Insurance MCQ

Which of the following statements about accumulated interest earning on dividends from an insurance policy is TRUE? A - it is tax deductible B - it is taxed as ordinary income C - it is taxed as capital gains D - it is not taxed Answer: A - it is taxed as ordinary income

The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits it the insured: A - dies of natural causes B - becomes chronically ill C - becomes critically ill D - is blinded in an accident Answer: D - is blinded in an accident

J let her life insurance policy lapse 8 months ago due to nonpayment. She can reestablish coverage under which of the following provisions? A - Automatic Premium Loan provision B - Reinstatement provision C - Payor clause D - Waiver of Premium Answer: B - Reinstatement provision

L takes out a life insurance policy and dies 10 years later. During the claim process, the insurer discovers that L had understated her age on the application. Under the Misstatement of Age provision, the insurer will A - pay the death benefit in full B - adjust the death benefit to an increased amount C - deny the claim D - adjust the death benefit to a reduced amount Answer: D - adjust the death benefit to a reduced amount

Which provision prevents an insurer from changing the terms of the contract with the policyowner be referring to documents not found within the policy itself? Answer: Entire contract provision

P purchases a $50,000 term life insurance policy in 2005. One of the questions on the application ask if P engages in scuba diving, to which P answers "No". The policy is then issued with no scuba exclusions. In 2010, P takes up scuba diving and dies in a scuba-related accident in 2011. What will the insurer pay to P's beneficiary? $50,000 minus any outstanding policy loans The automatic premium loan provision is designed to A - avoid a policy lapse B - provide a course of revenue to the insurance company C - allow a policyowner to request a policy loan D - allow a policyowner to take out additional coverage without evidence Answer: A - avoid a policy lapse

Which of these types of policies may NOT have the Automatic Premium Loan provision attached to it? A - 20-pay life B - endowment C - Decreasing Term D - Modified whole life Answer: C - decreasing term

When an insurer issues a policy that refuses to cover certain risks, this is referred to as a(n) A - exclusion B - limitation C - elimination D - exception Answer: A -exclusion

A policy loam is made possible by which of these life insurance policy features? A - extended term provision B - cash value provision C - consideration clause D - Owner's rights provision Answer: B - cash value provision

S buys a $10,000 Whole Life policy in 2003 and pays an annual premium of $100. S dies 5 years later in 2008 and the insurer pays the beneficiary $10,500. What kind of rider did S include on the policy? A - Return of premium rider B - Accelerated death benefit rider C - Family income rider D - Term rider Answer: A -return of premium rider

A young, married teacher has two children and owns a whole life policy. If the teacher wants an increasing Death Benefit to protect against inflation, the teacher should select which of the following Dividend options? A - Accumulate at interest B - reduced premiums C - Paid up Additional insurance D - cash Answer: C- Paid up Additional insurance

Which of these are NOT examples of a Nonforfeiture option? A - extended term B - Cash surrender C - reduced Paid-up D - life income Answer: D - life income

All of these Settlement options involve the systematic liquidation of the death proceeds in the event of the insured's death EXCEPT A - Life income B - Fixed Amount C - Interest Only D - Fixed Period Answer: C - interest only

A long-term care rider in a life insurance policy pays a daily benefit in the event of which of the following? A - terminal illness B- inability of the insured to maintain insurance premiums due to unemployment C - Critical illness D - inability of the insured to preform more than 2 Activities of Daily Living (ADL's) Answer: D - inability of the insured to preform more than 2 Activities of Daily Living (ALD's)

M had an annual life insurance premium payment due January 1. She died January 10 without making the premium payment. What action will the insurer take? A - Pay face amount minus the past due premium B - Subtract past due premium from cash value C - deny the claim D - collect premium from M's estate Answer: A - pay face amount minus the past due premium

How are policyowner dividends treated in regards to income tax? A - taxed as ordinary income B - taxed as capital gains C - interest on accumulations is taxed D - dividends are not taxable Answer: C - interest on accumulations is taxed

Which of the following Dividend options results in taxable income to the policyowner? A - cash B - Accumulation of interest C - Paid-up additions D - reduced premium Answer: B - Accumulation of interest

In a life insurance contract, an insurance company's promise to pay stated benefits is called the A - consideration clause B - insuring clause C - entire contract D - owner's rights Answer: B - insuring clause

All of these statements concerning Settlement Options are true, EXCEPT A - rapid depletion of proceeds can be avoided B - Proceeds can be administered be the insurance company C - increased proceeds can be provided through accumulation of interest D - Only the beneficiary may select Answer: D - only the beneficiary may select

In a life insurance policy, which provision states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy? Answer: Owners rights