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FL Life & Health practice questions

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Question 1Insurance Foundations and Principles of Life and Health Insurance

Which of the following best describes the principal function of insurance?

  1. Guaranteeing that a business will always earn a profit
  2. Eliminating every possibility of financial loss for the policyholder
  3. Preventing the insured event from ever occurring
  4. Shifting financial risk to a large pool of policyholders Correct answer.

Explanation

Insurance works by having many people contribute premiums so that the losses of the few are spread across the group. Risk is transferred from the individual to the insurer; it is not eliminated. The insurer then uses the law of large numbers to predict aggregate losses and set premiums.

Question 2Insurance Foundations and Principles of Life and Health Insurance

In life insurance, when must insurable interest exist?

  1. At the time the death benefit is paid
  2. Only when the beneficiary is a family member
  3. Continuously for the entire life of the policy
  4. At the time the policy is applied for and issued Correct answer.

Explanation

For life insurance, insurable interest is tested at policy inception only, because the policy is not indemnity-based and the insured's circumstances may change later. A policy validly issued remains valid even if the relationship later ends, such as after a divorce.

Question 3Insurance Foundations and Principles of Life and Health Insurance

Which type of risk is generally considered insurable by a private insurer?

  1. A risk that is certain to produce a loss at some point
  2. Risk created intentionally to gain a benefit
  3. Speculative risk, such as investing in the stock market
  4. Pure risk, which involves only loss or no loss Correct answer.

Explanation

Insurers accept pure risk, where the only possible outcomes are loss or no loss, because the losses are accidental and measurable. Speculative risk involves the chance of gain as well as loss and is generally not insurable. Intentional or certain losses are excluded by the requirement of fortuity.

Question 4Insurance Foundations and Principles of Life and Health Insurance

Under the principle of indemnity, a medical expense policy generally does which of the following?

  1. Pays a predetermined amount that is unrelated to the actual medical charges incurred
  2. Pays the beneficiary a stated sum whenever the insured person dies
  3. Restores the insured financially to approximately the pre-loss position Correct answer.
  4. Allows the insured to profit when an illness results in a covered hospital stay

Explanation

Indemnity means the insured is made whole for the actual loss and should not collect more than that loss. Medical expense coverage therefore reimburses covered charges up to the policy limit rather than paying a profit. Life insurance is valued rather than indemnity coverage because a human life has no measurable dollar value.

Question 5Insurance Foundations and Principles of Life and Health Insurance

As an insurer covers a larger number of similar, independent risks, which outcome is expected?

  1. The need to collect premium from each policyholder disappears
  2. The insurer can safely disregard its underwriting guidelines
  3. Actual loss experience becomes more predictable Correct answer.
  4. Each individual policyholder faces a greater chance of loss

Explanation

The law of large numbers holds that as the number of similar exposure units increases, actual results move closer to the expected results. This greater predictability allows the insurer to set rates that are adequate, equitable, and not excessive. It does not change any single insured's probability of loss.

Question 6Insurance Foundations and Principles of Life and Health Insurance

Adverse selection is best described as which of the following?

  1. The tendency of those most likely to have a loss to seek coverage Correct answer.
  2. A policyholder who becomes careless about safety after buying coverage
  3. A producer who misrepresents the policy's terms in order to make a sale
  4. An insurer deciding to cancel a policy immediately after the first claim is filed

Explanation

Adverse selection occurs when applicants who represent a higher-than-average risk are the most eager to obtain insurance. Insurers counter it through underwriting, waiting periods, and accurate risk classification so that premiums reflect expected losses. If it goes unchecked, the risk pool deteriorates and rates become inadequate.

Question 7Insurance Foundations and Principles of Life and Health Insurance

Which situation is an example of moral hazard?

  1. A healthy applicant who declines to purchase life insurance coverage
  2. A producer who completes continuing education requirements each year
  3. An insured stops maintaining a property after insuring it Correct answer.
  4. An insurer that charges a higher premium to applicants who smoke

Explanation

Moral hazard is a change in behavior caused by the existence of insurance, such as becoming careless about loss prevention. Because the insurer bears the financial consequence, the insured has less incentive to protect the property. Underwriting and policy conditions, such as deductibles, are used to reduce this tendency.

Question 8Insurance Foundations and Principles of Life and Health Insurance

In insurance terminology, a hazard is which of the following?

  1. The individual named to receive the policy proceeds at the insured's death
  2. The amount an insurer pays on a covered claim after the deductible is met
  3. A condition that increases the chance of a loss Correct answer.
  4. The specific event that causes a loss, such as a fire or an accident

Explanation

A hazard is a condition that increases the likelihood or severity of a loss, such as poor housekeeping or a health impairment. The event that actually produces the loss, such as a fire, is the peril. Keeping hazards and perils distinct matters because policies usually insure against named perils while underwriting evaluates hazards.

Question 9Insurance Foundations and Principles of Life and Health Insurance

A life insurance policy is said to be an aleatory contract because which of the following is true?

  1. Only the insurer makes a legally enforceable promise
  2. Both parties must perform their duties at exactly the same time
  3. The dollar amounts exchanged by the parties may be unequal Correct answer.
  4. Its terms are drafted by the insurer without negotiation

Explanation

Aleatory means the amounts exchanged depend on chance, so the premium paid may be far smaller than the benefit paid, or no benefit may ever be paid. This distinguishes insurance from contracts where the exchange is intended to be equal. The unequal exchange is possible because the payment depends on an uncertain event.

Question 10Insurance Foundations and Principles of Life and Health Insurance

Because an insurance policy is a contract of adhesion, which result follows?

  1. The contract becomes void if the insured did not read the policy
  2. Ambiguities are interpreted in favor of the insured Correct answer.
  3. The insurer may change the policy terms at any time without notice
  4. The insured is free to rewrite any provision that seems unfair

Explanation

A contract of adhesion is drafted by one party, the insurer, and offered on a take-it-or-leave-it basis to the applicant. Because the insured had no hand in drafting the language, courts construe ambiguous wording against the drafter. This rule gives the insured the benefit of the doubt when language is genuinely unclear.

Question 11Insurance Foundations and Principles of Life and Health Insurance

In a life insurance contract, the applicant's consideration consists of which of the following?

  1. The insurer's promise to pay a death benefit
  2. The medical examination required by the underwriter
  3. The premium paid plus the representations in the application Correct answer.
  4. Only the statements the applicant makes in the application

Explanation

Consideration is what each party gives up to make the contract binding. On the applicant's side it is the premium payment together with the answers given in the application, which are incorporated into the contract. The insurer's consideration is its promise to pay benefits when a covered loss occurs.

Question 12Insurance Foundations and Principles of Life and Health Insurance

A policyholder chooses a $1,000 deductible on a health insurance policy. The deductible represents which of the following?

  1. An arrangement that removes the need to pay premiums
  2. A transfer of the entire cost of care to the insurer
  3. Coverage that pays benefits before the deductible is satisfied
  4. Retention of that portion of the risk by the insured Correct answer.

Explanation

A deductible is the amount the insured pays out of pocket before benefits begin, so the insured retains that portion of the risk. Retaining a small, predictable loss can lower the premium compared with transferring the whole exposure. The insurer then transfers the risk for losses above the deductible up to the policy limits.

Question 13Insurance Foundations and Principles of Life and Health Insurance

An insurer's agent knowingly accepts premium payments well after the grace period has expired and continues to do so for several months. If the insurer later denies coverage because of that late payment, the insurer is most likely barred by which doctrine?

  1. Subrogation
  2. Waiver and estoppel Correct answer.
  3. The principle of indemnity
  4. The parol evidence rule

Explanation

Waiver is the voluntary surrender of a known right, and estoppel prevents a party from asserting a right after its conduct has led another to rely on it. By repeatedly accepting late premiums, the insurer waives the prompt-payment requirement and cannot later deny coverage on that ground. The insured's reliance on the accepted payments supports the estoppel.

Question 14Insurance Foundations and Principles of Life and Health Insurance

Which statement about a representation in an application for life insurance is correct?

  1. It is not part of the contract and carries no legal effect
  2. It is an absolute guarantee that the statement is literally true in every detail
  3. Any inaccurate statement voids the policy whether or not it is material
  4. It is a statement believed true, and only material misstatements allow rescission Correct answer.

Explanation

A representation is a statement the applicant believes to be true to the best of their knowledge, as opposed to a warranty, which is a promise that the statement is literally true. Only a material misrepresentation, one that would have affected the insurer's decision to issue the policy or set the premium, gives the insurer grounds to rescind. The application is typically attached and made part of the contract.

Question 15Insurance Foundations and Principles of Life and Health Insurance

Investors persuade a 78-year-old to apply for a large life policy naming an investor trust as beneficiary, and the investors pay the premiums. This arrangement is best described as which of the following?

  1. Stranger-originated life insurance, lacking insurable interest Correct answer.
  2. A lawful conversion of group term coverage to an individual policy
  3. A valid key person policy covering a necessary business executive
  4. A permissible viatical settlement arranged by the insured's physician

Explanation

Stranger-originated life insurance involves third parties with no insurable interest procuring a policy on another person's life as an investment. Because insurable interest must exist at inception, such arrangements are generally void or prohibited by state law. The transaction is speculative wagering on a life rather than protection against loss.

Question 16Insurance Foundations and Principles of Life and Health Insurance

A mutual life insurance company is one that is which of the following?

  1. Owned by shareholders who receive dividends on stock held
  2. Owned by its policyholders Correct answer.
  3. Owned by the state government in which it is chartered
  4. Organized solely to insure a single employer's workforce

Explanation

A mutual insurer is owned by its policyholders, who elect management and may receive dividends reflecting favorable operating results. A stock insurer is owned by shareholders, and its dividends are paid to those shareholders. Dividends paid by a mutual insurer are generally treated as a return of premium for tax purposes.

Question 17Insurance Foundations and Principles of Life and Health Insurance

An applicant for life insurance has a chronic but well-controlled medical condition. The insurer is most likely to place the applicant in which risk classification?

  1. Preferred, with the lowest premium available
  2. Standard, with the same rate as a healthy applicant
  3. Substandard, with a higher-than-standard premium Correct answer.
  4. Uninsurable, because no coverage can be offered

Explanation

Risk classification groups applicants by expected mortality, and a chronic impairment generally places an applicant below average. Substandard risks may be issued with a higher premium, a reduced benefit, or a rating based on the extra mortality expected. Many such applicants are still insurable rather than declined.

Question 18Insurance Foundations and Principles of Life and Health Insurance

Reinsurance is best described as which of the following?

  1. A guarantee that a ceding insurer will never become insolvent
  2. Insurance purchased by an insurer to cover part of its own risk Correct answer.
  3. The process by which an insurer collects premiums from policyholders
  4. A policy sold directly to consumers by a government agency

Explanation

Reinsurance is insurance for insurers: the ceding company transfers part of its risk to a reinsurer in exchange for a share of the premium. It increases the insurer's capacity to write large or unusual risks and stabilizes results from year to year. The original policyholder's contract remains with the ceding insurer.

Question 19Insurance Foundations and Principles of Life and Health Insurance

The entire contract provision in a life insurance policy establishes which of the following?

  1. The policy and the attached application form the whole agreement Correct answer.
  2. The insurer may add new exclusions at any time by mailing an endorsement
  3. Oral promises made by the producer are fully enforceable
  4. The policy must be renewed annually to remain in force

Explanation

The entire contract provision states that the policy, together with the attached copy of the application, constitutes the complete agreement between the parties. It prevents the insurer from incorporating outside documents it did not attach and limits reliance on oral statements made during sales. Only an authorized officer may modify the contract, and only in writing.

Question 20Life Insurance Basics and Policy Types

For a life insurance policy to be valid, insurable interest must exist at which point?

  1. Only if the death benefit exceeds total premiums paid
  2. Continuously throughout the entire policy period
  3. When the policy is applied for and issued Correct answer.
  4. At the moment the insured person dies

Explanation

Insurable interest is required at the inception of the contract, meaning the applicant must stand to suffer a financial or emotional loss if the insured dies. Once the policy is issued and in force, the beneficiary's right to the proceeds is not defeated by a later loss of that interest.

Question 21Life Insurance Basics and Policy Types

Which provision states that the policy and the attached application are the whole agreement, so the insurer cannot rely on outside documents to deny a claim?

  1. The consideration clause
  2. The incontestability clause
  3. The reinstatement provision
  4. The entire contract clause Correct answer.

Explanation

The entire contract clause limits the agreement to the policy plus the application attached at issue, and it generally prevents the insurer from incorporating bylaws or outside papers by reference. It protects the owner because nothing outside the policy can be used to reduce or deny coverage.

Question 22Life Insurance Basics and Policy Types

Under the standard grace period provision, how long after the due date does a policyowner have to pay an overdue premium before the policy lapses?

  1. 30 days Correct answer.
  2. 10 days
  3. 7 days
  4. 90 days

Explanation

Life policies provide a grace period of about 30 days after a premium due date. Coverage stays in force during that period, and if the insured dies the overdue premium is deducted from the death benefit.

Question 23Life Insurance Basics and Policy Types

A policyowner names her spouse as primary beneficiary and her adult son as contingent beneficiary. If the spouse dies before the insured, who receives the death proceeds?

  1. The spouse's estate
  2. The insured's estate
  3. The insurer retains the proceeds
  4. The adult son Correct answer.

Explanation

A contingent beneficiary receives the proceeds if the primary beneficiary is not living at the time of the insured's death. Because a living contingent is named, the proceeds bypass the estate entirely.

Question 24Life Insurance Basics and Policy Types

Which statement accurately describes level term life insurance?

  1. It automatically converts to whole life at the end of each policy year.
  2. It pays a fixed face amount on death within a stated period and builds no cash value. Correct answer.
  3. It remains in force for the insured's entire lifetime regardless of premium payment.
  4. It builds a guaranteed cash value that the owner may borrow against at any time during the level term period.

Explanation

Level term provides pure protection for a specified number of years with a face amount and premium that stay constant. It has no cash value, so there is nothing to borrow or surrender if the insured survives the term.

Question 25Life Insurance Basics and Policy Types

A whole life policy lapsed 14 months ago with no cash value available. Which combination is normally required to reinstate it?

  1. Evidence of insurability plus all overdue premiums with interest Correct answer.
  2. Written consent of the named beneficiary and approval by the insurer's home office
  3. A new policy application without regard to the original contract
  4. Payment of the overdue premium only

Explanation

Reinstatement typically requires proof of insurability and payment of all overdue premiums with interest, generally within three years of lapse. The restored policy keeps its original issue age and premium, which is why insurability must be shown again.

Question 26Life Insurance Basics and Policy Types

Which nonforfeiture option applies the net cash value as a single premium to buy a whole life policy with a smaller face amount that stays in force for life?

  1. Cash surrender option
  2. Automatic premium loan option
  3. Reduced paid-up option Correct answer.
  4. Extended term option

Explanation

The reduced paid-up option converts the net cash value into a single-premium permanent policy with a lower face amount that requires no further premiums. It contrasts with extended term, which keeps the full face amount but only for a limited period.

Question 27Life Insurance Basics and Policy Types

An owner elects a dividend option under which each dividend buys a small amount of additional permanent coverage that itself earns dividends. Which option is this?

  1. Accumulate at interest
  2. Premium reduction
  3. Paid-up additions Correct answer.
  4. Cash payment

Explanation

Under paid-up additions, dividends purchase small amounts of single-premium permanent insurance at the insured's attained age. These additions increase the death benefit and participate in future dividends.

Question 28Life Insurance Basics and Policy Types

Which statement correctly describes a universal life policy?

  1. Premiums are fixed for life, and the cash value grows at a guaranteed rate set at issue.
  2. Premiums are flexible and monthly mortality and expense charges are deducted from cash value. Correct answer.
  3. The policy must be converted to whole life before the insured reaches age 65.
  4. Cash values are invested in a separate account whose performance the policyowner selects and bears.

Explanation

Universal life separates the policy into a cash value account from which monthly cost of insurance and expense charges are taken, and the owner may vary premium payments within limits as long as the account stays sufficient. If the cash value is exhausted, the policy lapses unless additional premium is paid.

Question 29Life Insurance Basics and Policy Types

Cash values of a variable life policy are held in a separate account. What must a producer hold to sell this product lawfully?

  1. A life license plus a property and casualty license
  2. A life insurance license and a securities registration Correct answer.
  3. A life insurance license only
  4. A securities registration only

Explanation

Variable life is both an insurance contract and a security because the cash value fluctuates with separate account investments. The producer therefore needs a state life insurance license and the appropriate securities registration.

Question 30Life Insurance Basics and Policy Types

How does a waiver of premium rider operate when the insured becomes totally disabled?

  1. It waives premiums during total disability after a waiting period and refunds premiums paid during that period. Correct answer.
  2. It refunds every premium the owner has paid since the policy was originally issued and keeps the policy in force.
  3. It reduces the face amount in proportion to the premiums that were waived.
  4. It pays the death benefit early in monthly installments while the insured remains totally disabled.

Explanation

The rider waives premiums while the insured is totally disabled, usually after a waiting period of about six months. Premiums paid during the waiting period are typically refunded, and the policy continues as though premiums were being paid.

Question 31Life Insurance Basics and Policy Types

What does a guaranteed insurability rider let the policyowner do?

  1. Reinstate a lapsed policy without paying the overdue premiums
  2. Increase the death benefit whenever the insurer raises its dividend scale
  3. Convert term coverage to whole life at any age with no limit
  4. Buy additional coverage at stated ages without proving insurability Correct answer.

Explanation

The guaranteed insurability rider allows the owner to purchase specified amounts of additional coverage at designated option dates, such as certain birthdays or a marriage, without new evidence of insurability. The premium for the added coverage is based on the insured's attained age at the time of purchase.

Question 32Life Insurance Basics and Policy Types

A policy has a revocable beneficiary designation. Who may change the beneficiary, assign the policy, or take a policy loan?

  1. The policyowner Correct answer.
  2. The revocable beneficiary
  3. The insured
  4. The insurer, with written notice to the insured

Explanation

Ownership rights belong to the policyowner, who may change a revocable beneficiary, assign the contract, surrender it, or borrow against its cash value. A revocable beneficiary has no vested interest and can be replaced without consent.

Question 33Life Insurance Basics and Policy Types

A policy fails the 7-pay test and becomes a modified endowment contract. How are later cash withdrawals taxed?

  1. They are taxed as ordinary income spread evenly over the policy's remaining term.
  2. They are taxed first-in, first-out, with no penalty at any age.
  3. They are taxed last-in, first-out, and a 10% penalty may apply before age 59½. Correct answer.
  4. They are received tax free until total withdrawals exceed the premiums that were paid.

Explanation

A modified endowment contract loses favorable first-in, first-out treatment, so distributions are taxed last-in, first-out, meaning gains come out first. A 10% penalty generally applies to taxable amounts distributed before age 59½.

Question 34Life Insurance Basics and Policy Types

A borrower wants coverage that matches the declining balance of a 20-year mortgage while keeping the premium level. Which product fits best?

  1. Renewable convertible term
  2. Increasing term
  3. Level term
  4. Decreasing term Correct answer.

Explanation

Decreasing term carries a level premium while the face amount steps down over the policy period, which tracks a mortgage balance that falls with each payment. The beneficiary receives only the remaining face amount at death.

Question 35Life Insurance Basics and Policy Types

An insured with a $200,000 whole life policy and a double indemnity rider has a fatal heart attack while driving; the car then strikes a tree. The medical evidence shows the heart attack caused the death. What does the insurer pay?

  1. $100,000
  2. $200,000 Correct answer.
  3. $200,000 plus interest on the proceeds
  4. $400,000

Explanation

The accidental death benefit applies only when an accident is the proximate cause of death, independent of natural causes. Because the heart attack triggered the sequence of events, the death is treated as natural and only the base face amount is payable.

Question 36Life Insurance Basics and Policy Types

A married couple wants one policy that pays only when the second of them dies, to fund estate settlement costs. Which policy best meets the need?

  1. A joint life policy that pays on the first death
  2. A survivorship (second-to-die) policy Correct answer.
  3. A family income policy on the husband
  4. Two separate single-life term policies

Explanation

A survivorship or second-to-die policy pays the death benefit only after both insureds have died, which lines the proceeds up with estate taxes and settlement costs due at the second death. Because payment is deferred, the premium per dollar of face amount is lower than for single-life coverage.

Question 37Life Insurance Basics and Policy Types

A policyowner pledges her policy to a bank as security for a business loan. What has she made, and what does the bank receive?

  1. An absolute assignment, which transfers every ownership right to the bank permanently
  2. A collateral assignment, which gives the bank rights only up to the amount of the debt Correct answer.
  3. A change of ownership, which makes the bank the irrevocable beneficiary
  4. A spendthrift arrangement, which shields the proceeds from the bank's creditors

Explanation

A collateral assignment gives the lender a limited claim on the policy to secure a debt, usually the right to receive proceeds only to the extent of the outstanding balance. Any excess proceeds go to the named beneficiary, and the owner keeps the remaining ownership rights.

Question 38Life Insurance Policy Provisions, Options, Riders and Beneficiaries

A standard individual life insurance policy guarantees a period after each premium due date (other than the first) during which the policy stays in force even though the premium is unpaid. How long is that period?

  1. 7 days
  2. 30 days Correct answer.
  3. 10 days
  4. 60 days

Explanation

The grace period is commonly 30 or 31 days after the premium due date, and the policy remains fully in force during that time. If the insured dies within the grace period, the insurer pays the claim less the overdue premium.

Question 39Life Insurance Policy Provisions, Options, Riders and Beneficiaries

After a life insurance policy has been in force during the insured's lifetime for a specified period, the insurer generally loses the right to contest the policy for misstatements on the application. What is that period?

  1. Five years
  2. One year
  3. Three years
  4. Two years Correct answer.

Explanation

The incontestability clause makes the policy incontestable after it has been in force for two years from issue during the insured's lifetime. After that point the insurer cannot rescind the contract for misrepresentation on the application.

Question 40Life Insurance Policy Provisions, Options, Riders and Beneficiaries

Which documents together make up the entire contract between the policyowner and the life insurer?

  1. The policy and any endorsements only, with the application excluded
  2. The policy together with the insurer's underwriting file and the agent's notes
  3. The application and any riders, but not the policy itself
  4. The policy, the attached copy of the application, and any attached riders Correct answer.

Explanation

The entire contract provision states that the policy, a copy of the application attached to it, and any attached riders or amendments constitute the whole agreement. Nothing outside those documents is part of the contract, and only an authorized officer may modify it.

Question 41Life Insurance Policy Provisions, Options, Riders and Beneficiaries

Which rider keeps a policy in force at no premium cost while the insured is totally disabled, as defined in the rider?

  1. Waiver of premium rider Correct answer.
  2. Accelerated death benefit rider
  3. Guaranteed insurability rider
  4. Return of premium rider

Explanation

The waiver of premium rider waives premium payments during a period of total disability, usually after a waiting period of several months. The policy and its riders remain in force during the waiver period.

Question 42Life Insurance Policy Provisions, Options, Riders and Beneficiaries

Under Florida rules for individually delivered life insurance policies, how long does the owner have to return a newly delivered policy and receive a full premium refund?

  1. 10 days
  2. 14 days Correct answer.
  3. 3 days
  4. 31 days

Explanation

Florida provides a free-look period of 14 days after delivery for individual life policies, during which the owner may return the policy for a full refund of premium. A policy returned during that window is treated as void from the start.

Question 43Life Insurance Policy Provisions, Options, Riders and Beneficiaries

A whole life policy lapsed 18 months ago and the owner now wants it back in force. What must the owner generally do to reinstate it?

  1. Pay only the premium for the current policy year, without any other requirement or payment
  2. Show evidence of insurability and pay all overdue premiums with interest, plus repay any loans Correct answer.
  3. Surrender the policy for its cash value and reapply as a new applicant at a higher rate
  4. Wait two years after the lapse, after which the insurer must reinstate the policy automatically

Explanation

Reinstatement is generally available within three years of lapse if the owner provides evidence of insurability and pays all overdue premiums with interest, plus repays any policy loans with interest. The reinstated policy resumes its original plan of coverage, but a new contestable period applies to the reinstatement.

Question 44Life Insurance Policy Provisions, Options, Riders and Beneficiaries

An applicant stated an age of 40 when applying, but was actually 45. The insurer discovers the error while processing a death claim after the contestable period has ended. What is the result?

  1. The full face amount is paid, because the contestable period expired before the insured died
  2. All premiums are refunded and the policy is declared void from the beginning
  3. The claim is denied in full because the application contained a material misstatement of age
  4. The death benefit is adjusted to what the premium paid would have purchased at the true age Correct answer.

Explanation

The misstatement of age or sex provision allows the insurer to adjust the benefit rather than void the policy: it pays whatever amount the premium actually paid would have bought at the insured's correct age. This provision operates as an exception to the incontestability clause.

Question 45Life Insurance Policy Provisions, Options, Riders and Beneficiaries

Which statement correctly describes the automatic premium loan provision?

  1. It allows the owner to skip every other premium payment without repaying it
  2. It automatically converts the policy to extended term insurance when a premium is missed
  3. It borrows from the cash value to pay a missed premium and keep the policy in force Correct answer.
  4. It lets the insured borrow against the death benefit before the policy matures

Explanation

The automatic premium loan provision directs the insurer to advance an overdue premium from the policy's available cash value so the policy does not lapse. It works only when the owner elected the provision and sufficient cash value exists, and the advance accrues interest as a policy loan.

Question 46Life Insurance Policy Provisions, Options, Riders and Beneficiaries

An owner of a whole life policy stops paying premiums and elects the extended term nonforfeiture option. What does the owner end up with?

  1. A reduced amount of whole life coverage with no further premiums due
  2. Term coverage for the full face amount for as long as the cash value will last Correct answer.
  3. The same full face amount, with the insurer paying all future premiums
  4. A lump-sum cash payment with the full death benefit still in force

Explanation

Extended term uses the policy's net cash value as a single premium to buy term insurance equal to the face amount for whatever period that value will purchase. No further premiums are due, and both the coverage and the policy terminate when the term expires.

Question 47Life Insurance Policy Provisions, Options, Riders and Beneficiaries

A policyowner has named an irrevocable beneficiary. What is required before the owner can change that beneficiary?

  1. Surrender the policy and purchase a new one with the same insured
  2. Obtain the written consent of the irrevocable beneficiary Correct answer.
  3. Notify the insurer in writing; no one else's consent is required
  4. Wait until the two-year contestable period has ended

Explanation

An irrevocable beneficiary holds a vested interest in the policy, so the owner cannot change the beneficiary, assign the policy, or take other actions that impair that interest without the beneficiary's written consent. A revocable designation, by contrast, can be changed freely by the owner.

Question 48Life Insurance Policy Provisions, Options, Riders and Beneficiaries

Which settlement option pays the beneficiary for life but guarantees payments for a minimum number of years, with any remaining guaranteed payments going to a contingent payee?

  1. Joint and last survivor income option
  2. Life income with a period certain Correct answer.
  3. Fixed-period settlement option
  4. Straight life income option

Explanation

Life income with a period certain pays for the beneficiary's lifetime and guarantees that payments continue to a named payee for a minimum number of years if the beneficiary dies early. Straight life income stops at the beneficiary's death, while a fixed-period option pays for a set number of years regardless of lifetime.

Question 49Life Insurance Policy Provisions, Options, Riders and Beneficiaries

What does a guaranteed insurability rider permit the insured to do?

  1. Buy additional coverage at a discount to the rates charged to new applicants
  2. Reinstate a lapsed policy at any time without furnishing evidence of insurability
  3. Increase the death benefit automatically each year to keep pace with inflation at no extra cost
  4. Buy additional coverage at stated ages or events without new evidence of insurability Correct answer.

Explanation

The guaranteed insurability rider lets the insured purchase specified amounts of additional coverage at designated ages or events, such as marriage or the birth of a child, without proving insurability. The premium for each new purchase is based on the insured's attained age at the time of exercise.

Question 50Life Insurance Policy Provisions, Options, Riders and Beneficiaries

Which statement is accurate about an accidental death benefit rider?

  1. It doubles the death benefit regardless of the cause of death
  2. It pays the additional amount for a death from any cause occurring in the first two policy years
  3. It keeps the policy in force by waiving premiums after an accident
  4. It pays an extra amount only if death results from accidental injury within a stated time Correct answer.

Explanation

An accidental death benefit rider pays an additional sum, often equal to the face amount, only when death results from accidental injury within a stated period, commonly 90 days, and is not from an excluded cause. Death from illness pays only the base policy benefit.