Chapter 4 Life Policy Provisions and Options
Free Look (Right to Examine Period)
10 days; owner has a right to rescend if dissatisfied in any way
Reinstatement
3 years from lapse (up to 5 years); insured must provide evidence of insurability to reinstate at same premiums;
Grace period
30-31 days past premium due date before a policy lapses
Policy Loans Provisions
Cash value policy after 3 years; interest charged annually; interest may be fixed or variable;
Policy Loan Rate Provisions- Flexible Rate
adjustable; maximum rate based on Moody's corporate bond yield average
Facility of Payment Clause
allows the insurer to pay a relative or other the benefits in absence of living beneficiary; maybe payback someone for funeral costs...
Exclusions
aviation, status, war, hazardous occupation, suicide
Life Policy Settlement Characteristics
benefits paid in lump sum; tax free; beneficiary cannot change policy owner's settlement option
Dividend Options
cash, premium reduction, accumulate at interest, paid up additions
Spendthrift Clause
denies the beneficiary the right to assign his/her interest in the policy; prevents creditors of insured and/or beneficiary from getting benefits before beneficiary
Entire Contract Clause
describes parts of the life insurance contract; policy, riders, amendments, copy of ap; nothing can be incorporated by reference
Mode of Premium
frequency of payments and to whom the premiums are payable
Insuring Clause (Proof of Death)
identifies the parties to the contract and the perils or conditions in which it will pay; it is the insurance companies promise to pay the policy's death benefit to the named beneficiary AFTER receiving due PROOF of DEATH .
Suicide Clause
if insured commits suicide within 2 years of contract, insurers liability is limited to refund of premium. If after 2 years, insurer pays death benefit to beneficiary
Non-forfeiture Options (Guaranteed Values)
in policies with cash accumulation; protect policy owner against total loss of benefits if policy should lapse; Cash surrender; reduced paid up; extended term
Incontestability Clause
insurer cannot contest any part of contract after 2 years
Settlement Options
interest only; fixed amount; fixed period; life income option (straight life and life income period certain)
Policy Loan Rate Provisions- Fixed Rate
maximum fixed interest rate of 8% or less as stated in policy
Automatic Premium Loans (APL)
must be elected by policy owner, and can be cancelled anytime. enables insurer to automatically borrow against cash value; available on cash value policies only; does not require additional premium
Changes (Modifications)
must be in writing and signed by executive officer of the insurer, approved by policy onward made part of entire contract
Absolute Assignment
original owner names a new owner; considered a permanent assignment; owner of juvenile policy wants to transfer ownership when insured turns 18
Surrenders
owner of cash value policy surrenders the entire policy; policy may have a surrender charge schedule lasting 10-20 years (Cash Value-Cash Surrender Value=Surrender Charge)
Beneficiary Designation- Per Stripes
pay a deceased beneficiary's share to the heirs of the beneficiary who predeceases the insured.
Beneficiary Designation- Per Capita
pay to surviving beneficiaries equally; 3 kids, one dies, 50% to 2 remaining; assumed policies are paid this way unless otherwise specified
Life Income Period Certain Settlement Option
payments guaranteed for lifetime of recipient or a specified period of time, whichever is longer. If recipient dies, payments go to another person until end of certain period.
Straight Life Settlement Option (Pure or Life income only)
payments guaranteed for the lifetime of the recipient. Upon death, payments will cease. $ amt. depends on age and gender of recipient; SINGLE LIFE option as payments will not be made to anyone other than original recipient
Life Refund Settlement Option
payments made for lifetime of recipient. Upon death, recipient's beneficiary gets CASH REFUND (lump sum) or installments of any balance.
Joint /Survivor Income Settlement Option
payments to 2 or more recipients; when one dies, payments go on with survivor/s
joint Life Income Settlement Option
payments to 2 or more; stop if one dies
Paid up Option
pays off policy more quickly than scheduled. If companies overall performance declines, premiums may have to be resumed
Partial Withdrawal
permitted in Universal or Variable Universal Life policy; considered partial surrender; any amount paid in excess of premium is subject to taxation
Owner's Rights Clause
policyowner retains all rights to the policy
1 Year Term
purchases a single premium, 1 year term benefit. premiums are calculated at the insured's attained age. also referred to as the fifth dividend option
Dividends
result from excess investment earnings, favorable mortality and expense savings; available on participating policies issued by mutual insurers; paid annually; not taxable until premiums paid have been recovered;
Consideration clause
specifies the amount and the frequency of premium paid
Assignment
transfer of ownership
Collateral Assignment
used when insurance policy is used as a collateral for a loan; transfer of ownership is temporary
Standard Provisions-Individual only
what duties and responsibilities are; how policy works; spells out agreement; no charge
Unified Simultaneous Death Act
when insured and primary beneficiary die in same accident, assumed insured died last, protecting the secondary beneficiary