Texas Life & Health Insurance Exam — All Questions

The incontestability provision in a life insurance policy provides that after the policy has been in force for a stated period (typically two years), the insurer:

• a.Cannot void the policy or deny a claim due to a misstatement on the application, except in cases of fraud where allowed by law✓
• b.Must double the death benefit
• c.May cancel the policy for any reason
• d.May raise the premium based on the insured's health

The incontestability clause bars the insurer from contesting the policy (voiding it or denying a claim) based on misstatements in the application once it has been in force for the contestable period, usually two years, giving beneficiaries certainty. It does not let the insurer cancel at will, nor does it increase the death benefit or permit premium increases based on health. Its purpose is to protect the insured/beneficiary from having a long-standing policy challenged over an old application error.

The grace period provision in a life insurance policy means that if a premium is not paid on its due date:

• a.The policy immediately lapses with no coverage
• b.The death benefit is permanently reduced
• c.The policy stays in force for a set period (such as 30 days) during which the overdue premium can still be paid✓
• d.The insurer must refund all prior premiums

The grace period keeps coverage in force for a specified time after the premium due date (commonly 30 or 31 days), so a late-paying policyowner does not lose protection; if the insured dies during the grace period, the death benefit is paid minus the premium owed. The policy does not lapse immediately, so the second option is wrong. The insurer is not required to refund prior premiums, and the death benefit is not permanently reduced simply because a payment was late.

A policyowner surrenders a whole life policy and elects to receive the accumulated cash value in a lump sum. This is an example of exercising which type of option?

• a.A dividend option
• b.A nonforfeiture option✓
• c.A settlement option
• d.A policy loan

Nonforfeiture options govern what a policyowner may do with the guaranteed cash value if the policy is surrendered or lapses; the three standard choices are cash surrender, reduced paid-up insurance, and extended term insurance. Dividend options apply to how dividends from a participating policy are used. Settlement options determine how the death benefit (or surrender proceeds) is paid out over time to a payee. A policy loan borrows against cash value without surrendering the policy, so coverage continues; here the owner is giving up the policy for cash.

A rider that keeps a life insurance policy in force by paying the premiums for the policyowner if the insured becomes totally disabled is called the:

• a.Accidental death benefit rider
• b.Cost-of-living rider
• c.Waiver of premium rider✓
• d.Guaranteed insurability rider

The waiver of premium rider excuses the policyowner from paying premiums (the insurer pays them) while the insured is totally disabled, usually after a waiting period, keeping the policy fully in force. The accidental death benefit rider pays an additional amount if death results from an accident. The guaranteed insurability rider lets the owner buy additional coverage at set times without new evidence of insurability. The cost-of-living rider increases the death benefit to keep pace with inflation. Only waiver of premium addresses paying premiums during disability.

The 'entire contract' provision in a life insurance policy states that the complete agreement between the parties consists of:

• a.The printed policy form by itself
• b.The insurer's marketing brochures and advertising
• c.All verbal promises the producer made during the sale before the policy was delivered
• d.The policy together with any attached application and riders✓

The entire contract provision provides that the policy, the attached copy of the application, and any attached riders or endorsements together make up the whole agreement, so nothing outside those documents can be used to alter it. The printed policy alone is incomplete without the application. Verbal promises by the producer and marketing materials are not part of the contract. This provision protects the insured by preventing the insurer from relying on outside documents to change coverage.

To reinstate a lapsed life insurance policy under the reinstatement provision, the policyowner generally must:

• a.Provide evidence of insurability and pay the overdue premiums with interest✓
• b.Wait a full five years before applying
• c.Purchase an additional rider on the policy
• d.Simply request reinstatement, with nothing further required of the policyowner at all

Reinstating a lapsed policy typically requires the owner to show renewed evidence of insurability, pay all back premiums plus interest, and repay or reinstate any outstanding loan, all within the time allowed by the provision. It is not automatic on request. There is no five-year waiting requirement (there is instead a deadline by which reinstatement must occur). Buying a rider is unrelated. Reinstatement is often preferable to a new policy because it preserves the original issue age and provisions.

The automatic premium loan provision helps prevent a policy from lapsing by:

• a.Borrowing the premium from the named beneficiary
• b.Using the policy's available cash value to pay an overdue premium✓
• c.Reducing the death benefit to zero until payment resumes for the entire lapsed period
• d.Automatically converting the policy to term insurance

The automatic premium loan provision, if elected, draws on the policy's cash value to cover a premium that was not paid by the end of the grace period, keeping the coverage in force as a policy loan. It does not borrow from the beneficiary, does not zero out the death benefit, and does not convert the policy to term. This feature guards against unintentional lapse, though it does reduce the cash value and, if unpaid, the death benefit by the loan amount.

Under the 'reduced paid-up' nonforfeiture option, the policyowner uses the cash value to obtain:

• a.A lifetime annuity beginning immediately
• b.A smaller amount of fully paid-up permanent insurance with no further premiums due✓
• c.Term insurance equal to the original full face amount, which is the extended term nonforfeiture option instead
• d.The entire cash value paid out in a single lump sum

The reduced paid-up option converts the existing cash value into a single premium for a smaller amount of permanent insurance that is completely paid up, so coverage continues for life with no more premiums. Taking the cash in a lump sum is the cash surrender option. Term insurance for the full face amount is the extended term option. A lifetime annuity is not a nonforfeiture option. Reduced paid-up keeps permanent coverage in force at a lower face amount without ongoing payments.

Under the 'extended term' nonforfeiture option, the policy's cash value is used to purchase:

• a.Paid-up dividend additions
• b.An immediate life annuity
• c.A smaller amount of paid-up permanent insurance, which is the reduced paid-up nonforfeiture option instead
• d.Term insurance for the same face amount for as long as the cash value will provide it✓

The extended term option uses the net cash value as a single premium to buy term insurance equal to the original face amount, lasting for whatever period that amount of cash value will fund. A smaller paid-up permanent policy is the reduced paid-up option. An annuity and paid-up additions are not nonforfeiture choices (paid-up additions are a dividend option). Extended term is frequently the automatic (default) nonforfeiture option if the owner makes no election.

The dividend option that applies dividends to buy small amounts of additional permanent, paid-up coverage is called:

• a.Reduction of premium
• b.Cash payment
• c.Accumulation at interest
• d.Paid-up additions✓

The paid-up additions option uses each dividend as a single premium to purchase a small amount of additional paid-up whole life coverage, which itself earns dividends and builds cash value. The cash option simply pays the dividend to the owner. Reduction of premium applies the dividend against the next premium due. Accumulation at interest leaves the dividend with the insurer to earn interest. Paid-up additions are popular because they increase both the death benefit and cash value over time.

Under the 'accumulation at interest' dividend option, the interest credited on the accumulated dividends is:

• a.Never required to be reported to anyone
• b.Taxable as income to the policyowner✓
• c.Always added to the death benefit free of any tax
• d.Automatically refunded to the insurer each year

While policy dividends themselves are generally treated as a nontaxable return of premium, the interest earned when dividends are left to accumulate at interest is taxable income to the policyowner in the year it is credited. It is not exempt from reporting, is not always tax-free, and is not refunded to the insurer. This is a common exam point: the dividend is not taxed, but the interest it earns is.

Under the 'interest only' settlement option, the insurer:

• a.Retains the death benefit and pays the beneficiary the interest it earns, holding the principal for later✓
• b.Guarantees payments for the beneficiary's entire lifetime
• c.Pays equal installments until the proceeds are exhausted
• d.Pays the entire death benefit to the beneficiary immediately in a single lump sum rather than holding any of the proceeds

Under the interest only option, the insurer keeps the death benefit (principal) and periodically pays the beneficiary the interest it earns, with the principal paid out later according to the arrangement. Paying the full benefit at once is a lump-sum settlement. Equal installments until funds run out describe the fixed period or fixed amount options. Payments for life describe the life income option. Interest only is often used to preserve the principal while providing current income.

The settlement option that pays equal installments for a chosen length of time until the proceeds and interest are used up is the:

• a.Life income option
• b.Fixed amount option
• c.Interest only option
• d.Fixed period option✓

The fixed period option spreads the proceeds plus interest into equal payments over a set number of years chosen by the owner or beneficiary; the payment size depends on how long the period is. The life income option pays for the payee's life. The interest only option pays just the interest and preserves principal. The fixed amount option sets the dollar amount per payment and lets the time period vary. Fixed period fixes the time and solves for the payment.

Under the fixed amount settlement option, the beneficiary receives:

• a.A chosen dollar amount per payment until the proceeds and interest are fully used up✓
• b.The entire benefit in one single payment
• c.Only the interest the proceeds earn each year
• d.Guaranteed payments for the rest of their life, which is what the life income settlement option provides

With the fixed amount option, the beneficiary (or owner) selects the dollar amount of each installment, and payments of that amount continue until the proceeds plus interest are exhausted, so the number of payments varies. Lifetime payments describe the life income option. Interest-only payments describe the interest only option. A single payment is a lump sum. Fixed amount fixes the payment size and lets the duration float, the mirror image of the fixed period option.

The 'life income' settlement option guarantees that payments will continue:

• a.Until the proceeds run out, regardless of how long the payee lives
• b.Only to the payee's estate after death
• c.For as long as the payee lives, no matter how long that is✓
• d.For exactly ten years and then stop

The life income option converts the proceeds into an income the payee cannot outlive, continuing for the payee's entire lifetime; because the insurer bears longevity risk, the payment amount depends on the payee's age and life expectancy. It is not limited to ten years, is not simply paid until funds run out, and is not paid to the estate. Life income is the option that protects a beneficiary against outliving the money.

A contingent (secondary) beneficiary receives the death benefit:

• a.Always, sharing it equally with the primary beneficiary named first in line
• b.Only if the primary beneficiary has died before the insured✓
• c.Only when named as irrevocable
• d.Ahead of the primary beneficiary

A contingent beneficiary is next in line and receives the proceeds only if the primary beneficiary has predeceased the insured (or otherwise cannot take them). The contingent does not share with a living primary, does not take ahead of the primary, and does not depend on being irrevocable. Understanding the order, primary first, then contingent, then tertiary, is essential for knowing who is paid when.

To change an irrevocable beneficiary designation, the policyowner must:

• a.Obtain the written consent of that beneficiary✓
• b.Wait until the policy is two years old
• c.Cancel and rewrite the entire policy
• d.Simply file a change-of-beneficiary form with the insurer

An irrevocable beneficiary has a vested interest in the policy, so the owner cannot change the designation, take a policy loan, or make certain other changes without that beneficiary's written consent. A revocable beneficiary, by contrast, can be changed at the owner's discretion with a simple form. There is no two-year waiting rule for this, and the policy need not be canceled. The consent requirement is what distinguishes an irrevocable from a revocable beneficiary.

When proceeds are distributed 'per stirpes' and a named beneficiary dies before the insured, that beneficiary's share:

• a.Is divided among the surviving named beneficiaries who remain
• b.Always reverts to the insured's estate
• c.Is added to the insurer's reserves
• d.Passes to that beneficiary's own descendants (heirs)✓

Per stirpes ('by the branch') distribution sends a deceased beneficiary's share down to that beneficiary's descendants, keeping the money within that family branch. It is not kept by the insurer. Dividing the share among the surviving named beneficiaries describes per capita ('by the head') distribution instead. It does not automatically go to the estate. The per stirpes versus per capita distinction determines whether a deceased beneficiary's line still receives its share.

The accidental death benefit rider pays:

• a.A benefit for death from any cause whatsoever
• b.The cash value to the owner at policy maturity
• c.An additional amount, often equal to the face (double indemnity), when death results from a covered accident✓
• d.A monthly income while the insured is disabled, which is the benefit of a disability income policy rather than an accidental death rider

The accidental death benefit rider pays an extra sum, frequently doubling the face amount (double indemnity), when the insured dies as the direct result of a covered accident, usually within a set time of the accident. It does not add benefits for death from any cause, does not pay disability income, and does not pay cash value at maturity. Because it covers only accidental death, it is inexpensive but narrow in scope.

The guaranteed insurability rider allows the policyowner to:

• a.Have premiums waived during a period of total disability, which is the function of the separate waiver of premium rider
• b.Purchase additional coverage at specified future dates without providing new evidence of insurability✓
• c.Direct the cash value into investment sub-accounts
• d.Advance part of the death benefit for a terminal illness

The guaranteed insurability rider lets the owner buy additional insurance at predetermined future dates or events (such as certain ages, marriage, or the birth of a child) without proving insurability again, protecting future coverage against a decline in health. Directing cash value to sub-accounts is a variable product feature. Waiving premiums during disability is the waiver of premium rider. Advancing the death benefit for terminal illness is the accelerated death benefit rider. This rider preserves the ability to add coverage later.

The accelerated death benefit (living benefit) rider allows the insured to:

• a.Double the death benefit if death is caused by an accident, which is the accidental death benefit rider and not a living benefit
• b.Add coverage on a spouse or child to the policy
• c.Borrow against accumulated policy dividends
• d.Receive a portion of the death benefit early after a diagnosis of a qualifying terminal or chronic illness✓

The accelerated death benefit rider advances part of the policy's death benefit to the insured while still living if they are diagnosed with a qualifying condition such as a terminal or chronic illness, helping pay for care; the amount advanced reduces the benefit later paid to the beneficiary. Doubling the benefit for accidental death is the accidental death rider. Adding a spouse or child is a family or other-insured rider. Borrowing against dividends is unrelated. This rider provides funds during a serious illness.

A cost-of-living (COLA) rider on a life insurance policy is designed to:

• a.Pay policy dividends to the owner in cash
• b.Refund all premiums paid when the insured dies, a feature that belongs to a return-of-premium design rather than a cost-of-living rider
• c.Increase the death benefit periodically to offset inflation, usually without new evidence of insurability✓
• d.Lower the premium a little each year

A cost-of-living rider automatically increases the policy's death benefit at intervals, typically tied to an inflation index, so the coverage keeps pace with rising prices, and these increases usually require no additional evidence of insurability. It does not reduce premiums (increased coverage generally costs more), does not refund premiums, and is unrelated to paying dividends. The rider protects the real value of the death benefit against inflation over time.

Under the standard suicide clause, if the insured dies by suicide within the first two policy years, the insurer will:

• a.Pay the entire face amount without question to the beneficiary right away
• b.Pay double the policy's face amount
• c.Refund the premiums paid rather than pay the full face amount✓
• d.Deny all liability, keeping the premiums

The suicide clause provides that if the insured dies by suicide during the initial period (usually two years), the insurer's liability is limited to a refund of the premiums paid rather than payment of the death benefit; after that period, suicide is covered like any other death. The insurer does not pay double, does not pay the full face amount during the exclusion period, and does not simply keep the premiums. The clause protects the insurer against someone buying a policy intending to die soon after.

If an insured's age was misstated on the application, the misstatement of age provision requires the insurer to:

• a.Double the premium going forward for the remaining life of the policy as a penalty for the reporting error
• b.Void the policy from its start
• c.Adjust the death benefit to what the premiums paid would have purchased at the correct age✓
• d.Refund every premium collected

The misstatement of age (or sex) provision does not void the policy; instead, if the error is discovered, the benefit is adjusted to the amount the premiums actually paid would have bought at the insured's true age. The insurer does not rescind the coverage, refund all premiums, or double the premium. This provision keeps the insurer's risk consistent with the premium charged while preserving the policy for the insured.

An 'absolute assignment' of a life insurance policy:

• a.Permanently transfers all ownership rights in the policy to another party✓
• b.Transfers only the policy's cash value, not ownership, which is not how an absolute assignment works
• c.Is only temporary and expires after one year
• d.Applies solely to the policy's dividends

An absolute assignment is a complete and permanent transfer of all ownership rights in the policy to a new owner (assignee), such as in a gift or sale of the policy. It is not temporary and does not apply only to dividends. It transfers ownership itself, not merely the cash value. By contrast, a collateral assignment is a partial, temporary transfer of certain rights (usually to a lender as security for a loan). The word 'absolute' signals a full ownership change.

A spendthrift clause applied to policy proceeds held under a settlement option is intended to:

• a.Allow the beneficiary to borrow the proceeds freely and assign them to creditors, which is the opposite of what the clause is meant to do
• b.Protect the proceeds the insurer is holding from the beneficiary's creditors and from being spent all at once✓
• c.Increase the total death benefit paid
• d.Speed up the payment of the proceeds

A spendthrift clause keeps proceeds that the insurer is paying out over time out of the reach of the beneficiary's creditors and prevents the beneficiary from assigning or hastily withdrawing the entire amount, protecting an unsophisticated or vulnerable beneficiary. It does not speed up payment, increase the benefit, or allow free borrowing. The clause works only while the insurer holds the funds under an installment-type settlement option, not after a lump sum is paid.

A life policy has been in force well beyond its incontestable period. For which reason may the insurer still refuse to pay a death claim?

• a.The insured misstated a minor detail about a childhood illness on the original application
• b.The premium was never paid, so the coverage had actually lapsed before death✓
• c.The beneficiary designation had been changed more than once over the years
• d.The insured took up a dangerous hobby after the policy was issued

Incontestability bars the insurer from voiding the policy over application misstatements after the contestable period, but it does not create coverage that never existed; if the policy had lapsed for nonpayment, there is nothing to pay. A post-issue change of hobby or beneficiary does not void a policy, and old application misstatements can no longer be contested.

An insured dies during the grace period with one premium still unpaid. The insurer will most likely:

• a.Deny the claim because the premium was overdue
• b.Refund only the cash value to the beneficiary
• c.Pay the full death benefit and then bill the estate for the missed premium plus a penalty
• d.Pay the death benefit, reduced by the overdue premium✓

The grace period keeps coverage in force after the due date, so a death during that window is a covered claim; the insurer simply deducts the one unpaid premium from the proceeds. It neither denies the claim nor limits payment to cash value, and it does not add penalties.

Which of the following is NOT a typical requirement or effect of reinstating a lapsed life policy?

• a.A new contestable/incontestability period begins for statements made in the reinstatement application
• b.The policyowner receives a brand-new free-look (right-to-examine) period as if buying a new policy✓
• c.The policyowner must provide evidence of insurability
• d.Overdue premiums must be paid, usually with interest

Reinstatement restores the original contract, so it does not trigger a fresh free-look period. It does require proof of insurability, payment of back premiums with interest, and it restarts the contestable and suicide periods for the reinstatement application.

A major advantage of reinstating a lapsed policy rather than buying a brand-new one is that:

• a.The insurer waives all future underwriting for the life of the contract
• b.Premiums are based on the original (younger) issue age rather than the insured's current age✓
• c.Reinstatement lets the owner keep the original policy while the insurer forgives every overdue premium and all accrued interest as a courtesy
• d.The face amount is automatically doubled upon reinstatement

A reinstated policy keeps its original issue-age premium, which is normally lower than a new policy bought at the insured's older attained age. Premiums are still owed, the face amount is unchanged, and reinstatement itself requires evidence of insurability.

The insured's age was understated on a life application, and the error is found at the time of death. Under the misstatement of age provision, the insurer will:

• a.Adjust the death benefit to the amount the premiums paid would have purchased at the correct age✓
• b.Deny the claim entirely for material misrepresentation
• c.Pay the full face amount exactly as originally applied for, with no adjustment
• d.Automatically void the contract from inception and refund every premium the policyowner has paid over the years, with interest

Misstatement of age is corrected by adjusting benefits, not by voiding the contract; the insurer pays what the premiums actually paid would have bought at the true age. It is not treated as fraud, and the face amount is not paid unchanged when the age was wrong.

Because a misstatement understated the insured's true (older) age, the premiums charged were too low. The adjusted death benefit will therefore be:

• a.Higher than the stated face amount
• b.Reduced to zero because the application was inaccurate
• c.Exactly equal to the stated face amount
• d.Lower than the stated face amount✓

When the real age is older than stated, the premium paid was insufficient, so it would have purchased less coverage; the benefit is reduced accordingly. The policy is not voided, and the benefit is neither unchanged nor increased.

An insured dies by suicide 14 months after the policy was issued. The insurer will most likely:

• a.Deny all liability for the claim and simply retain every premium the policyowner had paid into the contract
• b.Refund the premiums paid (or return the cash value) instead of paying the face amount✓
• c.Pay double the face amount under the accidental death provision
• d.Pay the full death benefit like any other claim

A death by suicide within the suicide-clause period (commonly two years) is not paid as a death benefit; the insurer instead returns the premiums paid. Suicide is not an accidental death, and the insurer does not simply keep the premiums.

If suicide occurs after the policy's suicide-clause period (commonly two years) has elapsed, the insurer will:

• a.Pay one-half of the face amount
• b.Deny the claim as an excluded cause of death
• c.Pay the full death benefit like any other covered claim✓
• d.Refund only the premiums paid

Once the suicide period has passed, suicide is treated as any other cause of death and the full benefit is paid. Refunding premiums or denying the claim applies only within the initial suicide period.

The free-look provision in a life insurance policy gives the policyowner the right to:

• a.Change the named insured on the contract within the first month of ownership without providing new evidence of insurability
• b.Cancel the policy at any point during the first year and receive all premiums back
• c.Examine the delivered policy for a set number of days and return it for a full premium refund✓
• d.Borrow against the cash value immediately after issue

The free-look lets the owner review the actual delivered policy for a stated number of days (often 10) and return it for a full refund if unsatisfied. It is not a loan right, an unlimited first-year cancellation, or a way to change the insured.

Under the entire contract provision, the insurer may NOT:

• a.Amend the policy later by referencing the insurer's bylaws or other documents not attached to the contract✓
• b.Include an insuring clause stating its promise to pay
• c.Attach a copy of the application to the issued policy
• d.Attach the application to the policy and treat the two documents together as constituting the entire agreement between the insurer and the policyowner

The entire contract provision means the policy plus the attached application form the whole agreement; the insurer cannot alter it by pointing to outside documents such as its bylaws. Attaching the application, incorporating it, and including an insuring clause are all normal and permitted.

Which right belongs to the policyowner rather than to the insured (when they are different people)?

• a.Choosing whether to undergo a medical examination
• b.Determining the official medical cause of the insured's death for the purpose of certifying the claim to the company
• c.Naming and changing the beneficiary, taking policy loans, and surrendering the policy✓
• d.Setting the reserves the insurer must hold

Ownership rights, such as naming beneficiaries, borrowing, and surrendering, belong to the policyowner, who may or may not be the insured. Medical exams involve the insured, cause of death is a medical fact, and reserves are the insurer's actuarial obligation.

A policyowner assigns a life policy to a bank as security for a loan, intending the bank to have rights only up to the outstanding loan balance. This is a:

• a.Irrevocable beneficiary designation
• b.Absolute assignment
• c.Collateral assignment✓
• d.Change of insured

A collateral assignment transfers rights only to the extent of a debt, so anything above the loan balance still goes to the named beneficiary. An absolute assignment transfers all ownership, and neither a change of insured nor an irrevocable beneficiary describes pledging a policy for a loan.

A revocable beneficiary designation means the policyowner:

• a.Must obtain the beneficiary's written consent to make any change
• b.May change the beneficiary at any time without the beneficiary's consent✓
• c.Is legally barred from ever changing the beneficiary designation once the original choice has been recorded
• d.Has permanently given up ownership of the policy to the beneficiary

A revocable beneficiary has only an expectation, so the owner may change the designation at will. Needing consent describes an irrevocable beneficiary; the owner neither loses the right to change nor gives up ownership.

If a beneficiary is named irrevocably, the policyowner generally may NOT do which of the following without that beneficiary's consent?

• a.Keep the policy in force
• b.Continue to review and read the entire policy contract at any time without asking the beneficiary for permission
• c.Continue paying the policy premiums
• d.Change the beneficiary, take a policy loan, or surrender the policy✓

An irrevocable beneficiary has a vested interest, so ownership actions that could reduce or eliminate their interest, changing them, borrowing, or surrendering, require their consent. Paying premiums, reading the contract, and keeping it in force do not.

A death benefit is payable 'per stirpes.' If a primary beneficiary dies before the insured, that beneficiary's share will:

• a.Revert to the insurer
• b.Pass to that deceased beneficiary's own descendants (heirs)✓
• c.Automatically be paid to the insured's estate
• d.Be split among the surviving primary beneficiaries

Per stirpes ('by the branch') directs a deceased beneficiary's share down to that beneficiary's own descendants. Splitting it among survivors describes per capita, and the share does not revert to the insurer or default to the estate.

Under a per capita distribution among named beneficiaries, the proceeds are divided:

• a.In proportion to each beneficiary's premium contribution
• b.Equally among the surviving named beneficiaries at that level✓
• c.Entirely to the oldest surviving beneficiary
• d.By family branch, passing to descendants of a deceased beneficiary

Per capita ('by the head') splits the proceeds equally among the beneficiaries who are living to receive them. Passing a deceased beneficiary's share to their descendants is per stirpes; age and contribution do not determine the split.

Under a common disaster (simultaneous death) provision, if the insured and primary beneficiary die in the same accident and the order of death cannot be determined, proceeds are paid as though:

• a.The insurer proceeds as though neither the insured nor the primary beneficiary had actually died in the common accident, keeping the policy in force
• b.The insurer may retain the proceeds
• c.The insured survived the beneficiary, so proceeds go to the contingent beneficiary or the estate✓
• d.The primary beneficiary survived the insured

The common disaster clause presumes the insured outlived the beneficiary, so the money flows to the contingent beneficiary (or the estate) rather than into the deceased beneficiary's estate. It never lets the insurer keep the proceeds.

A contingent (secondary) beneficiary receives the death benefit when:

• a.The policy has lapsed for nonpayment
• b.The insured is still alive and paying premiums
• c.The primary beneficiary has died before the insured or cannot be located✓
• d.A scheduled premium payment is merely a few days late and still well within the policy's stated grace period

A contingent beneficiary is next in line and is paid only if no primary beneficiary is available at the insured's death. A living insured, a lapsed policy, or a late premium does not trigger payment.

A common problem with naming a minor child as the direct beneficiary of a life policy is that:

• a.The death benefit automatically becomes taxable income
• b.The insurer will refuse to issue the policy at all
• c.Insurers usually will not pay proceeds directly to a minor, so a guardian or trust may be required✓
• d.The insurer will double the required premium to cover the additional administrative risk of insuring on behalf of a minor child

Minors generally cannot give valid receipt for insurance proceeds, so payment may be delayed until a court appoints a guardian or a trust is used. It does not prevent issuance, change the tax treatment, or raise the premium.

Naming one's estate as the life insurance beneficiary can be disadvantageous because the proceeds may then be:

• a.Subjected to probate and exposed to the deceased's creditors✓
• b.Paid out faster than to a named individual
• c.Received completely income-tax-free with no conditions
• d.Automatically doubled by the insurer

Directing proceeds to the estate pulls them into probate, where they can be delayed and reached by creditors. A named beneficiary generally avoids probate; the estate route does not speed payment or increase the benefit.

A spendthrift clause attached to a life insurance settlement is designed to:

• a.Reduce the premium the policyowner is charged in exchange for restricting the beneficiary's access to the settlement funds
• b.Increase the death benefit paid to the beneficiary
• c.Protect the settlement proceeds from the beneficiary's creditors and from being spent all at once✓
• d.Let the beneficiary immediately withdraw the entire lump sum

A spendthrift clause keeps proceeds held under a settlement option out of reach of the beneficiary's creditors and prevents the beneficiary from squandering or assigning them in a lump sum. It neither raises the benefit nor lowers the premium.

The waiver of premium rider typically begins paying the policy's premiums only after:

• a.The insured reaches age 65, at which point the insurer begins paying the premiums for the policy automatically
• b.The policy has been surrendered for cash
• c.A waiting period (often six months) of continuous total disability✓
• d.The very first missed payment

Waiver of premium keeps the policy in force by having the insurer pay premiums during the insured's total disability, but only after a waiting period, commonly six months. It is not triggered by a single late payment, a specific age, or surrender.

The payor benefit rider on a juvenile life policy provides that, if the premium-paying adult dies or becomes disabled:

• a.The child's coverage terminates immediately and the insurer refunds the premiums that had been paid to date
• b.The policy automatically converts to term insurance
• c.The death benefit is paid at once to the child
• d.Premiums are waived until the child reaches a specified age✓

The payor benefit waives premiums on a child's policy if the paying adult dies or is disabled, keeping the coverage in force until the child reaches a stated age. Coverage does not end, and no death benefit is paid on the child who is still alive.

An accidental death benefit (double indemnity) rider generally pays the extra benefit only if death:

• a.Is caused by a covered illness or natural bodily condition rather than by an external accidental injury to the insured
• b.Occurs after the insured has reached age 70
• c.Results from an accident, often within 90 days of the injury, and not from an excluded cause✓
• d.Results from any cause whatsoever

The accidental death rider pays an additional amount only when death is accidental and occurs within a stated time (commonly 90 days) of the injury, excluding causes like illness or suicide. It does not pay for death from any cause or from sickness.