CH 12
What is the reinstatement provision?
Permits the owner to reinstate a lapsed policy
What is the guranteed purchase option?
Permits the policyholder to purchase additional amounts of life insurance at specified times in the future without evidence of insurability
Policyholders have several ways to take dividends:
-Take the cash -Reduce the next premium coming due -Let the dividends accumulate at interest and withdraw later -Apply toward the purchase of paid-up whole life insurance under the paid-up additions option -Apply toward the purchase of term insurance
What is a life settlement?
A financial transaction by which a policyholder who no longer wants to keep a life insurance policy sells the policy to a third party for more than its cash value
What is the fixed amount option?
A fixed amount is periodically paid to the beneficiary
If a policy pays dividends it is a
A participating policy. -Otherwise it is a nonparticipating policy.
What is a blended policy?
A term insurance rider can be added to a cash-value policy to increase the total death benefit but still keep the policy affordable
What is the grace period?
A time period during which the policyholder has a period of 31 days (or more) to pay an overdue premium. Purpose is to prevent the policy from lapsing.
Who can life insurance proceeds also be paid to?
A trustee, such as the trust department of a commercial bank
What happens under absolute assignment?
All ownership rights in the policy are transferred to a new owner
What is the accelerated death benefits rider?
Allows insureds who are terminally ill to collect part or all of their life insurance benefits before they die
What is a change of plan provision?
Allows policyholders to exchange their present policies for different contracts
What is the accidental death benefit rider?
Doubles the face amount of life insurance if death occurs as a result of an accident
What requirements must be met to reinstate a lapsed policy?
Evidence of insurability is required All overdue premiums plus interest are paid Any policy loans are repaid or reinstated The policy was not surrendered for its cash value
What is the misstatement of age or sex clause?
If the insured's age or sex is misstated, the amount payable is the amount that the premiums paid would have purchased at the correct age and sex
What is the life income option?
Installment payments are paid only while the beneficiary is alive and cease on the beneficiary's death
What is the contingent beneficiary?
Is entitled to the proceeds if the primary beneficiary dies before the insured
What is the suicide clause?
States that 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
What is the entire contract clause?
States that the life insurance policy and attached application constitute the entire contract between the parties
When is the use of a trust appropriate?
The amount of insurance is substantial Flexibility and discretion in the amount and timing of payments are needed The beneficiaries are minor children or mentally or physically challenged adults who cannot manage their own financial affairs
What three sources do dividends come from?
The difference between expected and actual mortality experience Excess interest earnings The difference between expected and actual operating expenses
What is the primary beneficiary?
The first entitled to receive the policy proceeds on the insured's death
What is the incontestable clause?
The insurer cannot contest the policy after it has been in force two years during the insured's lifetime
What is the beneficiary?
The party named in the policy to receive the policy proceeds
What is nonforfeiture value or cash surrender value?
The payment to a withdrawing policyholder
What is the fixed period option?
The policy proceeds are paid to a beneficiary over some fixed period of time
What is the ownership clause?
The policyholder possesses all contractual rights in the policy while the insured is living
What happens under collateral assignment
The policyholder temporarily assigns a life insurance policy to a creditor as collateral for a loan, but only certain rights are transferred to the creditor
What is a viatical settlement?
The sale of a life insurance policy by a terminally ill insured to another party, typically to investors or investor groups, who hope to profit by the insured's early death
What is the waiver of premium provision?
if the insured becomes totally disabled, all premiums coming due during the period of disability are waived
What is a policy loan provision?
Allows the policyholder to borrow the cash value
What is the cost of living rider?
Allows the policyholder to purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability
What is the automatic premium loan provision?
An overdue premium is automatically borrowed from the cash value after the grace period expires
What are three nonforfeiture options?
Cash surrender, reduced paid-up, and extended term