Life & Health Insurance Exam Life & Health Insurance Policy Provisions and Riders 5 — Questions and Answers
Question 1: Which of the following is an example of a policy rider that adjusts the death benefit to keep pace with inflation?
- Waiver of Premium rider
- Cost of Living Adjustment (COLA) rider (Correct answer)
- Guaranteed Insurability rider
- Accidental Death Benefit rider
Correct answer: Cost of Living Adjustment (COLA) rider
The Cost of Living Adjustment (COLA) rider increases the policy's death benefit periodically based on inflation indices.
Question 2: A health insurance policy's 'Relation of Earnings to Insurance' provision would reduce benefits if:
- The insured earns more income after becoming disabled
- Total disability benefits from all policies exceed the insured's predisability income (Correct answer)
- The insured fails to file a timely proof of loss
- The insured's employer provides group coverage
Correct answer: Total disability benefits from all policies exceed the insured's predisability income
This provision limits total disability income benefits from all sources to prevent the insured from receiving more than their pre-disability income.
Question 3: What is the 'Reduced Paid-Up' nonforfeiture option?
- The policy face amount is reduced and coverage continues as paid-up insurance with no further premiums (Correct answer)
- Premiums are reduced and the policy term is extended
- Cash value is paid out in monthly installments
- The policy is converted to a term policy for the same face amount
Correct answer: The policy face amount is reduced and coverage continues as paid-up insurance with no further premiums
The Reduced Paid-Up option uses the cash value to purchase a smaller permanent policy of the same type that requires no further premium payments.
Question 4: Under a life insurance policy, the 'Spendthrift clause' protects the beneficiary's proceeds from:
- Taxation on the death benefit
- Creditors of the beneficiary before benefits are received (Correct answer)
- The insurer reducing the payout amount
- Delays in the settlement process
Correct answer: Creditors of the beneficiary before benefits are received
A Spendthrift clause prevents the beneficiary's creditors from attaching or garnishing life insurance proceeds before they are received.
Question 5: A long-term care insurance policy includes a 'restoration of benefits' provision. What does this mean?
- Benefits are restored to the original maximum after the insured recovers and remains claim-free for a period (Correct answer)
- Benefits are doubled after a claim is paid
- The elimination period is waived on subsequent claims
- Premiums are refunded upon recovery
Correct answer: Benefits are restored to the original maximum after the insured recovers and remains claim-free for a period
The restoration of benefits provision rebuilds the policy's maximum benefit pool if the insured recovers and remains without claims for a specified period.
Question 6: Which settlement option pays the beneficiary a fixed dollar amount each period until both principal and interest are exhausted?
- Interest Only option
- Fixed Period option
- Fixed Amount option (Correct answer)
- Life Annuity option
Correct answer: Fixed Amount option
The Fixed Amount option pays a specified dollar amount per period until the proceeds and accumulated interest are depleted.
Question 7: A long-term disability policy defines disability as the inability to perform 'any occupation.' How does this compare to an 'own occupation' definition?
- 'Any occupation' is more favorable to the insured than 'own occupation'
- 'Any occupation' is harder to qualify for benefits than 'own occupation' (Correct answer)
- Both definitions pay the same benefit amount
- 'Any occupation' pays higher benefits than 'own occupation'
Correct answer: 'Any occupation' is harder to qualify for benefits than 'own occupation'
Under an 'any occupation' definition, the insured must be unable to work in any job for which they are reasonably suited, making it harder to qualify for benefits compared to 'own occupation.'
Life & Health Insurance Exam Life & Health Insurance Policy Provisions and Riders 5
Which of the following is an example of a policy rider that adjusts the death benefit to keep pace with inflation?