furnish evidence of insurability which satisfactory to the insurance company

Answer explanation

Reinstatement is the process by which an insurance company puts back into force a policy that has lapsed for non-payment of premiums. If the policyowner chooses to reinstate a lapsed policy, he must do the following: • Fill-out an application for reinstatement. • Pay all back premiums plus interest. • Present satisfactory evidence of insurability. • Reinstate within three to five years from the date of lapsation.

If the person whose life is insured dies during the grace period and the premiums was not paid, the amount that the insurance company will pay to the beneficiary is usually the

• a. The face amount of the policy minus the unpaid premium

• b. Cash surrender value of the policy minus the unpaid premium

• c. Full face amount of the policy

• d. Total premiums paid up to the data of birth plus interest

Answer explanation

If a policyowner fails to pay his premiums on the due date, the grace period protects the policy from lapsing. He is allowed a grace period of 30 or 31 days. Policyowners may keep their policies if they pay their premiums anytime during the grace period. If an insured dies during the grace period and the premium has not been paid, the premium due is deducted from the life insurance proceeds of the beneficiary

Life insurance guarantees cash benefits for all the following except

• a. Mortgage

• b. Clean-up fund

• c. Family dependency period income

• d. Educational fund

Answer explanation

Life insurance have benefits that are explicitly intended to cover for mortgage, funeral expenses, and family income. Although purchasing life insurance may initially be for the purpose of having an educational fund as well, this may change depending on the situation in the future. That is, it may no longer be needed if the child is granted a scholarship, or the parents have the means to pay for the school fees. This may be used as a retirement fund instead.

Under an endowment policy, if the person whose life is insured survives to the end of the period stated in the policy, the

• a. Face amount of the policy will be paid

• b. The extended term insurance option will go into effect

• c. Policy will terminate without value

• d. Policy will automatically be converted to paid-up whole policy

Answer explanation

An endowment policy provides protection for a specified period. It provides the face amount once the insured is alive upon maturity of the policy. This benefit can be used to help address financial needs such as retirement or education.

Life insurance contributes directly to the welfare and progress of the country by

• a. Accumulating capital for investment in commerce and industry

• b. Partially relieving the community of the care of dependents

• c. Encouraging provision for the future

• d. All of the above

Answer explanation

Life insurance contributes directly to the welfare and progress of the country by:

a. Through the benefits of life insurance, the policyowner will have the means to place his money in different investment securities.

b. The life insurance proceeds will provide for the basic needs of the dependents thereby maintaining the family’s lifestyle.

c. Life insurance will prepare the client for life’s uncertainties such as untimely death, disability, and critical illness. It will also address the client’s financial needs – protection, education, retirement, and large future expenses.

A yearly renewable term life insurance policy generally specifies that

• a. Premium shall increase every time the policy is renewed

• b. Cash values will increase for as long as the policy is in force

• c. Evidence of insurability shall be required every renewal

• d. The policy owner may renew the policy only once

Answer explanation

Policy owners can renew their policies for an extended period so long as they do this before the term period expires. A term policy can be renewable for a certain number of times only or until a specified age. Each time the policy is renewed, the premium becomes higher based on the policyowner’s attained age.

Which statement is false when the owner borrows on a policy?

• a. Dividend will be reduced by the amount of the current interest

• b. The proceeds of the policy will be reduced by the amount of unpaid loan plus interest, if insured dies

• c. The policy will lapse if, after reasonable notice the indebtedness exceeds the cash value

• d. If a large loan is taken after the policy has been in force for some years, the interest cost may exceed the premium

Answer explanation

This statement is false; therefore, it is the correct answer. Dividends are not affected when the policyowner borrows on a policy.

All of the following are Standard Provision of a life insurance policy except

• a. A grace period clause

• b. An entire contract clause

• c. An automatic premium loan clause

• d. A misstatement of age clause

Answer explanation

The Automatic Premium Loan Clause is not part of the Standard Policy Provision. This falls under the Non-Forfeiture Options that is applied when the policyowner fails to pay his premium on time.

All of the following term policies can be sold as a basic policy contract except

• a. Six months interim term

• b. Decreasing term

• c. Ten-year term

• d. Yearly renewable term

Answer explanation

An interim term is not a basic insurance policy. It insures an individual temporarily while the life insurance application is still being underwritten or waiting to be approved. It is designed to remove any gap where an individual would otherwise have been without coverage.

A housewife without gainful employment applies for P500,000 life coverage. Which of the following should the agent do?

• a. Tell her she has no need for it

• b. Examine the adequacy of the husband’s insurance coverage

• c. Suggest she doubles the amount

• d. Be grateful

Answer explanation

The agent should determine if the husband has adequate insurance coverage. If so, it must be equal to or greater than the insurance coverage that the wife is applying for. The source of the husband’s income must be established for KYC and EDD purposes in adherence to Financial Underwriting. This is also to ensure that the husband’s insurance is commensurate to the sum assured and annual premium of the wife.