Life & Health Insurance Policy Provisions and Riders Questions and Answers — Questions and Answers
Question 1: An insured with a life insurance policy dies during the grace period. What is the insurer's obligation?
- To pay the full death benefit to the beneficiary.
- To deny the claim because the premium was not paid on time.
- To pay the death benefit minus the overdue premium. (Correct answer)
- To refund all premiums paid to the policyowner's estate.
Correct answer: To pay the death benefit minus the overdue premium.
The grace period is a standard policy provision that allows the policy to remain in force for a certain period (usually 30 or 31 days) after the premium due date. If the insured dies during this time, the insurer must pay the death benefit, but it is entitled to deduct the unpaid premium from the proceeds.
Question 2: Which of the following life insurance riders allows the policyowner to purchase additional insurance in the future without providing evidence of insurability?
- Waiver of Premium Rider
- Guaranteed Insurability Rider (Correct answer)
- Accidental Death Benefit Rider
- Cost of Living Rider
Correct answer: Guaranteed Insurability Rider
The Guaranteed Insurability Rider gives the policyowner the right to buy additional amounts of insurance at specified future dates or on certain life events (like marriage or the birth of a child) without having to prove their health status. This protects the insured's ability to increase coverage even if their health deteriorates.
Question 3: A policyowner made a material misstatement on their life insurance application. The insurer discovers this four years after the policy issue date. Which policy provision would prevent the insurer from voiding the contract?
- Reinstatement Provision
- Free Look Provision
- Entire Contract Provision
- Incontestability Provision (Correct answer)
Correct answer: Incontestability Provision
The Incontestability Provision states that after a policy has been in force for a specified period, typically two years, the insurer cannot contest the validity of the policy due to misstatements on the application, except for non-payment of premiums. Since four years have passed, the policy is beyond the contestable period.
Question 4: John has a life insurance policy with a Waiver of Premium rider. He becomes totally disabled and is unable to work. After a six-month waiting period, what will happen?
- The policy's cash value will be paid out to him in a lump sum.
- The insurer will begin paying his premiums, keeping the policy in force. (Correct answer)
- The death benefit will be reduced by the amount of premiums waived.
- The policy will be converted to a reduced paid-up insurance policy.
Correct answer: The insurer will begin paying his premiums, keeping the policy in force.
The Waiver of Premium rider ensures that if the insured becomes totally disabled, the insurance company will waive the policy premiums for the duration of the disability after a specified waiting period has been met. This keeps the policy active without the policyowner having to make payments.
Question 5: An insured is diagnosed with a terminal illness and is not expected to live more than 12 months. Which rider would allow them to receive a portion of their life insurance death benefit while they are still alive?
- Return of Premium Rider
- Long-Term Care Rider
- Accelerated Death Benefit Rider (Correct answer)
- Disability Income Rider
Correct answer: Accelerated Death Benefit Rider
The Accelerated Death Benefit rider allows the insured to access a portion of the policy's death benefit if they are diagnosed with a terminal illness. These funds can be used for any purpose, such as medical expenses or end-of-life care, and the amount received is deducted from the death benefit paid to beneficiaries.
Question 6: All of the following are considered standard provisions in a life insurance policy EXCEPT:
- Grace Period
- Incontestability Clause
- Waiver of Premium (Correct answer)
- Entire Contract Clause
Correct answer: Waiver of Premium
The Grace Period, Incontestability Clause, and Entire Contract Clause are standard provisions required in life insurance policies. The Waiver of Premium is an optional rider that must be added to the policy, usually for an additional premium charge.
Life & Health Insurance Policy Provisions and Riders Questions and Answers
An insured with a life insurance policy dies during the grace period.
What is the insurer's obligation?