Life Policy Riders, Provisions, Options and Exclusions — practice questions

18.75% of the exam ≈15 real questions 15 free questions here

Riders, beneficiary designations, nonforfeiture and dividend options, settlement options and exclusions: 15 of the 80 scored questions. Each question usually turns on one word of the provision.

Where people lose points

• An irrevocable beneficiary must consent before the owner changes the beneficiary or borrows against the policy.
• Extended term keeps the full face amount for a shorter time; reduced paid-up keeps coverage for life at a lower amount.
• Guaranteed insurability adds coverage without evidence of insurability, only on the option dates.
• Under the common disaster clause the insured is presumed to outlive the primary beneficiary.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on life policy riders, provisions, options and exclusions.

1. Luis owns a whole life policy with a waiver of premium rider. He has been totally disabled for eight months. How does the rider respond?

   • AHis premiums are only postponed and must be repaid with interest when he recovers.
   • BAfter the waiting period, premiums are waived while total disability continues.Correct
   • CThe policy automatically converts to reduced paid-up insurance instead.
   • DPremiums are waived for a maximum of one year from the date of disability.

   Why: Waiver of premium excuses premiums during total disability after a waiting period (commonly six months), and many riders refund premiums paid during that wait; cash values and dividends continue as if premiums were paid. Option A describes a loan arrangement, not a waiver — waived premiums never have to be repaid. On universal life, the comparable rider is waiver of monthly deductions.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

2. Under an accidental death and dismemberment (AD&D) rider, the principal sum is payable when which of the following occurs?

   • AThe insured dies of any cause whatsoever while the rider remains in force on the policy.
   • BThe insured loses the sight in one eye as the result of an accident.
   • CThe insured dies as the result of an accident, generally within a stated number of days.Correct
   • DThe insured becomes totally and permanently disabled as the result of any covered illness.

   Why: AD&D pays the principal sum (often called double indemnity when it equals the face amount) only for death caused by accident, and most riders require death to occur within a stated period, such as 90 days, after the injury. Option B triggers the capital sum — a percentage paid for dismemberment losses — which is the closest distractor. Death or disability from illness is never covered by AD&D.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

3. Rosa needs a business loan, and her bank requires her life insurance policy as security. Which arrangement accomplishes this while letting Rosa keep ownership of the policy?

   • AA collateral assignment, which gives the lender rights to the proceeds only up to the outstanding loan balance.Correct
   • BAn absolute assignment, which permanently transfers all ownership rights to the bank.
   • CNaming the bank as irrevocable beneficiary of the full face amount.
   • DSurrendering the policy and giving the bank the cash value.

   Why: A collateral assignment is a temporary, partial transfer of rights: if Rosa dies before repaying, the lender collects only the outstanding debt and the remaining proceeds go to her beneficiary; the assignment ends when the loan is repaid. An absolute assignment (option B) would give away the entire policy — far more than the bank needs. Policies are generally assignable, though the insurer should be notified in writing.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

4. A whole life policyowner with substantial cash value elected the automatic premium loan (APL) provision. She misses a premium and the grace period is about to expire. What happens?

   • AThe policy immediately lapses without any remaining value at all.
   • BAccumulated dividends must first be used to pay the overdue premium.
   • CThe policy automatically converts to extended term insurance for the remaining period.
   • DThe insurer advances the premium as a loan against cash value, keeping it in force.Correct

   Why: The APL provision authorizes the insurer to pay an overdue premium by creating a policy loan against the cash value, preventing unintentional lapse; the loan accrues interest and, if unpaid, reduces the death benefit. Option C describes a nonforfeiture option that applies only when the policy actually lapses without APL — the closest distractor. Dividends are a separate, elective option and are never guaranteed.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

5. Isabel, 60, is the beneficiary of her late husband's $300,000 life policy. She wants guaranteed monthly income that she cannot outlive. Which settlement option should she choose?

   • AThe life income option.Correct
   • BThe interest-only option.
   • CThe fixed-period option.
   • DThe fixed-amount option.

   Why: The life income settlement option annuitizes the proceeds and guarantees payments for as long as Isabel lives — income she cannot outlive. The fixed-amount and fixed-period options (C and D) can exhaust the proceeds while she is still alive, and interest-only (option B) pays only earnings while the insurer retains the principal, providing smaller income and no lifetime guarantee of principal distribution.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

6. A waiver of premium rider states that the benefit is available for disabilities beginning before the insured's 65th birthday. The insured first becomes totally disabled at age 68. What is the result?

   • APremiums are waived anyway, because the disability is total and permanent.
   • BNo premiums are waived, because the disability began after the rider's stated expiry age.Correct
   • CThe insurer must refund every rider premium the insured ever paid.
   • DThe base policy automatically becomes reduced paid-up insurance.

   Why: Waiver of premium riders carry an expiry age — commonly 60 or 65 — and a disability that first begins after that age triggers nothing; rider charges normally stop at the same age. A disability that had begun BEFORE the expiry age and continued past it would still be covered, which is the distinction being tested. Option A is the closest distractor and confuses the severity of the disability with the rider's eligibility window. Nonforfeiture options (option D) apply only when the policy actually lapses for nonpayment.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

7. Beatriz owns a policy with a guaranteed insurability rider. She gives birth to a daughter 14 months before her next scheduled option date. Which statement is most accurate?

   • AShe must wait for the scheduled option date, because life events create no rights under this rider.
   • BMost riders allow an early exercise on an alternate option date within a limited window after the birth, replacing the next scheduled option.Correct
   • CThe birth automatically adds life insurance on the newborn at no additional cost.
   • DThe birth automatically increases the base policy's face amount by the rider's option amount.

   Why: Guaranteed insurability riders customarily add alternate (advance) option dates for events such as marriage or the birth or legal adoption of a child, exercisable only within a short window after the event, and using one normally cancels the next regularly scheduled option so total coverage stays within the rider's limits. Option C confuses this rider with a children's term rider, and option D is wrong because nothing increases automatically — the owner must apply and pay the added premium.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

8. Jorge suffers a fatal heart attack while driving; he loses control and his car strikes a wall. The autopsy establishes that the heart attack occurred first and caused the crash. His life policy carries an accidental death benefit rider. What will the insurer pay?

   • AThe face amount plus the accidental death benefit, because he died in a collision.
   • BThe accidental death benefit only.
   • CThe face amount only, because the proximate cause of death was illness rather than accident.Correct
   • DNothing, because death occurred while operating a motor vehicle.

   Why: An accidental death rider pays only when the accident is the direct and proximate cause of death, independent of all other causes; here the collision was a consequence of the fatal heart attack, not its cause. Option A is the trap — the visible accident is not the legal cause. The base death benefit is still fully payable, because death from natural causes is not an excluded risk under an ordinary life policy.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

9. Which statement is TRUE of a cost of living (COL) rider attached to a life insurance policy?

   • AIt raises the face amount with an inflation index without evidence of insurability; the premium rises.Correct
   • BIt increases the face amount automatically each year at no additional premium to the policyowner at all.
   • CIt increases the premium each year while keeping the face amount permanently level.
   • DIt guarantees that the policy’s cash value will keep pace with inflation each year.

   Why: A cost of living rider adds coverage automatically as a published index such as the CPI rises, usually as one-year term at the insured's attained age, so each increment is real insurance that must be paid for. Option B is the trap that makes the rider sound free. The rider protects the purchasing power of the DEATH BENEFIT; it makes no promise at all about cash value, which is why option D fails.

   Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

10. A life policy offers accelerated benefits for both terminal illness and chronic illness. Which of the following describes the CHRONIC illness trigger?

    • AA physician certifies a life expectancy of 24 months or less and the insured elects the benefit.
    • BA practitioner certifies the insured cannot perform two activities of daily living, or has severe cognitive impairment.Correct
    • CThe insured has been confined to a hospital or skilled nursing facility for at least 30 consecutive days under a physician’s care.
    • DThe insured has been totally disabled and unable to work at any occupation for at least six months.

    Why: Chronic illness acceleration borrows the tax-qualified long-term care definition: inability to perform at least two of the six activities of daily living for a period expected to last at least 90 days, or severe cognitive impairment requiring substantial supervision. Option A is the closest distractor and states the TERMINAL illness trigger, which turns on life expectancy rather than functional loss. Six months of total disability (option D) is a waiver of premium concept, not an acceleration trigger.

    Reference Texas outline #124401, general section II (Policy riders, provisions, options and exclusions)

Drill other domains

• Types of Life Policies and Annuities (18.75%)
• Application, Underwriting, Policy Delivery and Contract Law (15%)
• Retirement and Other Insurance Concepts (10%)
• Texas Statutes and Rules Common to Life and Health (25%)
• Texas Statutes and Rules — Life Insurance Only (12.5%)

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