1. A life insurance policy owner has paid $1,200 in premiums in six months for a $250,000 policy. The policyowner dies suddenly and the insurer pays the beneficiary $250,000. This exchange of unequal values reflects which of the following insurance contract features?
A. Aleatory Correct
B. Personal
C. Unilateral
D. Conditional
Explanation
The policyowner paid only $1,200 but the beneficiary received $250,000, showing the insurer's obligation depends on an uncertain event (death) while the policyowner's premium is fixed and smaller; this unequal potential exchange defines an aleatory contract where gains/losses are contingent on chance, making A correct. Option B is wrong because personal relates to individual underwriting, not value exchange. Option C is incorrect as unilateral means only one party (insurer) makes an enforceable promise. Option D is mistaken since conditional refers to duties dependent on conditions like premium payment, not the unequal payout.
2. Which of the following beneficiary designations may limit a policyowner’s rights?
A. Primary
B. Contingent
C. Revocable
D. Irrevocable Correct
Explanation
An irrevocable beneficiary cannot be changed without their consent, restricting the policyowner's control over the policy, so D is correct. Option A is wrong as primary is first in line but changeable. Option B is incorrect because contingent is secondary and doesn't limit changes. Option C is mistaken since revocable allows full policyowner control.
3. A producer must deliver an Outline of Coverage to a prospective insured who is eligible for Medicare at which of the following times?
A. Before the application is taken
B. After the application is signed
C. When the policy is delivered Correct
D. When the prospect requests it
Explanation
Medigap rules require the Outline of Coverage at policy delivery to ensure the buyer understands benefits and comparisons before finalizing, making C correct. Option A is wrong as it's too early for full details. Option B is incorrect because post-signature misses informed decision. Option D is mistaken since it's mandatory, not on request.
4. Under a Disability policy, the Elimination period is:
A. usually longer for accidents than for sickness
B. predetermined by the insurance company
C. similar to a deductible but expressed in terms of time rather than dollars Correct
D. the same as a Probationary period
Explanation
The elimination period is a waiting time after disability before benefits start, functioning like a time-based deductible where the insured covers early costs, so C is correct. Option A is wrong as it's often shorter for accidents. Option B is incorrect because it's chosen by the insured. Option D is mistaken since probationary excludes pre-existing conditions.
5. If a life policyowner wants to take out a bank loan and the bank insists on collateral, the insured may:
A. only name the bank as a beneficiary of the policy
B. release the policy dividends to the bank
C. assign the policy to the bank Correct
D. add a Payor provision to the policy
Explanation
Assignment transfers policy ownership rights to the bank as collateral, securing the loan while keeping the policy in force, making C correct. Option A is wrong as beneficiary naming doesn't collateralize. Option B is incorrect because dividends are minor. Option D is mistaken since payor is for juvenile policies.