life insurance policy, provisions, options, and riders

waiver of cost insurance (waiver of monthly deductions) (DR)

FOUND IN UNIVERSAL LIFE waives cost of insurance and other expenses, but does not waive cost of premiums necessary to accumulate cash values

Payor benefit rider (DR)

PRIMARILY USED WITH JUVENILE POLICIES, otherwise functions like waiver of premium rider if payor becomes disabled for at least 6 months or dies, insurer will waive premiums until minor reaches certain age, such as 21

Cost of living (Riders Affecting Death Benefit Amount)

addresses inflation factor by automatically increasing amount of insurance w/out insurability from insured face value of policy may be increased by cost of living factor tied to inflation index such as CPI

Guaranteed Insurability (Riders Affecting Death Benefit Amount)

allows insured to purchase additional coverage at specified future dates (usually every 3 years) or events (marriage or birth), w/out evidence of insurability FOR ADDITIONAL PREMIUM expires at age 40 (see example on pg 63)

Common Disaster Clause (B) stipulated under Uniform Simultaneous Death Law

assumption that primary beneficiary died first in common disaster proceeds will be paid to either contingent beneficiary or insured's estate (if no contingent designated) most insurers specify 14-30 days

succession (B)

beneficiary designation if primary beneficiary predeceases the insured primary beneficiary: first claim to policy proceeds following death of insured (policyholder may name more than one beneficiary and dictate how proceeds distributed) contingent beneficiary (secondary or tertiary beneficiary): second claim in event that primary beneficiary dies before insured

modifications (P)

changes must be endorsed on policy in writing over signature of executive officer of the insurer only executive officer can make changes to contract

Paid-Up additions (Dividend Option)

dividends used to purchase single premium policy in addition to face amount of permanent policy no new policy issued, but each small single premium payments increases death benefit of original policy by whatever amount dividend will buy each of these paid up policies will accumulate cash value and pay dividends amount of additional coverage based on insured's attained age at time dividend declared

policy title (P)

each policy must include on its face and back a title that describes policy in brief

Nonforfeiture Options

guarantees built into policies that CANNOT be forefeited by policyowner because permanent life insurance policies have cash values min period of 20 years must be included in policy three types: cash surrender value reduced paid-up insurance extended term

Disability income benefit (DR)

in event of disability insurer will waive policy premiums AND pay monthly income to insured (percentage of face amount of policy to which it is attached)

Riders Affecting Death Benefit Amount

increase through multiple indemnity or refunds of premiums decrease it if portion of death benefit paid out to insured while still living

Designation Options (B)

individuals classes: per capita (by the head; even distribution) or per stirpes (by the bloodline: distributes benefits of beneficiary who died before insured to that beneficiary's heirs) estates: insured estate will automatically receive proceeds of life insurance policy if none of beneficiaries alive at time of insured's death trusts: commonly established for minors, or to create scholarship fund can be used for estate planning purposes and can keep life insurance death proceeds out of insured taxable estate

Accumulation at interest (Dividend Option)

insurance company keeps dividend in account where it accumulates interest; interest specified in policy and compounds annually dividends not taxable, BUT interest on dividends taxable to policyowner when credited to policy

Interest Only (Settlement Options)

insurance company retains policy proceds and pays interest on proceeds to recipient at regular intervals usually temporary option until beneficiary chooses other option

Paid-Up Insurance (Dividend Option)

insurer accumulates dividends at interest and uses accumulated dividends, plus interest, and policy cash value to pay policy early up

Cash Payment (Dividend Option)

insurer sends policyowner check for amount of dividend as it is declared, usually annualy

Reduction of Premium Payments (Dividend Option)

insurer uses dividend to reduce next year's premium

Extended Term (Nonforfeiture Options)

insurer uses policy cash value to convert to term insurance for SAME face amount as former permanent policy coverage term lasts as long as new term coverage will purchase DEFAULT OPTION IF POLICYHOLDER DOES NOT CHOOSE NONFORFEITURE OPTION

limitations of liability (P)

life insurance policies in AZ cannot exclude or restrict liability for death caused in specific manner or occurring while insured has specific status if death occurs due to excluded or restricted cause, insurer will pay reserve determined according to Commissioners reserve valuation method

policy settlement and proceeds (P)

life insurer may hold proceeds of any policy it issues, as long as it follows restrictions regarding revocation by policyholder and control by beneficiaries, and regarding exemptions from the claims of creditors of beneficiaries other than the policyholder, or as agreed to by the insurer and policy holder insurer determines amount due under any life insurance policy issued: any unpaid premiums or installments for current policy year due under terms of policy amount of principal and accrued interest of any policy loan or other indebtedness against policy that remains unpaid

automatic premium loans (PL/W)

loan that prevents unintentional lapse of policy due to nonpayment of premium NOT REQUIRED; POLICYOWNER ELECTS THIS PROVISION

Cash loans (PL/W)

loan value = cash value - (unpaid loans + interest) provision allowing maximum interest rate not exceed 8% per year provision allowing adjustable max interest rate established periodically

Settlement Options

methods used to pay death benefits to beneficiary upon insured's death, or to pay endowment benefit if insured lives to endowment date if policyholder selects settlement option, beneficiary cannot change if policyholder does NOT select option, beneficiary chooses at time of insured's death

riders

modify provisions that already exist and are used to increase or decrease policy benefits and premiums

options

offer insurers and insureds ways to invest or distribute sum of money available in life policy

Fixed-amount installments (Settlement Options)

pays fixed, specified amount in installments until proceeds (principal and interest) exhausted length of benefits received depends on size of each installment

Accidental Death (Riders Affecting Death Benefit Amount)

pays some multiple of face amount if death is result of accident as defined in the policy death must usually occur w/in 90 days of accident and will either pay double or triple indemnity rider often expires at age 65; no additional cash value accumulated

beneficiaries (B)

person or interest to which policy proceeds will be paid upon death of insured

Reduced Paid-Up Insurance (Nonforfeiture Options)

policy cash value used by insurer as single premium to purchase completely paid-up permanent policy that has REDUCED face amount from that of former policy does not have to pay any more premiums, while still retaining some amount of life insurance

Policy Loans and Withdrawls (PL/W)

policy loan: policyowner entitled to borrow amount equal to available cash value any outstanding loans, and accrued interest, will be deducted from policy proceeds upon insured's death policy will not lapse w/outstanding policy loan unless amount of loan and acrrued interest exceeds available cash value; insurer must provide 30 days written notice to policyowner that policy going to lapse insurane companies may defer policy loan request for up to 6 months , unless reason for loan to pay policy premium

right to examine (free look) (P)

policyholder is allowed 10 days from receipt to look over policy and return for full refund of premium starts on policy delivery date NOT on day insurer issues insurance

ownership (P)

policyowner has ownership rights, naming and changing beneficiary, receiving policy's living benefits, selecting benefit payment options, and assigning policy policyowners pays policy premiums and must have insurable interest insurance agent is third party ownership when owner and insured not same person

Cash Surrender Value (Nonforfeiture Options)

policyowner surrenders policy for current cash value at time when coverage no longer needed or affordable surrender charge policy cannot be reinstated if cash value > premiums paid, excess is taxable as ordinary income

grace period (P)

preiod of time after premium due date that policyowner has to pay premium before policy lapses individual: 30 days; if insured dies during period, death benefit payable, but unpaid premium deducted from face value group: 31 days

incontestability (P)

prevents insurere from denying claim due to statements in the application after policy has been in force for 2 years - even if there has been material is misstatement of facts or concealment of material fact same for group life policy

Spendthrift clause (B)

protects beneficiaries from claims of their creditors clause applies to benefits that are paid in fixed-period or fixed amount installments

Accelerated (living needs) benefit rider (Riders Affecting Death Benefit Amount)

provides for early payment of part of the policy death benefit if insured is diagnosed w/terminal illness that will result in death w/in 2 years, or has other qualifying conditions insurance companies typically do NOT charge additional for this rider Conditions for Payment terminal illness medical condition requiring extraordinary medical intervention for survival medical condition needing extensive treatment inability to perform activitis of daily living permanent institutionalization or confiement other conditions approved by department of insurance LIVING NEEDS RIDER: provides for payment of part

Life income (straight life) (Settlement Options)

provides recipient w/income that he or she cannot outlive installment paid depends on recipient's life expectancy and amount of principal with each of the guarantees, size of installment decreased 1. Single life provide single beneficiary income for the rest of his/her life until death 2. joint and survivor guarantees income for two or more recipients for as long as they live most contracts provide that surviving recipient receive reduced payment after first recipient dies 3. life w/period certain recipient provided w/ "best of both worlds" in terms of lifetime income and guaranteed installment period pays 2 or more persons and stops paying at death of first UNLESS death of first occurs during specified term 4. Life Refund total annuity fund will be paid out to annuitant or to beneficiary (cash refund option): if annuitant dies before annuity fund depleted, lump-sum settlement of remainder would be made to beneficiary (installment refund option): beneficiary would receive remaining funds in form of continued annuity payments

Return of Premium (Riders Affecting Death Benefit Amount)

provides that at death prior to given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to beneficiary expires at specified age such as age 60 implemented by using increasing term insurance

misstatement of age and gender (P)

provision allowing insurer to adjust policy at any time due to misstatement of age or gender insurer allowed to adjust benefits to amount that premium at correct age or gender would have been purchased

reinstatement (P)

provision that allows lapsed policy to be put back in force MAX TIME LIMIT IS 3 YEARS reinstatement better than buying new policy cuzretain all values POLICY THAT HAS BEEN SURRENDERED CANNOT BE REINSURED

entire contract (P)

provision that stipulates that policy and copy of application, along with any riders or amendments, constitute entire contract no statements made before contract written can be used to alter contract neither insurer nor insured may change policy provisions once policy in effect

Dividend Options

return of excess premiums that are NOT taxable -- > cannot be guaranteed dividends usually paid on annual basis; first dividend can be paid as early as 1st policy anniversary, but must occur no later than end of 3rd policy year dividends can be taken in multiple ways

Revocable vs. Irrevocable (B)

revocable: policyowner can change designation at any time without consent or knowledge of beneficiary irrevocable: policyowner cannot change designation without written conset of beneficiary; may also cannot borrow against policy's cash value w/out beneficiary agreement (this would decrease policy face value until repaid)

Riders covering additional insureds (RAI)

riders that allow policyowner to add additional insured under original policy (there is family and non family). Three types: 1. spouse/other-insured term rider coverage for one or ore family members other than insured; if rider is just spouse, it can be specified as spouse term rider and allows spouse to be added to coverage for limited period of time and for specified amount (usually ends at 65) 2. children's term rider children of insured to be added to coverage for limited period of time (18 or 21) premium is same even with inclusion of more children --> premium based on avg number of children 3. family term rider family term = spouse term + children's term level term life insurance benefits covering spouse and all of children in family

Fixed-period installments (period uncertain) (Settlement Options)

specified period of years selected, and equal installments paid to recipient size of installment determined by amount of principal, guaranteed interest, and length of period selected

provisions

stipulate rights and obligations of an insurance contract and are fairly universal from one policy to next

payment of premiums (P)

stipulates: WHEN premiums due HOW often they are paid WHOM paid to premiums must be paid in advance

assignment (P)

transfer of life insurance does not change insured or amount of coverage, only changes who has policy ownership rights absolute and collateral assignment

collateral assignment(P)

transfer of partial rights to another person done to secure loan or some other transaction partial and temporary assignment; once debt or loan repaid, assigned rights returned to policyowner

absolute assignment (P)

transferring all rights of ownership to another person or entity permanent and total transfer of all policy rights new policyowner does not need to have insurable interest

exclusions (P)

types of risks policy will not cover aviation: noncommercial pilots hazardous occupation: skydiving, autoracing war or military service: (status clause: excludes all causes of death while insured is on active duty in military); (results clause: excludes death benefit if insured is killed as result of act of war) death outside continental US and Canada suicide: if insured commits suicide within 2 years following policy effective date, insurer's liability limited to refund of premium

Withdrawls or partial surrenders (PL/W)

universal life policies allow for partial w/drawl of cash value interest earned on w/drawn cash value may be subject to taxation death benefit reduced by amount of any partial surrender

Lump-sum payment (cash) (Settlement Options)

upon death or endowment point, contract designed to pay proceeds in cash (lump-sum), unless recipient chooses diff mode of settlement payments of principal face amount after insured's death NOT taxable as income

payment of claims (P)

upon receipt of written proof of loss, insurer must pay death benefit to beneficiary immediately if no beneficiary named, death proceeds paid to insured's estate proof of loss may be accompanied by policy surrender, proof of interest of claimant or both IF INSURER SETS SETTLEMENT OF WHEN SETTLEMENT MADE, PERIOD CANOT EXCEED 2 MONTHS

One-year term option (Dividend Option)

uses dividend to purchase additional insurance in form of one year TERM INSURANCE increases overall policy death benefit either use dividend as single premium on as much one-year term insurance as it will buy, or to purchase term insurance equal to policy's cash value

Waiver of premium (DR)

waives premium of policy if insured becomes totally disabled waiting period of 6 months from time of disability until first premium waived; until age 65

Disability Riders (DR)

written modifications attached to policy that provide benefits not found in original policy sometimes require additional premium, but also help tailor policy to specific needs of insured