CLU Individual Life Insurance 3 — Questions and Answers
Question 1: Under the common disaster clause (simultaneous death provision), how is the death benefit distributed if the insured and primary beneficiary die in the same accident?
- The estate of the insured receives the proceeds
- The primary beneficiary is presumed to have predeceased the insured (Correct answer)
- Proceeds are split equally between both estates
- The insurer retains the funds until a court decides
Correct answer: The primary beneficiary is presumed to have predeceased the insured
The common disaster clause presumes the primary beneficiary predeceased the insured when both die simultaneously, directing proceeds to the contingent beneficiary or insured's estate.
Question 2: Which life insurance dividend option allows dividends to earn interest while remaining on deposit with the insurer?
- Paid-up additions
- Accumulate at interest (Correct answer)
- One-year term option
- Premium reduction
Correct answer: Accumulate at interest
The accumulate at interest option leaves dividends on deposit with the insurer where they earn a declared interest rate, though the accumulated amount is taxable as ordinary income.
Question 3: A whole life policy issued at age 30 has a guaranteed cash value. This guarantee is backed by which of the following?
- The policyholder's good credit history
- The insurer's mortality and interest assumptions plus legal reserve requirements (Correct answer)
- The federal government's insurance guarantee fund
- The reinsurance treaty held by the insurer
Correct answer: The insurer's mortality and interest assumptions plus legal reserve requirements
Guaranteed cash values in whole life policies are supported by the insurer's required legal reserves, calculated using conservative mortality tables and guaranteed interest rates.
Question 4: Which settlement option provides equal payments over a fixed period regardless of how long the beneficiary lives?
- Life income option
- Fixed amount option
- Fixed period option (Correct answer)
- Interest only option
Correct answer: Fixed period option
The fixed period option pays equal installments over a specified number of years; if the beneficiary dies before the period ends, remaining payments go to a successor payee.
Question 5: A 'jumping juvenile' life insurance policy is characterized by which feature?
- Premiums increase each year until age 21
- Face amount automatically increases at a specified age without evidence of insurability (Correct answer)
- Coverage terminates when the child reaches majority
- The child becomes the policyowner at age 18
Correct answer: Face amount automatically increases at a specified age without evidence of insurability
A jumping juvenile policy provides a lower face amount while the child is young, then jumps to a multiple (often 5x) of the original amount at a specified age, typically 21, without evidence of insurability.
Question 6: Under the life insurance interest option settlement, the named beneficiary retains which important right?
- The right to receive the full principal immediately upon request (Correct answer)
- The right to name a new primary insured
- The right to convert to term insurance
- The right to surrender the policy for cash
Correct answer: The right to receive the full principal immediately upon request
Under the interest option, the insurer holds the principal and pays periodic interest; the beneficiary typically retains the right to withdraw the lump sum at any time.
Question 7: Which policy rider waives the premium if the policyowner becomes totally disabled, typically after a waiting period of how many months?
- 1 month
- 3 months
- 6 months (Correct answer)
- 12 months
Correct answer: 6 months
The waiver of premium rider typically has a 6-month (180-day) elimination period; if disability persists beyond that, the insurer waives premiums retroactively and continues the waiver as long as disability lasts.
CLU Individual Life Insurance 3
Under the common disaster clause (simultaneous death provision), how is the death benefit distributed if the insured and primary beneficiary die in the same accident?