Policy Riders, Provisions, Options and Exclusions — practice questions

17.5% of the exam ≈15 real questions 21 free questions here

Riders, standard provisions, beneficiary rules, nonforfeiture and settlement options, and exclusions: 15 of the 85 scored questions on the 2-14. Florida's own free-look periods show up here as well as in the state-law section.

Where people lose points

• Florida's free look is 14 days on life and 21 days on annuities, not the 10 days national study guides use.
• The suicide clause and the incontestable clause both run two years but do different jobs.
• Waiver of premium belongs to whole life; waiver of monthly deduction belongs to universal life.
• Automatic premium loan keeps a policy from lapsing; extended term and reduced paid-up are elected after it lapses.

Questions and answers, explained

All 10 questions above, with the correct answer and why it is correct. Everything here is on 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. (Outline II.A.)

   Reference FL 2-15 Outline II.A (Waiver of premium)

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. (Outline II.A.)

   Reference FL 2-15 Outline II.A (AD&D)

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. (Outline II.B.)

   Reference FL 2-15 Outline II.B (Assignments)

4. Miguel's $100,000 Florida whole life policy has an annual premium of $1,200 due June 1. He dies on June 20 without having paid it. What will the insurer pay?

   • ANothing, because the policy lapsed on June 1.
   • BThe full $100,000 with no deduction of any kind.
   • COnly a refund of the premiums Miguel paid over the years.
   • D$100,000 minus the overdue premium (plus any permitted interest).Correct

   Why: Florida requires a grace period of at least 30 days, during which the policy remains in force; Miguel died on day 20, so the claim is payable. If the policy becomes a claim during the grace period before the overdue premium is paid, the insurer may deduct that premium, with interest not exceeding 8% per year, from the settlement (s. 627.453, F.S.). Option A is the trap — nonpayment does not lapse the policy until the grace period expires. (Outline II.B.)

   Reference s. 627.453, F.S.; FL 2-15 Outline II.B (Grace period)

5. 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. (Outline II.B.)

   Reference FL 2-15 Outline II.B (Automatic premium loan)

6. Which dividend option uses each dividend to buy additional permanent insurance that requires no further premiums and builds its own cash value?

   • APaid-up additions.Correct
   • BOne-year term option.
   • CAccumulate at interest.
   • DReduction of premium.

   Why: Paid-up additions use each dividend as a single premium to buy small blocks of fully paid-up whole life at the insured's attained age, permanently increasing both death benefit and cash value. The one-year term option (option B) also buys extra coverage, but it is temporary and builds no cash value — the closest distractor. Remember that dividends come from a participating insurer's divisible surplus and are never guaranteed. (Outline II.B.)

   Reference FL 2-15 Outline II.B (Dividends and dividend options)

7. 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. (Outline II.B.)

   Reference FL 2-15 Outline II.B (Settlement options)

8. 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. (Outline II.A.)

   Reference FL 2-15 Outline II.A (Waiver of premium)

9. 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. (Outline II.A.)

   Reference FL 2-15 Outline II.A (Guaranteed insurability)

10. 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. (Outline II.A.)

    Reference FL 2-15 Outline II.A (Accidental death benefit / proximate cause)

Drill other domains

• Types of Policies and Features (Life and Annuities) (17.5%)
• Application, Underwriting and Policy Delivery (14%)
• Retirement and Other Insurance Concepts (9%)
• Florida Statutes and Rules Common to All Lines (24%)
• Florida Statutes — Life and Annuity (incl. Variable Products) (18%)

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