Chapter 5: Life Insurance Policy Provisions, Riders, and Options

Which riders increase the amount of the death benefit?

Accident death rider - pays double or triple the amount of face value Cost of Living rider - automatically increases the amount of insurance based on an inflation index Return of Premium - pays back all the premiums in addition to the death benefit

What is the free-look period, and when does it begin?

Allows the policy owner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. It starts when the policy owner receives the policy, not when the insurer issues the policy.

What is the difference between absolute and collateral assignment?

An absolute assignment permanently transfers all right of ownership to another person or entity. A collateral assignment is a transfer of partial rights to another person.

What settlement options are available in life insurance policies?

Cash payment (lump-sum), life income, interest only, fixed-period installments, and fixed-amount installments.

What are the 3 nonforfeiture options in life insurance policies?

Cash surrender value, reduced paid-up insurance or extended term option

Which nonforfeiture option is automatically selected if the policy owner has not made a selection?

If the policy owner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy.

What happens to an unpaid policy loan at insured's death?

If there are outstanding loans at the time of the insured's death, the amount will be considered a debt to the policy and the death's benefit will be reduced by the amount of indebtedness.

What is the purpose of the Automatic Premium Loan provision?

It prevents the unintentional lapse of a policy due to nonpayment of the premium.

Which dividend option increases the death benefit?

Paid-up additions increase the death benefit of the original policy by whatever amount the dividend will buy.

What constitutes the entire contract?

The policy and a copy of the application, along with any riders or amendments, form the entire contract.

What is the difference between a revocable and irrevocable beneficiary?

The policy owner may change a revocable beneficiary at any time. An irrevocable designation may not be changed without the written consent of the beneficiary.

What is the purpose of a grace period?

To prevent unintentional policy lapse of nonpayment of premiums.