Chapter 4: Types of insurance policy's

Suicide provision

This provision is a life insurance policy that protects insurance companies against people using suicide for a quick payment of death benefit. If the insured commits suicide within the first two years, the insurance company will not p at the death benefit. They will only return the premiums that have been paid.

Consideration clause

This is the policy owners promise to make premium payments.

Pay or provision rider

This is usually available with such policies, providing for waiver of premiums if the adult premium- pay or should die or, with some policies, become totally disabled. Typically, this pay or provision extends until the insured child reaches a specified age, such as 21 or 25.

Free look provision

This provision allows the policy owner, a free look at the policy for a specific number of days. This starts when the policy owner receives the policy from the insurance company in the mail, or is delivered by an agent.

Automatic premium loan provision

This provision is commonly added to contracts with cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to the nonpayment of premiums. For example, if a policy owner misses a premium payment the payment is automatically paid using the policies cash value.

Three basic types of term coverage

- level term insurance - increasing term insurance - decreasing term insurance

Single premium whole life

A whole life insurance plan that is a onetime lump sum payment, which will provide a level death benefit to the insured at age 100. This policy is completely paid up and will generate cash immediately.

Limited pay whole life

A whole life insurance plan the is designed so that the premiums for the coverage will be completely paid up well before age 100. Most versions are 20 year pay. Whereby coverage is completely paid for in 20 years. Or life paid up at 65 whereby the coverage is completely paid up by the insured at age 65.

Convertible

Allows the policy owner the right to convert the coverage to a permanent whole life life insurance policy without evidence of insurability. The premium for the new whole life permanent policy will be based only on the insured's current attained age.

Renewable

Allows the policy policy owner the right renew the coverage at the expiration date without evidence of insurability. The premiums will be based only on current attained age.

Straight whole life

Also called continuous premium whole life, is a basic whole life policy, where the policy owner pays a fixed premium for the time the is issued until the insured's death or age 100.

Policy riders

Are added to a policy and ride along, on the basic life insurance policy. Riders only have value when attached to a policy. They have no independent value. They are added to help people customize their insurance policies for their individual needs. Unlike policy provisions, these are not free; their cost is added to the life insurance policy premium.

Non- forfeiture options

Because permanent whole life insurance policies have cash values, certain guarantees are built into the policy that cannot be forfeited by the policy owner. If a whole life policy has cash value and the policy owner wants to surrender the policy, because he does not want it anymore, he must make a decision on what he would like to do with his cash value. The three options are... - cash surrender - reduce paid-up - extended term

Misstatement of age or sex provision

Because the age and sex are important factors the premiums that will be charged for a life insurance policy, this provision allows the insurance company to adjust the policy at any time due to a misstatement of age or gender. In the event of a claim the insurance company is allowed to adjust the death benefit or the premium to the correct age or gender.

Decreasing term policies

Feature a level premium and a death benefit that decreases each year. These are primarily used when the amount of protection needs to decrease over a period of time. Most common use is to insure the payment of a mortgage. The policy amount decreases as the outstanding mortgage loan balance decreases each year. Death Benefit will be zero dollars at the end of the term.

Increasing term policies

Feature level premiums and a death benefit that increases each year. The amount of increase is usually set at a specific amount or percentage.

Grace period provision

In this type of provision usually has a grace period that last up to 30 days the purpose of the grace period is to protect the policyholder against an unintentional lapse of the policy. If the insured dies during this period the benefit is payable, however any past due premiums will be deducted from the death benefit.

Level death benefit

In whole life policies This benefit is guaranteed and remains level for the entire lifetime of the policy.

Cash value

In whole life policies This is created by the accumulation of premiums is scheduled to equal the face amount of the policy when the insured reaches age 100.

Level premiums

In whole life policies these are based the age of the individual, when originally purchased.therefore the premiums remain the same throughout the entire life of the policy.

Collateral assignment

Involves a transfer of partial rights to another person; this is usually done in order to secure a loan. This is a temporary assignment, once the debt or loan is repaid the rights are returned to the policy owner.

Most term policies are

Renewable Convertible And renewable and convertible

Entire contract provision.

Provision that Stipulates that the policy and a copy of the application along with any rider or amendments makeup the entire contact.

The three basic types of whole life insurance

Straight whole life Limited pay whole life Single premium whole life

Cash surrender option

Take the cash

Term life

Temporary life insurance provided for a specific period of time. It is also known as pure life insurance. provide for the greatest amount of coverage for the lowest premiums. Provides what is known as pure death protection. If the insured dies during the policy term, the policy pays a benefit to the beneficiary. If the policy is canceled or expires due to the insurers death, nothing is payable. With this policy there is no cash value or any living benefits available.

Rights of ownership

The assignment provision specifies the policy owners right to transfer ownership of the policy.

Dividends

These are paid only on participating policies. When the policy owner purchases the policy from a participating insurance company, they are eligible to receive these. When receiving these you have five options... -Take it in cash -Apply it against the premium payments -Allow it to accumulate interest -Buy paid up additions - ( which is a whole life policy) -Purchase one year term insurance

Exclusions

These are the types of risks that an insurance policy will not cover. The most common forms of these are... War Aviation- non-commercial pilot Hazardous occupation or hobbies Commission of a felony Suicide

Standard policy provisions

While there is not one in life insurance, the national association of insurance commissioners does create uniformity amongst life insurance policies.

Living benefits

With a whole life policy, a policy owner can borrow against the cash value while the policy is in effect, or can receive the cash value when the policy is surrendered.

Automatic premium loan rider

Is a standard feature in some life insurance policies. In others, it's provisions are added to the policy by rider. In either case, it is available to the policy owner at no additional charge. It allows the insurer to pay premiums from the policy's cash value if premiums have not been paid by the end of the grace period. These deductions from cash values are treated as "loans" and are changed interest.

Whole life

Also called permanent life insurance, these are policies that remain in effect to age 100 as long as the premiums are paid. Provides lifetime protection and includes savings elements known as cash value. These endow at 100, which means the cash value created by the payment of premiums is scheduled to equal face amount of the policy at age 100. Premiums are usual higher than term insurance.

Waiver of premium rider

This rider waives the premium for the policy if the insured becomes totally disabled. Most insurance companies impose a six month waiting period from the time of disability. The coverage remains in force until the insured is able to return to work. If the insured is never able to return to work, the premiums will continue to be waived by the insurance company. Usually expires when the insured age reaches 65.

Absolute assignment

Involves transferring all rights of ownership to another person or entity. It is a permanent and total transfer of all policy rights. The new policy owner does not need to have an insurance interest in the insured.

Incontestable clause

This clause prevents the insurance company from denying a claim because of incorrect information or a concealment of facts after the policy has been in force for two years.

Insuring clause

This is the insurance companies agreement and promise to pay death benefits.

Level term insurance

This is the most common type of temporary protection. The word "level" also refers to the death benefit that does not change through the life of the policy.

Cost of living rider

This rider addresses inflation by automatically increasing the amount of insurance without evidence of insurability. The face value of the policy may increase by the cost of living factor tied to an inflation index such as the consumer price index.

Reduce paid up option

Under this option the cash value is used to purchase a paid whole life policy. The new whole life policy will have smaller or reduced face amount from the original policy. But there will not be any more premium payments due and it will continue to gain cash value.

Extended term option

Under this option, the cash value is used to purchase a term policy. The new term policy will have same face value amount as the original whole life policy and will last for a set period of time based on the amount the cash value available used. And there will not be any additional payments due.

Reinstatement provision

Provision that allows a lapsed policy to be put back in force. If the policy owner elects to reinstate the policy, they will have to provide evidence of insurability, pay all back premiums with interest and may be required to repay any outstanding loans.

Policy loan provisions

Provisions that are found in policies that contain cash value. The policy owner is allowed to borrow an amount equal to the available cash value.if any outstanding loans at the time of the insured's death, the death benefit will be reduced by the amount of the outstanding loan.

Guaranteed insurability rider

This rider allows the insured to purchase additional coverage at specific future dates, without the evidence of insurability, the new premiums will be calculated only on the person's attained age.