Unit 7: Life Insurance Policy Provisions

Endorsements

(Modifications/changes) - must be made in writing and agreed to by both the insurer and the policy owner - Must be signed by an executive officer of the company and CANNOT by authorized by an agent or producer - Owner can request a change

Trust's three components

- Grantor: person who sets up the trust - Trustee: person who manages the trust - Beneficiary: receives the benefits

Levels of Beneficiaries

- Primary - first - Contingent or secondary - second (if no primary alive) - Tertiary - Third (if no primary or contingent alive) - Estate of insured (if no beneficiary named or alive)

Life Insurance Policy Provisions

- free look - insuring clause - ownership rights - assignment - entire contract - modifications - consideration - payment of premium - grace period - reinstatement - incontestability provision - misstatement of age or sex - payment of claims

Who can be a beneficiary?

- individuals - classes --better to name by actual names for all - trusts - minors-- not ideal since they cannot get the benefit until 18 - estates - charities - university/colleges (Basically anyone you want)

Insuring Clause or Agreement

- usually found on the first page of the policy. - insurers promise to pay upon death. - includes the face amount. - usually signed by an officer of the company.

Grace Period

-premium not paid by due date -usually 31 days following due date -insurance still in force -death benefit paid minus premiums due

The incontestability provision is usually in effect after when?

2 years - misstatement of age is excluded from this provision

Trust

A legal entity which can hold title to property while it is managed for the benefit of others

Facility of Payment Provision

Allows the insurance company to pay all or partial of the policy's death benefit to someone other than a designated beneficiary - Happens when benefiary is dead, a minor, or MIA - Can also pay death benefit to the funeral home

Aviation exclusion

Applies to the PILOT, not passenger or crew of a COMMERCIAL airline.

Uniform Simultaneous Death Act (USDA)/ Common Disaster Provision

Assumes the primary beneficiary dies first, if the policyowner and beneficiary die at the same time of an accident (ex: couple driving accident) - proceeds are then paid to the contingent beneficiary Common Disaster Provision allows a more lenient timeline (i.e. dying within 30 days of accident)

Provisions

Created to protect the interests of one or both parties named in a contract or legal document. The terms of a life insuancy policy are spelled out in provisions/clauses

Which caluse identifies the compnents of the contract?

Entire contract clause

Assignment

In life insurance is a transfer of the owner's rights, in whole or part, to another individual or entity. 2 Types: Collateral-- pledge for a loan Absolute-- permanent change (ex: parent transfering ownership to daughter once she is 18 yrs old.

Which clause contains the basic promise of the life insurance company to pay a specified sum of money to a benefiiary upon the death of the insured?

Insuring clause

If there is no benefiary named or no beneficary alive what happens to the trust?

It goes to the insured's estate

Considerations

MONEY!! Insured's consideration: premiums and truthful statements made on the app Insurer;s consideration: pay benefits at time of claim

Suicide exclusion

No death benefit if suicide is committed w/in the first 2 years, only premiums are refunded

Mistate of Age or Sex

Premium higher the older you are. Premium higher for males.

Incontestability Provision

Provided to protect the insured. States that after a life insurance policy has been in effect for 2 years the company cannot claim that a statement made in the app for insurance was meant to defraud the insurer - usually after 2 years - policy can't be taken away - even if material misrepresentation -OR- - fraud (concealment)

At death, estate taxes are due

Rather than name an estate as the benficiary it is better to name it to a person to avoid the taxes. IF it goes to the estate the life insurance proceeds are counted toward the total value of the estate for estate tax purposes.

Reinstatement

Restoreation of a lapsed policy as originally purchased - Policy lapsed for nonpyament of premiums - up to 3 years to reinstate - policy was not surrendered for cash - must pay missed premiums + interest - prove insurability - saves original policy + issue age

Revocable vs Irrevocable Beneficiary

Revocable: Can change the beneficiary at any time for any reason, only need to notify the insurance company, typically takes effect upon written date Irrevocable: Beneficiary cannot be changed WITHOUT the beneficiary's consent - loan or withdrawl from cash values reqires permission of beneficary - usually becomes revocable upon death or irrevocable beneficiary

Payment of Claims provision

Says the insurer will pay the death benefit promptly - immediatly - usually no longer than 60 days

Payment of Premium Porvision

States that premiums are due in advance, on or before th date on which the next period of coverage begins

Carl purchased a life insurance policy at 44. The insurer accidentally recorded his age as 42. When the accidnt is discovered in a review of the file 5 years later what happens?

The coverage will be reduced b/c the premium is lower than it should have been

Spend Thrift Provision

The death benefit doesn't have to be paid, allows the insurance company to pay death benefit in installmets to prefent the beneficiary from foolishly spending the money(stops creditors from taking the money right after death)

Per Capita vs Per Stirpes

When you name more than one person as the beneficiary - per capita: per head - per stirpes: divided among percentages (by the branch) "1/9, 1/9, 1/9"

War/military exclusion

also excluded from receiving death benefit

Hazardous Occupation or Hobby Exclusion

ex: sky diving, suba diving, auto racing

Suicide Clause

if the insured commits suicide within two years after the policy is issued, the face amount of insurance will not be paid; there is only a refund of the premiums paid - After 2 years the full face amount will be paid

Entire Contract=

policy + copy of application + any riders or amendments

If the named beneficiaries cannot be found, under the facility of payment provision the insurer may....

select a beneficiary

All of the following can be named beneficiares in a life insurance contract EXCEPT - a trust - the insured - a minor - the insured's estate

the insured.... duh!