amir chapter 1

Misstatement of Age or Gender

Because the age and gender of an insured are important to the premium that will be charged for a life insurance policy, a provision which allows the insurer to adjust the policy at any time due to a misstatement of age or gender is included in the policy.

Hazardous Occupations or Hobbies

If the insured is engaged in a hazardous occupation or participates in hazardous hobbies (such as skydiving or auto racing), death that results from the hazardous occupation or hobby may be excluded from coverage. The underwriter also has the option of charging a higher premium for insuring these risks.

War or Military Service

Most life insurance policies issued today do not exclude military service.

aviation

Most life insurance will cover an insured as a fare-paying passenger or a pilot on a regularly scheduled airline, but will exclude coverage for noncommercial pilots, or require an additional premium for the coverage.

D. Disability Riders

Riders are written modifications attached to a policy that provide benefits not found in the original policy. Riders sometimes require an additional premium, but they also help tailor a policy to the specific needs of the insured, and can be classified according to their primary purpose. Some riders provide benefits in the event of the insured's disability, while other riders provide for partial payment of the death benefit prior to the insured's death, called accelerated or living benefits riders.

Automatic Premium Loan

The automatic premium loan provision is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. For example, a loan against the policy cash value for the amount of premium due is automatically generated by the insurer when the policyowner has not paid the premium by the end of the premium-paying grace period. It is a loan for which the insurer will charge interest. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit. While the insurer may defer requests for other loans for a period of up to 6 months, loan requests for payment of due premiums must be honored immediately.

Paid-up Additions

The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy. No new separate policies are issued; however, each of these small single premium payments will increase the death benefit of the original policy by whatever amount the dividend will buy. In addition, each of these paid-up policies will accumulate cash value and pay dividends. The amount of additional coverage that can be purchased with the dividend is based on the insured's attained age at the time the dividend is declared.

Entire Contract

The entire contract provision stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract. No statements made before the contract was written can be used to alter the contract. Neither the insurer nor the insured may change policy provisions once the policy is in effect without both parties agreeing to it and the change being affixed to the contract.

Fixed-amount Installments

The fixed-amount installments option pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted.

Accumulation at Interest

The insurance company keeps the dividend in an account where it accumulates interest. The policyowner is allowed to withdraw the dividends at any time. The amount of interest is specified in the policy and compounds annually. Although the dividends themselves are not taxable, the interest on the dividends is taxable to the policyowner when credited to the policy, whether or not the policyowner receives the interest.

Cash Payment

The insurer simply sends the policyowner a check for the amount of the dividend as it is declared, usually annually.

Reduction of Premium

The insurer uses the dividend to reduce the next year's premium. For example, if the policyowner usually pays an annual premium of $1,000 and the insurer declares a $100 dividend, the policyowner would only pay a $900 premium that year.

Life Refund

The life refund income option comes in either a cash refund form or an installment refuna form. Both options guarantee that the total annuity fund will be paid out to the annuitant or to the beneficiary. The difference between the two options is that under the cash refund option, if the annuitant dies before the annuity fund is depleted, a lump-sum settlement of the remainder would be made to the beneficiary, while under the installment refund option, the beneficiary would receive the remaining funds in the form of continued annuity payments.

Life Income

The life-income option, also known as straight life, provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death. The amount of each installment paid is based on the recipient's life expectancy and the amount of principal. If the beneficiary lives for a very long time, payments may exceed the total principal. However, if the beneficiary dies shortly after he or she begins receiving installments, the balance of the principal is forfeited to the insurer. Because there is a chance that the beneficiary may not live long enough to receive all the life insurance proceeds, insurers make options available which provide at least a partial guarantee that some or all of the proceeds will be paid out. With each of the guarantees, the size of the installment is decreased.

Spouse and Other-insured Term

The other insured rider provides coverage for one or more family members other than the insured. The rider is usually level term insurance, attached to the base policy covering the insured. This is also known as a family rider. If the rider covers just the spouse of the insured, it can be specified as a spouse term rider, and allows the spouse to be added to coverage for a limited period of time and for a specified amount (it usually expires when the spouse reaches age 65).

Payor Benefit (Juvenile Insurance)

The payor benefit rider is primarily used with juvenile policies (any life insurance written on the life of a minor); otherwise, it functions like the waiver of premium rider. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21. This rider is also used when the owner and the insured are two different individuals.

Payment of Premiums

The policy stipulates when the premiums are due, how often they are to be paid (monthly, quarterly, semiannually, or annually) and to whom. The premium mode is the manner or frequency that the policy owner pays the policy premium

Cash Surrender Value

The policyowner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. Upon receipt of the cash surrender value, if the cash value exceeds premiums paid, the excess is taxable as ordinary income. Once this option is selected, the insured is no longer covered. A policy that has been surrendered for its cash value cannot be reinstated. A surrender charge is a fee charged to the insured when a life policy or annuity is surrendered for its cash value.

Single Life

The single life option can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payments stop. Joint and Survivor The life income joint and survivor option guarantees an income for two or more recipients for as long as they live. Most contracts provide that the surviving recipient will receive a reduced payment after the first recipient dies. Most commonly, the reduced option is written as "joint and ½ survivor" or "joint and 2/3 survivor," in which the surviving beneficiary receives ½ or 2/3 of what was received when both beneficiaries were alive. This option is commonly selected by the policyowner who wants to protect two beneficiaries, such as elderly parents. Unless a period certain option is also chosen, as with the life income option, there is no guarantee that all the life insurance proceeds will be paid out if all beneficiaries die shortly after the installments begin his ontion guarantasc however an income for the lives of all heneficiari

Waiver of Cost of Insurance

The waiver of cost of insurance (or waiver of monthly deductions) rider is found in Universal Life Insurance. In the event of disability of the insured, this rider waives the cost of the insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values.

E. Riders Covering Additional Insureds

There are riders that allow the policyowner to add additional insureds under the original policy, such as children's term or family term. There is also a nonfamily term rider that allows the policyowner to change the insured under the policy.

Right to Examine (Free Look)

This provision allows the policyowner 10 days from Receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium - starts when the policyowner receives the policy

Life with Period Certain

Under life income with period certain option, the recipient is provided with the "best of both worlds" in terms of a lifetime income and a guaranteed installment period. Not only are the payments guaranteed for the lifetime of the recipient, but there is also a specified period that is guaranteed. For example, a life income with 10 years certain option would provide the recipient with an income for as long as he or she lives. If the recipient dies shortly after starting to receive the payments, the payments will be continued to a beneficiary for the remainder of the 10-year period. As already stated, the installments for the life income with period certain option will be smaller than the life income only option.

Extended Term

Under the extended-term option, the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase. If the policyowner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended- term option in the event of termination of the original policy.

Fixed-period Installments

Under the fixed-period installments option (also called period certain), a specified period of years is selected, and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end of that period. In the event of the recipient's death, the payments would continue to a beneficiary. The size of each installment is determined by the amount of principal, guaranteed interest, and the length of period selected. The longer the period selected, the smaller each installment will be. This option does not guarantee income for the life of the beneficiary; however, it does guarantee that the entire principal will be distributed.

Reduced Paid-up Insurance

Under this option, the policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy. The new reduced policy builds its own cash value and will remain in force until death or maturity.

Withdrawals or Partial Surrenders

Universal life policies allow the partial withdrawal (partial surrender) of the policy cash value. However, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During the withdrawal, the interest earned on the withdrawn cash value may be subject to taxation, depending upon the plan. The death benefit will be reduced by the amount of any partial surrender. Note, however, that a partial surrender from a universal life policy is not the same as a policy loan.

Cash Payment

Upon the death of the insured, or at the point of endowment, the contract is designed to pay the proceeds in cash, called a lump sum, unless the recipient chooses a different mode of settlement. If no selection is made, the proceeds are automatically paid to the beneficiary in a single cash payment. As a rule, payments of the principal face amount after the insured's death are not taxable as income.

Interest Only

With the interest-only option, the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually). The insurer usually guarantees a certain rate of interest and will often pay interest in excess of the guaranteed rate. The interest option is considered to be a temporary option since the proceeds are retained by the insurer until some later point when the proceeds are paid out in a lump sum or paid under one of the other settlement options. When the beneficiary is allowed to select a settlement option, the interest option is sometimes used as a temporary option if the beneficiary needs some time to decide which settlement option to select. For example, the policyowner may specify that interest only will be paid annually to the surviving spouse, with the principal to be paid to their children when they reach a certain age or at the death of the surviving spouse.

Disability Income

With this rider, in the event of disability the insurer will waive the policy premiums and pay a monthly income to the insured. The amount paid is normally based on a percentage of the face amount of the policy to which it is attached.

Reinstatement

allows for a lapsed policy to be put back in force. the maximum time limit is usually 3 years after the policy has lapsed. the policyowner must provide proof of insuribilty. the policyowner is required to pay back all premiums plus interest( usually does not exceed 6%) and may be required to pay back any outstanding loans plus interest.

exclusions

are the type of risks the policy will not cover

Incontestability

clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact.

Interest on Insurance Proceeds

if an insurer does not pay a first-party claim within 30 days after receipt of acceptable proof of loss, the insurer will be required to interest at the legal rate from the date to claim is received by the issuer.

Grace Period

is the period of time after the premium due date that the policy owner has to pay the premium before the policy lapses ( 30 days, 31, or one month)

Modifications

modifications or changes in the policy must be endorsed on, or attached to, the policy in writing over the signature of an executive officer of the insurer.