CLU Life Insurance Legal Aspects Questions and Answers

Question 1

An individual is seeking to purchase a life insurance policy on her former business partner, from whom she formally and financially separated five years ago.
The insurance company denies the application.
What is the most likely legal reason for this denial?

Accepted Answer

The applicant lacks an insurable interest in the proposed insured.

Answer

The incontestability period has expired.

Answer

The proposed insured is over the maximum age of issue.

Answer

The policy would be considered a Modified Endowment Contract (MEC).

Question 2

A policyowner's permanent life insurance policy lapsed four months ago due to non-payment. The policyowner now wishes to put the policy back in force. Which policy provision outlines the conditions he must meet, and what is a primary requirement?

Accepted Answer

Reinstatement provision; providing evidence of insurability.

Answer

Grace Period provision; payment of the most recent premium.

Answer

Nonforfeiture Options; selection of Reduced Paid-Up insurance.

Answer

Incontestability clause; waiting for a two-year period to pass.

Question 3

A policyowner wants to ensure that upon her death, the life insurance proceeds paid to her beneficiary will be protected from the beneficiary's creditors. Which policy provision or arrangement would best accomplish this goal?

Accepted Answer

A Spendthrift Clause.

Answer

An irrevocable beneficiary designation.

Answer

The Automatic Premium Loan provision.

Answer

An Absolute Assignment of the policy.

Question 4

An employee has been covered under her employer's group life insurance plan for seven years. Her employment is terminated, and she wants to continue her life insurance coverage. Which of the following accurately describes her rights under the typical conversion privilege?

Accepted Answer

She can convert to an individual permanent policy for an amount up to the group coverage amount without proving insurability.

Answer

She can convert to an individual term policy of the same face amount by providing evidence of insurability.

Answer

She must convert her coverage within 90 days, and the premium will be the same as her group rate.

Answer

She can continue the exact same group coverage indefinitely by paying the premiums directly to the insurer.

Question 5

Which of the following statements best distinguishes a viatical settlement from a life settlement from a legal and regulatory standpoint?

Accepted Answer

A viatical settlement is legally defined by the insured having a terminal or chronic illness, often with a life expectancy of 24 months or less.

Answer

Viatical settlements are only available for term policies, while life settlements are for permanent policies.

Answer

Life settlements involve selling a policy to the original insurer, whereas viatical settlements involve a third-party company.

Answer

Only viatical settlements are regulated by state insurance departments; life settlements are unregulated.

Question 6

Upon the insured's death, the insurance company discovers that the insured's age was understated by five years on the application. The policy has been in force for 15 years. According to the Misstatement of Age provision, how will the insurer handle the death claim?

Accepted Answer

The death benefit will be reduced to the amount the premiums paid would have purchased at the correct age.

Answer

The policy will be voided due to material misrepresentation, and all premiums will be refunded.

Answer

The full death benefit will be paid, but the beneficiary must pay all past-due premium shortages.

Answer

The claim will be denied because the contestability period has not yet expired for age misstatements.

An individual is seeking to purchase a life insurance policy on her former business partner, from whom she formally and financially separated five years ago.The insurance company denies the application.What is the most likely legal reason for this denial?

An individual is seeking to purchase a life insurance policy on her former business partner, from whom she formally and financially separated five years ago.
The insurance company denies the application.
What is the most likely legal reason for this denial?