Lisa exercised her automatic premium loan provision to pay her annual premium on

Question

Lisa exercised her automatic premium loan provision to pay her annual premium on her $50,000 life insurance policy. She died 4 months after the loan was taken, never having a chance to repay it. Which of the following statements is CORRECT? The amount paid to Lisa's beneficiary as the death proceeds was reduced by the amount of the loan plus interest due The premium was paid by the insurance company from its reserves. The policy was canceled, since the loan was not repaid. The type of insurance Lisa owned was term.

Explanation / Answer

1) What is the default non-forfeiture option?

a)The amount paid to Lisa’s benefactor as the death proceeds were reduced by the amount of loan plus interest due

Explanation

if the premium is not paid within a certain number of days after the grace period, such as 60 days, the outstanding premium amount is deducted from the policy cash value.

2) What is the default non-forfeiture option?

a) Extended term

Explanation

Extended term insurance is the default non-forfeiture options. With the extended term insurance, the face amount of the policy stays the same, but it is flipped to an extended term insurance policy. The equity you built is used to purchase a term policy that equals the number of years you paid premiums.

For example, if you purchase a policy when you were 20 years old and you paid until age 55, you would receive a term policy that is less than 35 years. Or if you were 35 years old when you purchased your policy and you paid until you were 45 years old, you would receive a term policy less than 10 years.

3) Which of the following statements about life insurance policy settlement option is not correct?

a)Under the fixed – period option, the payment of excess interest will lengthen the payment period

Explanation

Under the fixed – period option the payment of excess interest will be used to make the payment larger, not to extend the payment period

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