LOMA 311 MOD 4 EXAMINERS QUESTIONS WITH COMPLETE ANSWERS

LOMA 311 MOD 4 EXAMINERS
QUESTIONS WITH COMPLETE
ANSWERS

common settlement options - Answer-interest option- proceeds are temp. left on deposit
with the insurer. Interest earned is paid annually, semi annually, qrterly or monthly.

Fixed Period Option-
insurer pays proceeds & interest in a series of annual or more frequent installments for
a preselected period

Fixed Amount option-
insurer uses proceeds and interest to pay a preselected sum in a series of annual or
more frequent installments for as long as the proceeds and interest last.

Life Income Option-
insurer uses proceeds and interest to pay a series of annual or more often installments
over the entire lifetime of the person designated to receive the policy benefits.

settlement agreement - Answer-a contractual agreement between a life insurance
policyowner and an insurer governing the rights and obligations of the parties after the
insured's death. The settlement agreement then becomes part of the life insurance
contract.

A policyowner who selects a settlement option for the beneficiary may choose to make
the settlement mode irrevocable.

supplementary contract - Answer-If the policyowner has not selected a settlement
option when the policy proceeds become payable, then the beneficiary has the right to
select a
settlement option. In such a case, the life insurance contract matures at the insured's
death, and the beneficiary and the insurer enter into a new contract governing how the
policy proceeds will be paid.

payee vs. contingent payee - Answer-payee= The person who, if still living, will receive
policy proceeds under a settlement agreement

contingent payee=
or successor payee,
who will receive any policy proceeds payable following the payee's death;

,the contingent payee may or may not have been assigned as the contingent
beneficiary of the policy.

Although neither contingent payees nor contingent beneficiaries have any
vested rights to policy proceeds during the insured's lifetime, the rights
of a contingent payee and of a contingent beneficiary differ after the death of the
insured. If a primary beneficiary survives the insured, then the expectancy of the
contingent beneficiary is extinguished. By contrast,
a contingent payee's expectancy continues beyond the death of the insured.

spendthrift clause - Answer-spendthrift trust clause is
a provision that may be included in a life insurance policy or settlement
agreement to protect the policy proceeds from being seized by the beneficiary's
creditors. A policyowner can ask the insurer to add such a clause to a
policy by adding a rider or endorsement to the policy or can enter into
a settlement agreement that includes a spendthrift clause.====The beneficiary's
creditors cannot reach any money that is held by the insurer. However, after the insurer
pays money to a beneficiary, those funds can be reached by the beneficiary's
creditors.=======When a life insurance policy includes a spendthrift clause, the policy
beneficiary is prohibited from assigning or otherwise transferring her interest in the
policy proceeds and from changing the terms on which the policy proceeds are payable.

why contest A POLICY? - Answer--A material misrepresentation (this is the most
common)
- A defect in the formation of the contract
- A mistake
-The beneficiary wrongfully killed the insured

An insurer can contest a policy:

- During the insured's lifetime. All premiums paid plus interest are returned minus
withdrawals.

- After the death of the insured. insurer denies payment of policy proceeds and returns
all premiums paid play interest minus withdrawals.

once a contract ends, the parties may no longer contest the validity of that contract. For
example, after policy proceeds have
been paid, the policy ends and the insurer can no longer contest it. ++++When an
insurer denies a claim based on a provision in the policy, the insurer is PERFORMING
the contract according to its terms.

policy Contest - Answer-IS a COURT ACTION to determine the validity of a life
insurance policy. According to the rules of general contract law, when parties fail to
enter into a valid contract, all parties must be returned as much as possible to the

,positions that they occupied before they attempted to enter into the contract. +++ so
contest on the grounds of material misrep.

misrepresentation three elements - Answer-Most jurisdictions require that an insurer
prove these three elements:
- The applicant or proposed insured misrepresented or failed to disclose a fact.

- The fact was known by the applicant or proposed insured at the time of the
misrepresentation or failure to disclose.
- The fact was material—or relevant—to the insurer's acceptance of the
risk.============In the United States and many other countries, life insurance
policies typically include a misstatement of age or sex provision that describes the
action an insurer will take in the event that the age or sex of the insured is incorrectly
stated. Note that when an insurer takes action because of a misstatement of age or sex,
the insurer is enforcing the policy's misstatement of age or sex provision.
In most jurisdictions, a misrepresentation regarding an insured's age or sex affects the
premium rate that an insurer charges for life insurance. Thus, a misstatement of the
insured's age or sex is a significant issue. Such an action by the insurer is not
considered a contest to the validity of the contract and is not prohibited by the
incontestability provision.++++An insurer's adjustment of a policy's face amount
because of a misrepresentation of the insured's age typically is not considered a contest
to the validity of the contract.

duty to disclose - Answer-requires applicants and proposed insureds to disclose to the
insurer any fact that is within their knowledge and that is material to the insurance.

duty to disclose is breached if an applicant or proposed insured (1) provides false
information or (2) conceals a material fact.

warranty - Answer-a promise or guarantee recognized by law that a statement of fact is
true. A warranty that is not literally true gives an injured party grounds to avoid the
contract. In the past, the
doctrine of warranties sometimes resulted in unjust results when applied
to life insurance.

representation - Answer-a statement made by a contracting party that
is influential in inducing the other party to enter into the contract.
A representation can be used to invalidate the contract if the statement
is not substantially true and the statement induced the other party to enter into the
contract.

a misrepresentation is material if the insurer
with knowledge of the true facts would have taken any of the following actions with
regard to the policy: (1) declined to issue, (2) increased the premium rate, or (3)
excluded coverage for certain risks.

, barriers to contesting validity of a policy - Answer--An agent's knowledge of a
misrepresentation is considered the principal's
knowledge as well.
- The insurer delays in acting on its knowledge of a misrepresentation.

-The insurer fails to inquire about ambiguous answers provided on the application
for insurance.
- The insurer does not provide the policyowner with a copy of the insurance
application.

The PRIMARY barrier to contesting validity of life ins. policy is the INCONTESTABILITY
Provision

Incontestability Provision - Answer-a life insurance policy provision that denies the
insurer the right to avoid the contract on the grounds of a material misrepresentation in
the application after
the contract has been in force for a specified period of time.

The contestable period is the time period within which the insurer has the right to avoid
a policy on the grounds of a material misrepresentation in the application.

IE: We will not contest the validity of this policy after it has been in force
during the lifetime of the insured for two years from the date of issue.

A two-year contestable period is the maximum period allowed by most states. Some
insurers
include a one-year contestable period in their policies. The states permit
this shorter period because it is more favorable to policyowners. The phrase during the
lifetime of the insured is an important part of an incontestability provision. The phrase
ensures that the policy never becomes incontestable if the person whose life is insured
dies during the contestable period.

The incontestability provision gives policyowners and beneficiaries the knowledge that if
(1) all required premiums are paid and (2) the policy
has been in force during the insured's lifetime for at least the stated contestable period,
then the insurer cannot contest the policy's validity and usually must pay policy
proceeds after the insured's death.=====The phrase "during the lifetime of the insured"
is an important part of an incontestability provision because this phrase ensures that the
policy never becomes incontestable if the person whose life is insured dies during the
stated contestable period, as Mr. Shen did.
If this phrase were not included in the incontestability provision and the insured died
during the contestable period, a claimant could delay making a death claim until after
the contestable period ended

contestable period start date - Answer-The date of issue is the date the application is
approved and the policy is issued by the insurer.