chapter 9

DIVIDENDS
-of unneeded premium
(not taxable to recipient)
Insurance company had a good
year; low mortality & expenses &
high investment returns
-Payable to the policy owner when the insurer has extra surplus it can share
-Not guaranteed
-Normally policy must have been in force for 2 years before any dividends are payable
DIVIDEND OPTIONS
-CASH
-REDUCTION OF PREMIUM
-DIVIDEND ACCUMULATIONS or
-ACCUMULATE AT INTEREST
-PAID-UP ADDITIONS
-TERM INSURANCE (5TH OPTION)
-PAID-UP CONTRACT
AUTOMATIC DIVIDEND OPTION
If the policy owner does not choose an option one will automatically be selected
(Normally – Paid Up Additional Insurance)
CASH
Insurer issues policy owner a check
REDUCTION OF PREMIUM
Insurer applies the dividend to next year’s renewal premium
DIVIDEND ACCUMULATIONS (ACCUMULATE AT INTEREST)
-Insurer establishes savings account for the policy owner. This account is paid out at surrender to the owner or to the beneficiary upon death of the insured.
PAID-UP ADDITIONS
Insurer uses dividends as Net Single Premiums to purchase paid-up additional insurance in the same type of plan as the original policy in whatever face amount of coverage the dividend can provide
(Mother In-Law Story)
TERM INSURANCE
(5TH DIVIDEND OPTION)
-Insurer uses dividends as Net Single Premiums to purchase one year term insurance equal in face amount to what the cash value can afford to buy
-Not offered by some companies
PAID-UP CONTRACT
-Insurer adds dividends to payments already being made by the owner in order to pay-up or endow contract earlier than originally planned
Disappearance of Insured
-Courts may declare a person dead if disappearance likely related to their demise
>>Normally require:
-7 yrs absence in most jurisdictions
-Absence unexplained
-Reasonable search completed
-No one communicated with insured
SETTLEMENT OPTIONS
-Options provided to the beneficiary or policy owner at the time of death or maturity in regards to how they would like the insurance company to distribute the proceeds of the life insurance policy
-Most Americans take a cash
pay out since it is a
“Tax Free” distribution
-A policy owner can select a settlement option and change at any time during the life time of the insured
-If the option selected is not irrevocable or if none is selected the beneficiary can change at the time of the insured’s death
SETTLEMENT OPTIONS are ..
-CASH
-INTEREST OPTION
-FIXED-PERIOD OPTION
-FIXED-AMOUNT OPTION
-LIFE INCOME OPTIONS
Life Income
Life Income with Period Certain
Life Income with Refund
Joint & Survivor Incom
CASH option
Lump sum payment to beneficiary
INTEREST OPTION
-Money remains with insurer and
only interest paid to beneficiary
-Guaranteed or current interest paid
-Interest normally paid annually
-Interest allowed to accumulate for > of life of payee or 30 years
-Can withdrawal all or part at any time
-Can move to another settlement option
FIXED-PERIOD OPTION
-Money paid to beneficiary for
a fixed period of time
-Payments consist of part proceeds and
part interest accumulations
-Guaranteed or current interest paid
-If not made irrevocable, payee can
change option at any time
-Designed to pay until other income
begins; pension, retirement, etcetera
FIXED-AMOUNT OPTION
-Fixed amount is paid until the money is exhausted
-Payments consist of part proceeds and part interest accumulations
-Guaranteed or current interest paid
-Payee can change payments at any time
-Designed to pay until other income is available
LIFE INCOME OPTIONS
-Installments paid for life
-Insurer uses the policy proceeds
as a Net Single Premium to
purchase a Life Annuity
-Smaller monthly amount versus
fixed-amount or fixed-period
-Other “Life” options offered
Life Income (Straight life)
Payments are guaranteed for the
lifetime of the annuitant and cease on death
Life Income with Period Certain
Guaranteed payments made to
contingent beneficiary for # of set yrs
Life Income with Refund
All proceeds paid out in installments
or lump sum to another beneficiary
Joint & Survivor Income
Payments made to two or more people until both or all individuals have died
Calculating the amount of benefit that is payable
Factors:
Factors:
Death Benefit
Accidental Death Benefit
Unpaid policy dividends
Accumulated dividends
Paid up additions
Unearned premium advances
Outstanding loans
Unpaid premiums
Death Benefit
-Normally policies face amount
-Under reduced paid up nonforfeiture option – face amount has been decreased
-Some cash value policies provide face plus cash value
-Age &/or Sex Misstatements can adjust benefit amount
Accidental Death Benefit
Additional benefits which may add to the stated face amount if the insured died as a result of a qualified accident under the terms of the rider
Unpaid policy dividends
Dividends declared but not yet
paid would be added to any
death benefit now owed
Accumulated dividends
If the “Accumulate with Interest” Dividend option has been selected, and consequently dividends have been left on deposit with the insurer, these would now be added to the death benefit
Paid up additions
If this option has been selected the face amount of any additions must be added to the death benefit
Unearned premium advances
The unearned portion of premiums paid in advance would be returned
(Remember man signing surrender form and then dying.)
Outstanding loans
All outstanding loans plus interest – the total of any indebtedness is subtracted from the death benefit
Unpaid premiums
Any overdue premium is subtracted from the death benefit. This occurs when the policy is in a grace period
1. Which of the following statements about the ownership of a life insurance policy is (are) true?

I. Under the ownership clause, the policyowner and beneficiary equally share all contractual rights in the policy while the insured is living.

II. The policyowner can designate a new owner by filing an appropriate form with the insurance company.

II only
2. Which of the following statements about the entire contract clause is true?

(a) It allows the insurer to void a policy if the insured made misrepresentations to the agent when the policy was purchased.
(b) It specifies that all statements in the application are considered warranties.
(c) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties.
(d) It prevents the insurer from contesting a policy after it has been in force for 2 years during the lifetime of the insured.

(c) It specifies that the life insurance policy and the attached application constitute the complete agreement between the parties.
3. All of the following are reasons an insurer can contest a policy after the contestable period has ended EXCEPT

(a) The beneficiary purchased a policy with the intent of murdering the insured.
(b) An insurable interest did not exist at the inception of the policy.
(c) The applicant for insurance had someone else take the medical examination required for policy approval.
(d) The policyowner concealed a material fact at the time of application.

(d) The policyowner concealed a material fact at the time of application.
4. Bert purchased a life insurance policy 4 years ago. He inadvertently stated that he was 3 years younger than his actual age. If Bert dies today, how much will the insurance company pay?

(a) nothing
(b) less than the policy face value
(c) the policy face value
(d) more than the policy face value

(b) less than the policy face value
5. Which of the following statements about beneficiary designations is true?
(a) A primary beneficiary is entitled to the death proceeds of a life insurance policy only if the contingent beneficiary dies before the insured.
(b) If a revocable beneficiary designation is used, the insured must obtain the beneficiary’s permission to exercise most policy rights.
(c) The effect of a class beneficiary is to divide death proceeds equally among members of a particular group.
(d) Naming the insured’s estate as primary beneficiary is the best way to avoid probate expenses, inheritance taxes, and creditors.
(c) The effect of a class beneficiary is to divide death proceeds equally among members of a particular group.
6. Which of the following statements about the assignment of a life insurance policy is true?

(a)The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary.
(b) Under an absolute assignment, the only right transferred to a new owner is the right to change the beneficiary designation.
(c) As long as a collateral assignment exists, a creditor will receive the entire death benefit even if the loan has been paid off.
(d) Assignment may be made only with the permission of the insurer and the beneficiary.

(a)The insurer must be notified of any assignment or the death proceeds will be paid to the named beneficiary.
7. What major feature distinguishes a participating policy from a nonparticipating policy?

(a) the availability of a waiver-of-premium provision
(b) the existence of settlement options
(c) the payment of dividends
(d) the method by which beneficiaries can be named

(c) the payment of dividends
8.All of the following are common dividend options found in participating whole life insurance policies EXCEPT

(a) reduction of premiums.
(b) dividend accumulations.
(c) purchase of paid-up insurance.
(d) purchase of insurance company stock.

(d) purchase of insurance company stock.
9. Which of the following statements about dividend options is (are) true?

I. The interest on dividends left to accumulate with the insurer is not considered to be taxable income.

II. Paid-up additions are a form of whole life insurance.

II only
10. Which of the following about life income settlement options is true?

I. Under a joint-and-survivor life income option, payments cease at the death of the first annuitant.

II. Under a life income with period certain, a contingent beneficiary is guaranteed a minimum number of payments regardless of when the primary beneficiary dies.

neither
11. The practice of buying the life insurance policy of a terminally ill insured at a discount is referred to as a

(a) collateral assignment.
(b) viatical settlement.
(c) catastrophic illness conversion.
(d) grace period transaction.

(b) viatical settlement.
12. When Alexander Volkov purchased a life insurance policy he used “my children” to identify the group of people who were to receive the proceeds of his policy upon his death. This is what type of designation?

A. Primary beneficiary
B. Contingent beneficiary
C. Revocable beneficiary
D. Class designation

D. Class designation
13. The method of changing the beneficiary of a life insurance policy requiring that the name of the new beneficiary be added to the policy to effect the change is which of the following?

A. Community-property states
B. Recording method
C. Endorsement method
D. Automatic addition

C. Endorsement method
14. A dividend option under which policy dividends are left on deposit with the insurer and earn interest.

A. Automatic dividend option
B. Cash dividend option
C. Premium reduction option
D. Accumulation at interest option

D. Accumulation at interest option
15. A dividend option under which the insurer applies policy dividends toward the payment of renewal premiums

A. Automatic dividend option
B. Cash dividend option
C. Premium reduction option
D. Accumulation at interest option

C. Premium reduction option
16. Generally, dividends paid on participating life insurance policies

a. increase as the age of the policy increases
b. decrease as the age of the policy increases
c. increase as the age of the policy decreases
d. are the same, regardless of the age of the policy

a. increase as the age of the policy increases
17. One true statement about the paid-up additional insurance dividend option is that the
a. premium charged for paid-up additions includes an amount to cover the insurer’s expenses
b. cost of paid-up additions is less than the cost of comparable coverage provided by a new life insurance policy
c. premiums for paid-up additions are based on the insured’s age when the original policy was issued
d. paid-up additions are always issued as term insurance
b. cost of paid-up additions is less than the cost of comparable coverage provided by a new life insurance policy
18. Which of the following is an act that governs how insurance companies are to evaluate common disaster situations.

a. Interpleader act
b. Simultaneous death act
c. Fraudulent claim act
d. Survivorship act

b. Simultaneous death act
19. A clause in some life insurance policies stating the beneficiary must survive the insured by a specified period, (30, 60 , or 90 days), to be entitled to receive the policy proceeds, is called the

a. Interpleader
b. Common Disaster Clause
c. Fraudulent claim act
d. Survivorship clause

d. Survivorship clause
20.Which of the following is a
procedure under which an insurer cannot determine which claimant is entitled to receive proceeds and may pay such proceeds to, and ask a court to decide?

a. Interpleader
b. Simultaneous death act
c. Court transfer
d. Survivorship clause

a. Interpleader
21. Martin Maxwell was insured for $100,000. At time of death, Mr. Martin had not paid the renewal premium of $100. The beneficiary of Mr. Martin’s policy is entitled to receive

a. no payment of any kind
b. a refund of the premiums paid
c. the policy’s $100,000 death benefit, minus the unpaid premium
d. entire $100,000 death benefit

c. the policy’s $100,000 death benefit, minus the unpaid premium
22. Edward Rostov was insured under a $100,000 policy. At the time of death, Mr. Rostov owned $1,000 in paid-up additions and had a $5,000 outstanding loan. The beneficiary is entitled to receive

a. $95,000
b. $96,000
c. $100,000
d. $101,000

b. $96,000
23.Carmen Arguelo was insured for $200,000. At the time of death, the insurer had on deposit $500 of unearned premiums and $500 in accumulated dividends. The total benefit payable on Ms. Arguelo’s policy is

a. $199,000
b. $200,000
c. $200,500
d. $201,000

d. $201,000
24. Before a court will find that an insured who has disappeared without explanation is dead, the
insured typically must have been missing for how many years?

a. 6
b. 7
c. 8
d. 9

b. 7

Get access to
knowledge base

MOney Back
Guarantee
No Hidden
Charges
Unlimited
Knowledge base
Become a Member
Haven't found the Essay You Want? Get your custom essay sample For Only $13.90/page