Life Insurance Policy Riders, Provisions, Options, and Exclusions

Nonforfeiture option: Extended Term

uses the policy cash value to convert to term insurance for the same face amount as former permanent policy. Duration of new coverage will last as long as there is cash value. If neglected to make a selection, this will automatically be implemented.

Designation by Class

Group beneficiaries. For example, "my children" Usually per capita or per stirpes

Settlement Option: Life income joint and survivor

Guarantees an income for two or more recipients for as long as they live. Most contracts provide that surviving recipient will receive a reduced payment after the first recipient dies. This option guarantees an income for the lives of all beneficiaries

Premium Mode

If insured selects a premium mode other than annual, there will be an additional charge to offset the loss of earnings since the company does not have the entire premium at once & additional administrative costs associated with more frequent billing.

Uniform Simultaneous Death Law

If the insured and the primary beneficiary died in the same accident and there is no sufficient evidence to show who died first, the policy proceeds are to be distributed as if the primary beneficiary died first

*FACT* Waiver of premium waives the premium for a total disability after a waiting period....

In order to qualify, the insured must meet the policy's definition of total disability.

Suicide exclusion

Insurance policies usually stipulate a period of time where deth benefit will not be paid if insured commits suicide. If dying within that period, only a return of premiums will be given. If after the time period, the entire benefit will be paid.

Dividend Option: Reduction of Premium

Insurer uses dividend to reduce next years premium

What does transferring of life insurance policy change?

It does NOT change the insured or amount of coverage, it only changes who has policy ownership rights

Dividend Option: Accumulation of Interest

Kept in an account where it accumulates interest. The interest on the dividends are taxable, whereas dividends themselves are not.

Settlement Option: Life income with period certain option

Life-time income & guaranteed lifetime installment period.

naic

National association of insurance commissioners: an organization composed of insurance commissioners from all states and jurisdiction formed to resolve insurance regulatory issues

Three policy options

Nonforfeiture options, dividend options, settlement options

Collateral Assignment

transfer of partial rights to another person. Partial and temporary assignment of some of the policy rights. Usually for a debt or loan, once that is repaid, assigned rights are returned to policyowner.

Absolute Assignment

transferring all rights of ownership to another person or entity. Permanent and total transfer of all policy rights.

Exclusions

types of risks the policy will not cover. Common exclusions are aviation, hazardous occupation, ad war/military service

Settlement Option: Cash

upon death or endowment, proceeds will be delivered in cash (lump-sum) , this is automatically selected if no selection is made

Settlement Options

used to pay death benefits to a beneficiary upon the insured death, or to pay endowment benefit, if insured lives to that date. If no selection, the beneficiary can choose one at the time of insureds death

Dividend Option: one year term option

used to purchase additional insurance in the form of a one year term insurance that increases overall policy death benefit. If insured dies during one year term, the beneficiary receives both the death benefit of original policy, and the one year term insurance.

Dividend Option: Cash

a check for amount of the dividend as declared, usually annually

Minor

a person under legal age

ADL (Activities of daily living)

a persons essential activities that include bathing, dressing, eating, transferring, toileting, continence etc

Settlement Option: Fixed Period

a specified period of years is selected, and equal installments are paid to the recipient. Payments will continue even if recipient dies before the end of hat period. Payments will continue to beneficiary.

Cost of Living Rider: Term

addresses inflation factor by automatically increasing amount of insurance without evidence of insurability from the insured. May be increased by a cost of living factor tied to an inflation index such as the CPI (Consumer price Index)

Term Riders

allow for an additional amount of temporary insurance to be provided on the insured, without the need to issue another policy.

Children's term rider

allows children of insured to be added to coverage for a limited period of time for a specified amount. ie: Term insurance, and will expire when minor reaches 18 or 21. ****usually on all children of the family for one premium

Accelerated Benefits Rider: Term

allows early payment of a portion of death benefit -terminal illness -med condition requiring extraordinary medical intervention -med condition that needs extensive treatment -inability to perform activities of daily living -permanent institutionalization or confinement to a long term facility -any other conditions approved by the department of insurance

Guaranteed Insurability Rider

allows for insured to purchase additional coverage at specified future dates (usually every 3 years) or events (marriage, birth of child) without evidence of insurability, for an additional premium. This rider expires at age 40. This rider is not modified or defeated by the existence of other riders

Substitute Insured/ Change of insured rider

allows for the change of insureds, subject to insurability. Often used in businesses that have joint life policy that covers multiple key persons.

Spouse term rider

allows the spouse to be added to coverage for a limited period of time and for a specified amount. (usually expires when spouse reaches age 65)

Settlement Option: Life Income

also known as straight life: provides recipients with an income they cannot outlive. The amount of each installment is paid based off of recipients life expectancy & amount of principle. Beneficiary could outlive payments, if this happens, payments may exceed total principle. If beneficiary dies while receiving payments, proceeds are forfeited to the insurer.

Contingent Beneficiary

has second claim in the event that the primary beneficiary dies before the insured. Contingent beneficiaries do not receive anything if the primary beneficiary is still living at the time of the insured death

per stirpes

"by the bloodline: distributes benefits of a beneficiary who dies before the insured to that beneficiaries heirs

Per capita

"by the head" evenly distributes benefits among the living named beneficiaries

Nonforfeiture option: Cash

-The policyowner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. -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. -cannot be reinstated. -A surrender charge is charged to the insured when a life policy is surrendered

Assignments

Absolute Assignment & Collateral Assignment

Riders affecting death benefit

Accelerated death benefit, Accidental death & (ADAD), Guaranteed Insurability, Return of premium, Term riders

Beneficiary designated to a minor

Benefits will either be paid to a guardian or paid to the trustee of minor (if the trust is the named beneficiary, or paid as directed by a court) The guardian and trustee can be the same person

Consideration Clause

Both parties must provide some value in order for the contract to be valid

Nonforfeiture Option

Cash surrender, reduced paid-up insurance, extended term Cash values & guarantees are built into the policy that cant be forfeited.

Nonforfeiture option: Reduced paid-up insurance

Cash value is used by 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. New policy will build its own cash value & will remain in force until death or maturity.

Policy Loans and Withdrawals

Policy loan only applies to policies with cash value. PO is entitled to borrow an amount equal to the available cash value. Any loans/accrued interest will be deducted from policy proceeds upon the insureds death. Insurance policies may defer a policy loan req for up to 6 months, unless the reason for the loan is to pay the policy premium.

Policy Lapse with outstanding loan

Policy will not lapse unless the amount of the loan and accrued interest exceeds available cash value. Insurer must provide 30 days written notice to the policy owner that the policy is going to lapse.

Level Premium

Premium remains the same throughout the contract

Two levels of Succession

Primary and Contingent

Dividends

Return of excess premium, non taxable & not guaranteed. **1st dividend could be paid by first policy anniversary, but no later than the end of the third policy year. From then on dividends are paid annually*****

Disability Riders

Some riders provide benefits in the event of insured disability while other riders provide for partial payment of death benefit prior to insured death, called accelerated or living benefits riders

Insuring Clause

States the insurers promise to pay death benefit upon insureds death Usually located on the policy face page, including parties, length of coverage in force, and type of loss insured against.

Beneficiary Designation

The beneficiary does not have to be an insurable interest in the insured. The policy owner does not have to name a beneficiary in order for the policy to be valid.

Free Look

The free look period starts when policyowner receives the policy, not when insurer issues. The insured has 14-days to decide to return the policy for a full refund of premium

Settlement Option: Interest Only

The insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals. The insurer picks a certain rate of interest and will often pay interest in excess of the guaranteed rate. This can be used as a temporary option while po is deciding on an option.

Owners Rights

The policyowner has the responsibility of paying policy premiums & must have insurable interest in the insured at time of application.

War or military service exclusion

The status clause: excludes all causes of death while insured is on active duty in military The results clause: excludes death benefit if insured is killed as a result of an act of war

Grace period

Time after the premium due date that the po has to pay the premium before the policy lapses. Usually 30 days. This is to protect po against unintentional lapse. If insured dies during this period, death benefit is payable minus any unpaid premium.

Asignment

Transfer of rights of policy ownership

Dividend Option: Paid-up additions

Used to purchase an additional single premium policy. No separate policies are issued, but these small single premium payments will increase the death benefit. IF insured did not chose the dividend option, the insurer will automatically use paid-up additions to increase death benefit.

Disability Riders

Waiver of premium, waiver of monthly deduction, payor benefit, disability income, accelerated benefit

Third party ownership

When owner and the insured are not the same person

Modes

When premiums are due, how often they are to be paid (monthly, quarterly, semiannually, or annually) & to whom

Policy Riders

Written modifications attached to policy that provide benefits not found in original policy. Riders sometimes require an additional premium but also help tailor a policy to the specify needs of insured, and can be classified according to their primary purpose

Revocable Designation

a beneficiary change that is able to change designation at any time without the consent or knowledge

Irrevocable Designation

beneficiary change may not be changed without written consent of the beneficiary -The policy owner can also not borrow against the policy's cash value or assign the policy to another person without the beneficiary's agreement

Principal

face value of the policy, original amount invested before the earnings

Primary Beneficiary

first claim to the proceeds following the death of the insured

Common Disaster Clause

if insured or primary beneficiary died in a common disaster, it is presumed that the primary beneficiary died first, so that proceeds will either be paid out to the contingent beneficiary or to the insureds estate, if no contingent beneficiary is designated. 14-30 days in which the primary beneficiary's death must occur for this clause to apply.

Disability Income Rider

in the event of disability the insurer will waive the policy premiums and pay a monthly income to the insured

Monthly deductions

include the actual cost of insurance charges, expense charges, and costs or charges for any benefits added to the policy by rider, endorsement or amendment, and which are specified in the policy to be deducted from the account value

Family Term Rider

incorporates spouse term rider along with children's term rider in a single rider. provides level term life insurance benefits covering spouse and all children in the family

Return of Premium Rider

increasing term insurance. When added to a whole life policy, it provides that death prior to given age, face value and all premiums previously paid are payable to beneficiary. This rider expires at age 60

Reinstatement Provision

max time limit to reinstate is usually 3 years after lapse of policy. If reinstating, the insured will have to provide evidence of insurability/ Requirement is paying back all premiums plus interest. Once reinstated, the policy will retain original status pus any values that were established at insureds issued age.

Automatic Premium Loan

not required, but commonly added to contracts with cash value w/no additional charge. Special loan that prevents the unintentional lapse of policy due to non-payment of premium. Interest will be charged, and if not paid, will be subtracted from the death benefit.

Long Term Care Rider: Term

often purchased as a separate policy. Provide payment for part of the death benefit in order to take care of insured health care expenses, which are incurred in a nursing or convalescent home. Payment of benefits will reduced from death benefit

nonfamily insured rider

other members available to be insured that are not a member of the family

Lump sum

payment of entire benefit or in one some

Waiver of Monthly Deductions Rider

pays all monthly deductions while insured is disabled, after 6-month waiting period. Only pays monthly deductions, not full premium necessary to accumulate cash values. Length of this rider will depend on when the insured becomes disabled. This rider is usually found in universal / variable universal life policies.

Settlement Option: Fixed amount

pays fixed, specified amount in installments until the proceeds are exhausted. If beneficiary dies before this, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out.

Accidental Death Rider

pays some multiple of the face amount if death is result of an accident as defined in the policy. The benefit is normally two times( double indemnity) the face amount. Some policies pay triple (triple indemnity) for accidental death. Usually expires at 65 .

Accidental Death an Dismemberment Rider

pays the principle for accidental death, and pays a percentage of that amount or a capitol sum. The dismemberment portion will determine the amount of benefit according to injury. The full principle will be paid at the loss of two hands, arms, legs, or loss of vision in both eyes. For loss of 1, the capitol amount is limited to half of the face value.

Flexible Premium

policies allow po to increase or decrease premium during the policy period

Incontestability Clause

prevents an insured from denying a claim due to statements in the application after the policy has been in force for two years, even if there are concealed material facts or misstatements. Does not apply in the event of nonpayment of premiums or statements relating to sec, age, or identity (usually)

Payor Benefit Rider

primarily used in juvenile policies. if the payor 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

Indemnity

principle of reimbursement on which insurance is based In the event of a loss. an insurer reimburses the insured or beneficiaries for the loss

Other Insured Rider

provides coverage for one or more family members other than the insured, also known as a family rider

Living Needs Rider: Term

provides for the payment of part of the policy death benefit is diagnosed with a terminal illness that will result in death within two years Purpose: to provide insurer with funds to take care of necessary expenses that incur as a result of this illness.

Misstatement of Age or Gender

provision which allows the insurer to adjust the policy at any time due to misstatement of age or gender. In the event of a claim, the insurer is allowed to adjust the benefits to an amount that the correct age/gender would have purchased.

Hazardous Occupation or Hobbies Exclusion

skydiving, auto racing, and death that results from hazardous occupation or hobby. There might be a higher premium for insuring these risks.

Consideration (definition)

something of value that each party gives to the other (binding force in any contract)

Riders covering additional insured

spouse, children, family, nonfamily

Entire Contract Provision

stipulates that the policy and copy of the application along with any riders or amendments, constitute the entire contract. ***Neither parties may change policy provisions without both parties agreeing to it and the change being affixed to the contract***

Waiver of Premium Rider

waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until insured returns back to work. If never able to return to work, premiums will continue to be waived. Most insurers impose 6-month waiting period from time of disability until the first premium is waived. If still disabled after waiting period, insurer will refund premium paid from the start of the disability. This rider expires usually when insured reaches age 65.

Aviation Exclusion

will exclude coverage for noncommercial pilots or require an additional premium for the coverage.