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Quizzes > Business & Finance > Finance & Economics

Master Life Insurance Policies, Options & Riders Quiz

Think you know policy provisions and riders? Dive in now!

Difficulty: Moderate
2-5mins
Learning OutcomesCheat Sheet
Illustration of a life insurance quiz on a teal background with paper art elements.

Think you've got what it takes to unravel coverage mysteries? Our free life insurance quiz puts your skills to the test: spot an endorsement found in an insurance plan, assess how level premium permanent insurance accumulates a reserve that will eventually, and explore loans obtained by a policyowner against the cash value and see how that affects your coverage. From figuring out if barbara's policy includes a rider to understanding why jonas is a whole life insurance policyowner, this interactive insurance policy quiz delivers instant feedback, clear explanations, and a fun challenge. Ready? Dive in now and prove you're an insurance pro!

What is an endorsement in a life insurance policy?
An amendment adding, deleting, or modifying policy terms
A notice of cancellation issued by the insurer
A premium payment reminder
A dividend payout option
An endorsement, often called a rider, is an amendment to the insurance policy that can add, remove, or alter coverage terms. It allows personalized adjustments without rewriting the entire contract. Endorsements are commonly used to tailor life insurance to individual needs. https://www.naic.org/consumer_life_insurance_glossary_endorsement.htm
Which rider waives future premiums if the insured becomes disabled?
Waiver of Premium rider
Accidental Death Benefit rider
Guaranteed Insurability rider
Accelerated Death Benefit rider
The Waiver of Premium rider suspends premium payments when the insured is disabled for a specified waiting period, typically six months. This ensures the policy remains in force during long-term disability without financial hardship. It is a common endorsement for added protection. https://www.naic.org/documents/committees_ex_pltf_annex_premrider.pdf
Which rider allows the policyholder to purchase additional coverage at specified future dates without underwriting?
Guaranteed Insurability rider
Waiver of Premium rider
Convertible Term rider
Accelerated Death Benefit rider
The Guaranteed Insurability rider guarantees the insured the right to buy more coverage at predetermined intervals without evidence of insurability. It protects against changes in health that could otherwise prevent additional insurance. Premiums are based on the insured’s original age. https://www.lifehappens.org/insurance-fact/guaranteed-insurability-rider/
Which beneficiary designation cannot be changed without the beneficiary’s consent?
Irrevocable beneficiary
Revocable beneficiary
Contingent beneficiary
Primary beneficiary
An irrevocable beneficiary designation cannot be altered or removed without the beneficiary’s written consent. This secures the beneficiary’s right to proceeds and prevents the policyholder from making unilateral changes. Revocable beneficiaries do not have this protection. https://www.naic.org/documents/committees_e_consumer_behaviour_irrevocable.pdf
What is the purpose of the incontestability clause in a life insurance policy?
Prevents the insurer from disputing a claim after two years
Allows insurer to cancel the policy within 30 days
Requires the insured to contest errors in the policy within one year
Mandates arbitration for disputes
The incontestability clause bars the insurer from voiding the policy or denying claims after it has been in force for a specified period, typically two years. It provides certainty to the policyholder that truthful statements will not be challenged after that time. Misstatements in the application can only be contested within this period. https://content.naic.org/cipr_topics/topic_incontestability_clause.htm
What is the period called after a missed premium payment before the policy lapses?
Grace period
Elimination period
Waiting period
Contestability period
The grace period is a specified time—typically 30 or 31 days—after a premium due date during which the policy remains in force even if the premium is unpaid. If the insurer receives the premium during this period, coverage continues without interruption. Failure to pay by the end of this period will cause the policy to lapse. https://www.lifehappens.org/insurance-fact/grace-period/
What type of reserve do life insurers hold to ensure they can meet future policy obligations?
Policy reserves
Catastrophe reserves
Statutory surplus
Dividend reserves
Policy reserves are funds insurers set aside to cover future policy benefits and guarantees. These reserves are calculated based on mortality assumptions, interest rates, and expense loads. They ensure the insurer remains solvent and can pay claims. https://www.naic.org/documents/model_life_val.pdf
What does the Accidental Death Benefit rider provide?
An additional death benefit if death results from an accident
Coverage for dismemberment but not death
Accelerated cash value upon disability
Waiver of premium upon accidental injury
The Accidental Death Benefit rider, also called Double Indemnity, pays an extra benefit if the insured dies as a direct result of an accident. It does not cover natural causes or illnesses. This rider provides enhanced protection at a relatively low cost. https://www.lifehappens.org/insurance-fact/accidental-death-rider/
Which settlement option provides beneficiaries with the death benefit in periodic installments for a fixed number of years?
Period certain
Life income
Interest only
Lump sum
Under the period certain option, the insurer pays the death benefit in equal installments over a set period, regardless of when the beneficiary dies. If the beneficiary dies during the term, remaining payments go to a secondary beneficiary. This option offers guaranteed income flow. https://www.naic.org/cipr_topics/topic_settlement_options.htm
Which type of life insurance policy provides coverage for a specified number of years with no cash value?
Term life insurance
Whole life insurance
Universal life insurance
Variable life insurance
Term life insurance provides pure death benefit protection for a fixed period—such as 10, 20, or 30 years—without accumulating cash value. If the insured outlives the term, coverage ends or may be renewed. It is typically the most affordable form of life insurance. https://www.naic.org/cipr_topics/topic_term_life_insurance.htm
What is the name of the page in a policy that lists the insurer, insured, policy number, and coverage details?
Declarations page
Insuring clause
Schedule of benefits
Policy summary
The declarations page (often called the dec page) provides key details about the policy such as names, policy number, coverage amount, premium, and effective dates. It is the first page of the contract and serves as a quick reference. All changes to coverage are reflected here. https://www.naic.org/cipr_topics/topic_policy_declarations.htm
What does the cash surrender value represent in a permanent life insurance policy?
The accumulated cash value minus any surrender charges
The face amount of the policy
The unpaid loan balance plus interest
The death benefit payable at maturity
Cash surrender value is the amount the policyowner receives if they voluntarily terminate a permanent policy, after subtracting surrender or withdrawal charges. It grows over time as cash value accumulates. This value is different from the full face amount. https://www.naic.org/cipr_topics/topic_cash_surrender_value.htm
What is the typical period during which a policyowner can review the policy and return it for a full refund?
Free look period
Grace period
Contestability period
Evaluation period
The free look period allows a new policyowner a limited window, often 10 to 30 days depending on state law, to examine the policy and cancel it for a full premium refund. It protects consumers from unwanted or misunderstood coverage. If returned during this time, the insurer must refund all premiums paid. https://www.lifehappens.org/insurance-fact/free-look-period/
What is the function of the Accelerated Death Benefit rider?
Allows access to a portion of the death benefit if terminally ill
Waives premiums in the event of disability
Adds spouse coverage without underwriting
Pays a benefit for accidental dismemberment
The Accelerated Death Benefit rider permits early payment of a portion of the policy’s death benefit when the insured is diagnosed with a terminal illness and has a life expectancy typically under 12 or 24 months. This helps cover medical and living expenses. Any accelerated benefit reduces the final death benefit and cash value. https://www.naic.org/documents/committees_e_premrider.pdf
Which rider provides additional coverage for a spouse under the primary insured’s policy?
Spouse rider
Child term rider
Waiver of Premium rider
Accidental Death Benefit rider
A spouse rider adds life insurance coverage for the insured’s spouse under the same contract and premium. Coverage amounts are specified at issuance. It is more cost-effective than separate policies. Benefits pay if the spouse dies during the term. https://www.lifehappens.org/insurance-fact/spouse-child-rider/
What assumption does the net level premium reserve make about policy lapses?
No policy lapses will occur
Lapses occur at the industry average rate
All policies lapse by age 80
Lapses are offset by new business
The net level premium reserve calculates the difference between the present value of future benefits and the present value of future net premiums assuming the policy remains in force until maturity or death. It assumes zero lapses, providing a conservative reserve estimate. Insurer expense and profit loads are excluded in this basic reserve. https://www.actuarialconsulting.com/reserve-methods/
Which rider provides a benefit for loss of limbs or sight?
Dismemberment rider
Accelerated Death Benefit rider
Guaranteed Insurability rider
Waiver of Premium rider
The Dismemberment rider pays a specified benefit if the insured loses a limb, sight, hearing, or speech due to an accident. It is sometimes called the AD&D (Accidental Death & Dismemberment) rider when combined with accidental death coverage. The benefit amount varies by the severity of the loss. https://www.naic.org/documents/committees_e_adnd.pdf
Which dividend option uses dividends to directly reduce the policy’s out-of-pocket premium?
Reduction of Premium option
Paid-up Addition option
Accumulate at Interest option
One-Year Term option
Under the Reduction of Premium option, dividends are applied to lower the next premium due dollar-for-dollar. This reduces the policyowner’s cash outflow each policy year. It is a simple way to utilize dividends without creating additional policies or account values. https://www.naic.org/cipr_topics/topic_dividends.htm
What distinguishes a revocable beneficiary from an irrevocable beneficiary?
A revocable beneficiary can be changed without consent
A revocable beneficiary requires written consent
An irrevocable beneficiary receives a larger share
An irrevocable beneficiary automatically becomes primary
A revocable beneficiary designation allows the policyowner to change or remove that beneficiary at any time without needing the beneficiary’s approval. In contrast, an irrevocable beneficiary must consent in writing to any changes, protecting their interest in the policy proceeds. https://www.naic.org/cipr_topics/topic_beneficiaries.htm
What is Corporate-Owned Life Insurance (COLI)?
Life insurance purchased by a corporation on key employees
A group term policy for corporate staff
Universal life policies held in a corporation’s investment portfolio
A special annuity for corporate executives
COLI policies are owned by a business, insuring key employees or executives. The corporation pays premiums, names itself as beneficiary, and uses the death benefits to offset costs like employee compensation or business succession. COLI can offer tax and financial planning advantages. https://www.naic.org/cipr_topics/topic_corporate_owned_insurance.htm
Which type of policy pays its face amount only if the insured survives to a specified maturity date?
Endowment policy
Universal life policy
Variable life policy
Term life policy
An endowment policy guarantees payment of the face amount either upon death or at the policy’s maturity date if the insured is still living. Premiums are higher because the insurer bears more risk with a maturity guarantee. Cash values accumulate and are guaranteed. https://www.naic.org/cipr_topics/topic_endowment_insurance.htm
What is the maximum grace period for life insurance premiums under most state regulations?
31 days
15 days
60 days
45 days
Most states mandate a minimum 30- or 31-day grace period for life insurance, ensuring coverage continues briefly after a missed payment. Some insurers may offer longer periods but cannot shorten this minimum. This protects policyowners from unintentional lapses. https://content.naic.org/cipr_topics/topic_grace_period.htm
Under the entire contract clause, which documents constitute the insurance contract?
The policy, any endorsements or riders, and the application
The policy summary and premium notice
The insurer’s financial statements
The policy and agent’s sales literature
The entire contract clause stipulates that the written policy, any attached riders or endorsements, and the signed application form comprise the complete insurance contract. No other documents outside those referenced are considered part of the agreement. This prevents hidden provisions. https://content.naic.org/cipr_topics/topic_entire_contract_clause.htm
Which nonforfeiture option provides a reduced, fully paid term policy using cash value?
Extended term insurance
Reduced paid-up insurance
Cash surrender
Policy loan
Extended term insurance uses the policy’s cash value to purchase a term policy with the same face amount for as long as the cash value will pay. It provides the same death benefit but for a limited duration. No further premiums are required. https://naic.org/documents/committees_e_nonforfeiture.pdf
If no beneficiary is alive at the insured’s death, who receives the policy proceeds?
The insured’s estate
The insurer
State guaranty fund
Next of kin by statute
When no valid beneficiary survives the insured, proceeds default to the insured’s estate. The funds then follow probate distribution. This ensures the benefit does not revert to the insurer. https://content.naic.org/cipr_topics/topic_policy_proceeds.htm
How are life insurance death benefits taxed at the federal level in most cases?
Generally income tax free
Fully taxable as income
Taxed at capital gains rates
Subject to payroll tax
Under IRC Section 101(a), death benefits paid under a life insurance policy are typically barred from federal income taxation. This tax treatment encourages people to maintain life insurance protection. Exceptions include certain transfers for value. https://www.irs.gov/publications/p525
To qualify for the Accelerated Death Benefit rider, the insured generally must be diagnosed with what condition?
A terminal illness with life expectancy under a specific period
Permanent total disability
Severe accidental injury
Chronic non–terminal illness
Qualification for accelerated death benefits typically requires a terminal illness diagnosis with a life expectancy of six to 24 months, depending on policy terms. This ensures that the accelerated funds are used for end-of-life care. Any payment reduces the policy’s death benefit. https://www.naic.org/documents/model_life_accel.pdf
What does the principle of adhesion in insurance mean?
The contract is drafted by the insurer and any ambiguity is construed in favor of the insured
Both parties must negotiate every term
The policy must adhere to state tax laws
Premiums must adhere to the insured’s income
Under the adhesion principle, insurance contracts are prepared solely by the insurer, and policyholders have little opportunity to negotiate terms. Courts interpret any ambiguous provisions in favor of the insured. This protects consumers against unfair policy language. https://www.naic.org/cipr_topics/topic_common_law_principles.htm
How is the net level premium reserve calculated?
Present value of future benefits minus present value of future net premiums
Cash value plus outstanding loans
Sum of premiums paid minus mortality costs
Face amount multiplied by reserve factor
The net level premium reserve equals the present value of all future benefits the insurer must pay, minus the present value of future net level premiums the insurer expects to receive. It assumes no lapses and excludes expense loads. It is fundamental to statutory reserve calculations. https://www.actuarialconsulting.com/reserve-methods/
What is a 1035 exchange in life insurance and annuities?
A tax-free exchange of one life insurance or annuity contract for another
An exchange of policy ownership for cash
A one-time surrender charge waiver
A requirement to exchange foreign policies
Under IRC Section 1035, a policyowner can exchange an existing life insurance policy, endowment contract or annuity contract for another without triggering taxable gain. This facilitates upgrading or adjusting coverage. Strict rules govern eligible exchanges and continuity of contract. https://www.irs.gov/publications/p575
Under the misstatement of age provision, what action does the insurer take if the insured’s age was understated?
Adjusts the death benefit to the amount that the premiums would have purchased at the correct age
Rescinds the policy
Waives all premiums paid
Pays a penalty from the reserve
If the insured’s age was misstated, the insurer recalculates the policy benefits using the correct age and the premiums actually paid. This ensures the policy remains equitable. The face amount is adjusted proportionally. https://www.naic.org/cipr_topics/topic_misstatement_age.htm
What feature does the policy loan provision in whole life insurance allow?
Borrowing against accumulated cash value
Automatic premium advance for nonpayment
Free withdrawal of cash value up to 10%
Paid-up insurance purchase
The policy loan provision lets policyowners borrow up to the available cash value, using the policy as collateral. Loans accrue interest and reduce the death benefit if unpaid. They offer liquidity without surrendering the policy. https://www.naic.org/cipr_topics/topic_policy_loans.htm
The waiver of premium rider typically requires a waiting period of how many months before premiums are waived following disability?
6 months
3 months
12 months
2 months
Most waiver of premium riders specify a six-month elimination period during which the insured must remain disabled before premiums are waived. This waiting period balances cost and coverage. Once satisfied, the insurer refunds or forgives premiums and keeps coverage in force. https://www.lifehappens.org/insurance-fact/waiver-of-premium-rider/
In reinsurance, what is a ceding commission?
A commission paid by the reinsurer to the ceding insurer
A fee charged to policyholders for ceding risk
A premium paid by the ceding insurer to reinsurer
A bonus paid if losses exceed expectations
A ceding commission is remuneration the reinsurer pays to the ceding insurer to cover acquisition and administration expenses associated with the reinsured business. It reflects the reinsurer’s share of costs. This commission is factored into reinsurance agreements. https://www.naic.org/cipr_topics/topic_reinsurance.htm
What is an aircraft or airline pilot exclusion rider?
An exclusion that removes coverage for accidents while piloting an aircraft
A rider that doubles benefits for airline pilots
A waiver of premium for pilot-related disabilities
A premium discount for pilots
The airline pilot exclusion rider removes accidental death coverage if the insured dies while piloting or working aboard an aircraft. It reflects the higher risk associated with professional aviation duties. Without this rider, insurers might charge higher premiums. https://www.nolo.com/legal-encyclopedia/airline-pilot-disability-insurance.html
Where are reserves for variable life insurance policies held?
In a separate account regulated under securities laws
In the insurer’s general account
With the state guaranty association
In a statutory catastrophe fund
Variable life reserves are held in separate accounts to segregate policyholder assets from the insurer’s general account. These funds are subject to SEC and state securities regulations. The investment risk and returns are borne by the policyholders. https://www.sec.gov/fast-answers/answersvariablehtml.htm
What does the Paid-Up Additions rider allow a policyowner to purchase?
Additional small paid-up whole life coverage
A term rider at guaranteed rates
Accelerated benefits for critical illness
An extended term nonforfeiture option
The Paid-Up Additions rider uses dividends to buy small paid-up life insurance increments, which increase both death benefit and cash value. These additions earn dividends themselves and can usually be surrendered or used as collateral. It boosts policy value over time. https://www.naic.org/cipr_topics/topic_dividends.htm
What is the purpose of a spendthrift clause in a life insurance policy?
To prohibit beneficiaries from assigning or pledging their interest
To guarantee annual dividends
To allow loans against the death benefit
To defer death payments for tax reasons
A spendthrift clause restricts a beneficiary’s ability to transfer or borrow against proceeds before they are paid out. It protects the benefit from creditors and ensures proper distribution as intended by the insured. Many states require such clauses in policies. https://www.naic.org/documents/committee_b_exhibits.pdf
Under the NAIC Standard Valuation Law, which mortality table is required for calculating statutory reserves on new life policies?
2001 Commissioners Standard Ordinary (CSO) table
1958 CSO table
AM-1980 table
1980 Basic Valuation table
The NAIC Standard Valuation Law mandates use of the 2001 CSO mortality table, updated for modern mortality improvements, to calculate statutory reserves for new life insurance policies. It replaced older tables like the 1958 CSO. This ensures more accurate reserving. https://content.naic.org/cipr_topics/topic_reserve_val.htm
What is the IRC 7702 corridor test for universal life insurance?
A requirement that the death benefit exceed cash value by a prescribed corridor percentage
A test limiting premiums to seven years
A restriction on policy loan interest rates
A provision for paid-up additions only
IRC Section 7702 requires universal life death benefits to exceed the cash surrender value by a corridor percentage that increases with insured age. This corridor ensures the contract qualifies as life insurance for tax purposes and avoids classification as an investment vehicle. https://www.irs.gov/irb/1993-10_IRB#NOT-89
What are secondary guarantees in a universal life insurance policy?
Provisions that guarantee a death benefit if certain premium schedules are met
Guaranteed income riders
Minimum interest crediting rates
Accidental death benefits
Secondary guarantees in UL policies ensure that if the policyowner pays a specified premium schedule, the death benefit is guaranteed regardless of cash value performance. These features can lapse if premium schedules are not maintained. They address policy lapse risk. https://www.naic.org/cipr_topics/topic_universal_life.htm
What does the principle of utmost good faith require in insurance contracts?
Full disclosure of all material facts by both parties
Arbitration of all disputes
Standardized contract terms without negotiation
Use of model policies only
Utmost good faith (uberrima fides) demands that both the insurer and the insured act honestly and disclose all material information. The insured must answer application questions truthfully, and the insurer must explain policy terms accurately. Breach can void coverage. https://www.naic.org/cipr_topics/topic_good_faith.htm
Under the Modified Endowment Contract rules, which test determines whether a policy becomes a MEC?
Seven-pay test
Three-pay test
Five-pay test
Ten-pay test
The seven-pay test compares cumulative premiums paid during the first seven years to the net level premiums required to fully fund the policy in seven years. If payments exceed this threshold, the policy becomes a Modified Endowment Contract, altering its tax treatment. MECs lose favorable loan and withdrawal tax treatment. https://www.irs.gov/publications/p525
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Study Outcomes

  1. Understand Policy Endorsements -

    Learn how an endorsement found in an insurance plan can modify coverage terms, add new benefits, or exclude specific risks to tailor a policy to individual needs.

  2. Apply Reserve Accumulation Concepts -

    Examine how level premium permanent insurance accumulates a reserve that will eventually fund cash value growth and support policy loans or withdrawals.

  3. Identify Common Policy Riders -

    Recognize how Barbara's policy includes a rider to enhance or customize coverage, and evaluate the cost and benefit implications of adding riders to a basic policy.

  4. Analyze Policy Loan Mechanics -

    Explore the procedures for loans obtained by a policyowner against the cash value, including interest rates, repayment schedules, and effects on death benefits.

  5. Differentiate Whole Life Features -

    Compare scenarios like Jonas is a whole life insurance policyowner with other policy types, focusing on guaranteed cash value growth, premium stability, and long-term benefits.

Cheat Sheet

  1. Endorsement Essentials -

    An endorsement found in an insurance plan acts like a policy amendment that customizes standard coverage by adding, deleting, or modifying terms. According to the National Association of Insurance Commissioners (NAIC), endorsements must be signed by an authorized officer to ensure regulatory compliance. Mnemonic: remember "Extra Stamp" to recall how endorsements "stamp" new provisions onto your policy.

  2. Reserve Accumulation in Level Premium Policies -

    Level premium permanent insurance accumulates a reserve that will eventually support policy guarantees by balancing early-year costs with later-year privileges. Industry research from the Society of Actuaries shows that reserves grow as the difference between net level premiums and mortality expense compounds over time. Example formula: Reserveₙ = ∑(Premium - Mortality Cost)·(1 + Interest)❿.

  3. Rider Varieties and Applications -

    Barbara's policy includes a rider when she added a waiver-of-premium feature to protect her coverage if she becomes disabled. The American Academy of Actuaries notes that common riders - like accelerated death benefit or term conversion - offer targeted flexibility for unique needs. Tip: think "RIDER" = "Riders Increase Desired Endorsements & Rights."

  4. Policy Loans and Cash Value Access -

    Loans obtained by a policyowner against the cash value let you borrow from your accumulated reserve, typically at competitive interest rates set by your insurer's crediting strategy. The Insurance Information Institute highlights that unpaid loan balances reduce the death benefit and cash-surrender value until repaid. Quick fact: your cash value acts as collateral, so there's no credit check - a true policyowner perk!

  5. Whole Life Growth for Jonas -

    Jonas is a whole life insurance policyowner enjoying guaranteed cash value growth and level premiums locked in at issue. Per state insurance departments, statutory reserves for whole life must be maintained conservatively, securing Jonas's future policy loans and death benefits. Confidence builder: as reserves compound, Jonas can leverage cash value for opportunities or emergencies - truly a living benefit!

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