CLU Life Insurance Legal Aspects Questions and Answers

Question 1

An individual is seeking to purchase a life insurance policy on her former business partner, from whom she formally and financially separated five years ago. The insurance company denies the application. What is the most likely legal reason for this denial?

Accepted Answer

The applicant lacks an insurable interest in the proposed insured.

Answer

Insurable interest is a fundamental legal principle in life insurance, requiring that the policyowner would suffer a genuine financial or emotional loss upon the death of the insured. This interest must exist at the time the policy is issued. Since the business and financial relationship ended five years prior, the applicant likely no longer has a demonstrable financial interest in her former partner's life.

Question 2

A policyowner's permanent life insurance policy lapsed four months ago due to non-payment. The policyowner now wishes to put the policy back in force. Which policy provision outlines the conditions he must meet, and what is a primary requirement?

Accepted Answer

Reinstatement provision; providing evidence of insurability.

Answer

The Reinstatement provision allows a policyowner to restore a lapsed policy. To do so, the owner must typically pay all back premiums plus interest, repay any outstanding loans, and provide evidence of insurability to the insurer. The grace period would have expired after about 31 days, and nonforfeiture options apply when a policy is surrendered, not reinstated.

Question 3

A policyowner wants to ensure that upon her death, the life insurance proceeds paid to her beneficiary will be protected from the beneficiary's creditors. Which policy provision or arrangement would best accomplish this goal?

Accepted Answer

A Spendthrift Clause.

Answer

A Spendthrift Clause protects the policy proceeds from the claims of the beneficiary's creditors. It does this by giving the insurance company the right to hold the proceeds and pay them out to the beneficiary in installments, rather than a lump sum. Creditors generally cannot compel the insurer to pay them directly from the policy proceeds held by the company.

Question 4

An employee has been covered under her employer's group life insurance plan for seven years. Her employment is terminated, and she wants to continue her life insurance coverage. Which of the following accurately describes her rights under the typical conversion privilege?

Accepted Answer

She can convert to an individual permanent policy for an amount up to the group coverage amount without proving insurability.

Answer

The group life conversion privilege allows a departing employee to convert their group coverage to an individual permanent life insurance policy (e.g., whole life) without providing evidence of insurability. The conversion must typically be done within 31 days of termination, and the amount of coverage cannot exceed the amount the employee had under the group plan.

Question 5

Which of the following statements best distinguishes a viatical settlement from a life settlement from a legal and regulatory standpoint?

Accepted Answer

A viatical settlement is legally defined by the insured having a terminal or chronic illness, often with a life expectancy of 24 months or less.

Answer

The primary legal and defining difference between a viatical and a life settlement is the health status of the insured. A viatical settlement involves an insured who is terminally or chronically ill, typically with a life expectancy of two years or less. A life settlement is for a policyowner (usually a senior) who is not terminally ill but wishes to sell their policy.

CLU - Chartered Life Underwriter Practice Test

CLU - Chartered Life Underwriter Practice Test

CLU Life Insurance Legal Aspects Questions and Answers