Life and Health California Exam Life Insurance Policy Provisions and Riders 1 — Questions and Answers
Question 1: The 'incontestability clause' in a life insurance policy means that after 2 years:
- The insurer can never raise the premium
- The insurer cannot contest the validity of the policy except for fraud (Correct answer)
- The insured cannot change the beneficiary
- The policy automatically becomes paid-up
Correct answer: The insurer cannot contest the validity of the policy except for fraud
After 2 years, the incontestability clause prevents the insurer from voiding the policy or denying a claim based on misrepresentations in the application, except in cases of fraud.
Question 2: Which life insurance policy provision allows a lapsed policy to be reinstated within a specified period?
- Grace period
- Reinstatement provision (Correct answer)
- Extended term provision
- Waiver of premium
Correct answer: Reinstatement provision
The reinstatement provision allows the policyowner to restore a lapsed policy by paying overdue premiums, accrued interest, and providing evidence of insurability within the stated period.
Question 3: The 'spendthrift clause' in a life insurance policy protects the beneficiary's proceeds from:
- Estate taxes upon the insured's death
- The beneficiary's creditors before and after death of the insured (Correct answer)
- Probate if the beneficiary is also the policyowner
- State income taxes on death benefits
Correct answer: The beneficiary's creditors before and after death of the insured
A spendthrift clause prevents the beneficiary's creditors from attaching the policy proceeds before they are paid and, if benefits are held by the insurer, during the settlement period.
Question 4: Under the 'misstatement of age or sex' provision in a life insurance policy, if the insured overstated their age:
- The policy is voided
- The death benefit is adjusted to the amount the premium would have purchased at the correct age (Correct answer)
- A refund of excess premiums is issued
- No adjustment is made after the incontestable period
Correct answer: The death benefit is adjusted to the amount the premium would have purchased at the correct age
If the insured misstated their age, the insurer adjusts the death benefit to what the paid premium would have purchased at the correct age, rather than voiding the policy.
Question 5: What is the purpose of the 'automatic premium loan' provision in a whole life insurance policy?
- It automatically reduces the death benefit to pay overdue premiums
- It uses available cash value to automatically pay a premium if the policyowner fails to pay it (Correct answer)
- It increases the face amount each year by borrowing against policy reserves
- It converts term riders into paid-up insurance automatically
Correct answer: It uses available cash value to automatically pay a premium if the policyowner fails to pay it
The automatic premium loan provision prevents a policy from lapsing by automatically borrowing from the cash value to pay an unpaid premium on the due date.
Question 6: Under California law, the grace period for life insurance premiums is:
- 7 days
- 10 days
- 30 days (Correct answer)
- 60 days
Correct answer: 30 days
California requires a minimum 30-day grace period for life insurance policies, during which a late premium payment will be accepted and the policy remains in force.
Life and Health California Exam Life Insurance Policy Provisions and Riders 1
The 'incontestability clause' in a life insurance policy means that after 2 years: