CLU Life Insurance Legal Aspects 4 — Questions and Answers
Question 1: Under the simultaneous death (Uniform Simultaneous Death Act) presumption, if an insured and primary beneficiary die in a common disaster with no evidence of survivorship, death proceeds are distributed as if:
- The insured predeceased the beneficiary
- The beneficiary predeceased the insured (Correct answer)
- Proceeds are split 50/50 between both estates
- The court appoints a trustee to hold proceeds
Correct answer: The beneficiary predeceased the insured
The Uniform Simultaneous Death Act presumes the beneficiary predeceased the insured when survivorship cannot be established, so proceeds pass through the insured's estate.
Question 2: The 'slayer rule' in life insurance law provides that:
- An insurer can void a policy if the insured engages in dangerous occupations
- A beneficiary who feloniously kills the insured forfeits the right to receive policy proceeds (Correct answer)
- Proceeds are forfeited to the state if no beneficiary survives
- War exclusions apply to all violent deaths abroad
Correct answer: A beneficiary who feloniously kills the insured forfeits the right to receive policy proceeds
The slayer rule bars a person who intentionally and feloniously kills the insured from benefiting from the death, with proceeds typically passing to the contingent beneficiary or estate.
Question 3: Which of the following best describes the legal effect of a collateral assignment of a life insurance policy?
- Permanently transfers all policy ownership rights to the assignee
- Transfers specific policy rights to a creditor as loan security, with remaining rights reverting upon loan repayment (Correct answer)
- Transfers the right to name a beneficiary to the creditor
- Converts the policy from term to permanent coverage
Correct answer: Transfers specific policy rights to a creditor as loan security, with remaining rights reverting upon loan repayment
A collateral assignment temporarily transfers certain policy rights (primarily the death benefit up to the loan balance) to a creditor as security, and rights revert to the policyowner when the debt is repaid.
Question 4: Under ERISA, which type of life insurance plan is typically exempt from ERISA's fiduciary and reporting requirements?
- Group term life plans covering more than 10 employees
- Fully employer-paid contributory group life plans
- Voluntary payroll-deduction plans meeting the 'safe harbor' requirements (Correct answer)
- Any plan administered by a third-party administrator
Correct answer: Voluntary payroll-deduction plans meeting the 'safe harbor' requirements
ERISA's 'safe harbor' exempts voluntary employee-pay-all payroll-deduction group insurance plans where the employer has minimal involvement and receives no consideration.
Question 5: The parol evidence rule in life insurance contract law generally prevents courts from admitting:
- Medical records submitted with the application
- Oral statements made by the agent before the policy was issued to contradict clear written policy terms (Correct answer)
- State insurance regulations that conflict with policy language
- Expert testimony on actuarial assumptions
Correct answer: Oral statements made by the agent before the policy was issued to contradict clear written policy terms
The parol evidence rule bars introduction of prior oral or written negotiations to vary or contradict the terms of a fully integrated written contract such as a delivered insurance policy.
Question 6: An insurance company that is incorporated in New York but licensed to do business in California is considered, from California's perspective, to be a(n):
- Domestic insurer
- Alien insurer
- Foreign insurer (Correct answer)
- Unauthorized insurer
Correct answer: Foreign insurer
A foreign insurer is one chartered in another U.S. state (or territory) but licensed to operate in the state in question; an alien insurer is chartered in another country.
Question 7: Under the common disaster clause (also called the survivorship clause), a typical provision requires the beneficiary to survive the insured by a specified period, often:
- 24 hours
- 30 to 60 days (Correct answer)
- 6 months
- 1 year
Correct answer: 30 to 60 days
Most common disaster clauses require the beneficiary to survive the insured by 30 to 60 days to receive proceeds, preventing double probate costs if both die in quick succession.
CLU Life Insurance Legal Aspects 4
Under the simultaneous death (Uniform Simultaneous Death Act) presumption, if an insured and primary beneficiary die in a common disaster with no evidence of survivorship, death proceeds are distributed as if: