Life & Health Insurance — Life Provisions, Options & Taxation flashcards
10 of 71 cards free to study here · 4 topics · the whole deck is built into Willys
Life policy provisions, beneficiary designations and simultaneous death, settlement, nonforfeiture and dividend options, policy loans, life insurance taxation, MECs, 1035 exchanges, viatical settlements and business uses.
Learn deck · part of Life and health insurance producer licence (national portion) · written against: Life, accident and health concepts common to state producer exams; NAIC model provisions; federal law as of 2026; state law excluded. Updated 2026-10-10.
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A life insurer tries to deny a claim using a statement the insured made in a letter that was never attached to the policy. Why does it fail?Under the entire contract provision, the policy and the attached application are the whole contract, so unattached statements cannot be used against the insured.Life Policy Provisions
Watch out: the policy typically adds that no producer can change it or waive its terms, only an officer of the insurer; that limit comes from the policy wording, not from the entire-contract law. -
A new policyowner decides during the free-look period that she does not want the policy. What happens?She returns it and receives a full refund of premium, and the policy is treated as never in force.Life Policy Provisions
Watch out: the length varies by state, commonly 10 days, and is often longer for seniors and replacements. -
A mother owns a policy on her adult son's life. Who can change the beneficiary or take a loan?The mother, as policyowner: ownership rights (naming beneficiaries, loans, assignment, surrender, choosing options) belong to the owner, not the insured.Life Policy Provisions
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The primary beneficiary dies before the insured, and a contingent beneficiary is named. Who receives the proceeds?The contingent (secondary) beneficiary, who takes only if no primary beneficiary is alive when the insured dies.Beneficiaries
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No named beneficiary survives the insured. Where do the proceeds usually go?To the insured's estate, unless the policy directs otherwise.Beneficiaries
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Why is naming the insured's estate as beneficiary usually a poor choice?The proceeds become part of the probate estate, which can delay payment, add costs and expose the money to the estate's creditors.Beneficiaries
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Who may choose how death proceeds are paid out?The policyowner may choose the settlement option in advance; if the owner has not, the beneficiary chooses at the insured's death.Settlement & Nonforfeiture Options › Settlement Options
Why: an owner can lock in installments to protect a beneficiary who might spend a lump sum quickly. -
If no settlement option has been chosen, how are death proceeds usually paid?As a lump sum (cash), the automatic option.Settlement & Nonforfeiture Options › Settlement Options
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Is a lump-sum life insurance death benefit taxable income to the beneficiary?No. Death proceeds are generally free of federal income tax (IRC 101(a)).Life Taxation & Business Uses › Taxation
Watch out: they can still be counted in the insured's estate for estate tax if the insured held incidents of ownership. -
A beneficiary takes the death proceeds in monthly installments. How are the payments taxed?Each payment is part tax-free principal and part taxable interest; only the interest earned after the death is taxed.Life Taxation & Business Uses › Taxation
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About these cards
Review status: Second-reader reviewed, with corrections applied.
Checked against:
- Tax items checked against the Internal Revenue Code (sections 72, 79, 101, 1035, 7702 and 7702A); public domain U.S. government sources.
- Simultaneous death items checked against the Uniform Simultaneous Death Act and its 1991 revision; nonforfeiture items against the NAIC Standard Nonforfeiture Law for Life Insurance, as commonly adopted; state versions vary.
- Policy provision items (entire contract, misstatement of age or sex, incontestability and related clauses) checked against the Interstate Insurance Product Regulation Commission's individual whole life policy standards and, as one state's example, Texas Insurance Code chapter 1101 (public law; named, not quoted).
- General insurance principles written from author knowledge; no textbook, prep-course or question-bank text copied. National content only: state insurance law, fees and figures indexed yearly are excluded.
These are independent study notes written for Willys. They are not official exam material, may contain mistakes, and are no substitute for your course, your teacher or the exam owner's own publications. Found an error? Tell us — corrections ship as a new version of the deck.
Not insurance or legal advice. These cards cover the national portion of the producer licensing exam only. State insurance law and your state's exam content are not included; check your state's insurance department and its candidate handbook.
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