Question 1

An insured dies during the two-year contestable period, and the insurer discovers the application contained a material misrepresentation about a prior heart condition. Under the incontestability provision, what may the insurer do?

Accepted Answer

The incontestability provision bars the insurer from contesting the policy only after it has been in force for two years during the insured's lifetime. Because death occurred within the contestable period, the insurer may investigate and contest the claim for material misrepresentation.

Question 2

A policyowner stops paying premiums on a whole life policy and elects a nonforfeiture option that uses the accumulated cash value as a single net premium to purchase a smaller amount of the same type of permanent coverage. Which option was chosen?

Accepted Answer

The reduced paid-up option applies the cash value as a single premium to buy a lower face amount of paid-up permanent insurance that requires no further premiums. Extended term instead keeps the full face amount for a limited period as term coverage.

Question 3

Which dividend option increases both the policy's death benefit and its cash value by using each dividend as a single premium to purchase small amounts of additional permanent coverage?

Accepted Answer

Paid-up additions use each dividend as a net single premium to buy additional paid-up whole life coverage, raising both face amount and cash value. Accumulation at interest only grows a cash side fund and does not increase the death benefit.

Question 4

Under a policy's automatic premium loan provision, what happens when a premium is not paid by the end of the grace period?

Accepted Answer

The automatic premium loan provision prevents unintentional lapse by borrowing the unpaid premium from available cash value. This keeps the policy in full force but creates an outstanding loan that accrues interest.

Question 5

A settlement option pays the beneficiary equal installments of a stated dollar amount until both the principal and interest are exhausted, with the number of payments varying based on the total proceeds. Which option is this?

Accepted Answer

Under the fixed amount option, the beneficiary chooses the payment size and the proceeds plus interest determine how long payments last. Under the fixed period option, the time frame is set and the payment amount varies instead.

Question 6

A policy names the insured's three children as primary beneficiaries per stirpes. One child predeceases the insured, leaving two children of her own. At the insured's death, how are the proceeds distributed?

Accepted Answer

Per stirpes (by the branch) means a deceased beneficiary's share passes down to that beneficiary's own descendants. Each surviving child keeps one-third, and the deceased child's one-third is split between her two children.

Question 7

A whole life policyowner wants to name a beneficiary who cannot be changed without that beneficiary's written consent, and whose interest limits the owner's ability to take policy loans or surrender the policy. What type of designation is this?

Accepted Answer

An irrevocable beneficiary has a vested interest that cannot be removed or altered without their consent, and their consent may be required for loans, surrenders, or assignments. A revocable beneficiary, by contrast, can be changed at the owner's discretion.

Question 8

At the time of claim, a life insurer discovers that the insured understated her age on the application. How does the misstatement of age provision affect the death benefit?

Accepted Answer

Misstatement of age is not grounds for voiding the policy; the benefit is simply adjusted to what the premium actually paid would have bought at the insured's true age. If age was understated, the premium was too low, so the death benefit is reduced accordingly.

Question 9

Which rider allows the insured to purchase additional amounts of coverage at specified future dates or life events without providing evidence of insurability?

Accepted Answer

The guaranteed insurability rider lets the insured buy additional coverage at set option dates or events (such as marriage or birth of a child) with no new medical exam. This protects insurability regardless of future health changes.

Question 10

A policyowner allowed a life policy to lapse 18 months ago and now wants to restore it under the reinstatement provision. Which of the following will the insurer typically require?

Accepted Answer

Reinstatement requires the insured to pay all back premiums with interest, repay or reinstate any outstanding loan, and provide evidence of insurability. It restores the original policy rather than issuing a new one, preserving the original age-based premium.

Question 11

An insured is diagnosed with a terminal illness and wants to receive a portion of the policy's face amount while still living to help pay medical costs. Which policy feature provides this?

Accepted Answer

The accelerated death benefit rider (living benefit) advances part of the death benefit to an insured diagnosed with a qualifying terminal or chronic illness. Any amount paid out reduces the death benefit ultimately payable to the beneficiary.

Question 12

The free look provision in a life insurance policy gives the policyowner the right to do what?

Accepted Answer

The free look period allows the policyowner to examine the delivered policy for a stated number of days and return it for a full refund of premium if not satisfied. It begins when the policy is delivered to the owner, not when the application is signed.

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