LLQP Policy Provisions and Riders 5 — Questions and Answers
Question 1: If a life insurance policyowner fails to select a nonforfeiture option after a policy lapses, which option typically applies automatically?
- Cash surrender value
- Reduced paid-up insurance
- Extended term insurance (Correct answer)
- Reinstatement
Correct answer: Extended term insurance
Extended term insurance is the default automatic nonforfeiture option for most policies, using the cash value to purchase term coverage equal to the original face amount for as long as possible.
Question 2: Under the return of premium rider, if the insured dies during the policy term, the beneficiary receives:
- The face amount minus all premiums paid
- The face amount plus all premiums paid (Correct answer)
- Only the premiums paid with interest
- Double the face amount
Correct answer: The face amount plus all premiums paid
The return of premium rider adds a death benefit equal to all premiums paid to the policy's face amount, so the beneficiary receives both the face value and a refund of premiums.
Question 3: The spendthrift clause in a life insurance policy protects the policy proceeds from:
- Income taxation upon receipt by the beneficiary
- Claims by the beneficiary's creditors before payment (Correct answer)
- Claims by the insured's estate
- Reduction due to policy loans outstanding
Correct answer: Claims by the beneficiary's creditors before payment
A spendthrift clause prevents the beneficiary's creditors from attaching or garnishing the policy proceeds before they are actually distributed to the beneficiary.
Question 4: A family income rider provides an income stream that begins at the insured's death and continues for:
- The beneficiary's lifetime
- A fixed number of years from the policy issue date (Correct answer)
- As long as the youngest child is alive
- 20 years regardless of when the insured dies
Correct answer: A fixed number of years from the policy issue date
The family income rider pays monthly income from the date of the insured's death until a specified period from the policy issue date expires, after which a lump sum may be paid.
Question 5: Which provision requires a life insurer to notify the policyowner that a premium is overdue and provide a grace period before the policy lapses?
- Reinstatement provision
- Grace period provision (Correct answer)
- Premium waiver provision
- Notice of lapse provision
Correct answer: Grace period provision
The grace period provision grants the policyowner a set number of days (typically 31 days) after a missed premium due date during which the policy remains in force without penalty.
Question 6: A disability income rider attached to a life insurance policy typically provides monthly income benefits when the insured is totally disabled for a waiting period of:
- 7 days
- 30 days (Correct answer)
- 90 days
- 180 days
Correct answer: 30 days
The elimination (waiting) period for disability income riders on life policies is commonly 30 days, after which monthly benefits begin if total disability continues.
Question 7: Under the facility of payment clause, if there is no named beneficiary or the beneficiary predeceases the insured, the insurer may pay the death benefit to:
- The state's unclaimed property fund
- A relative or person who paid burial expenses (Correct answer)
- The insured's employer
- The nearest licensed funeral home
Correct answer: A relative or person who paid burial expenses
The facility of payment clause allows the insurer to pay proceeds to a family member or any person who has incurred funeral or final expenses on behalf of the deceased insured.
LLQP Policy Provisions and Riders 5
If a life insurance policyowner fails to select a nonforfeiture option after a policy lapses, which option typically applies automatically?