*Life Insurance Policies, provisions, options, riders (30%)
Accidental Death Rider
pays some multiple of the face amount if death is the result of an accident as defined in the policy... death must occur within 90 days of such an accident... normally 2 times *double indemnity
Reduced Face Amount
policy cash value is used by the insurer as a single premium to purchase a completely paid up permanent policy that has lower DB
Decreasing Term
premiums stay the same but the benefits decrease over the life of the policy e.g. for home mortgage
Extended Term
present cash value is used to buy a single premuim term policy of the same face amount for as long a period as it will buy. This option provides the most protection and is sometime referred to as the Automatic Option.
Cost of Living Rider
provides increases in the amount of insurance protection without requiring the insured to provide evidence of insurability and is designed to keep up with inflation.
Variable Universal Life
requires securities license. flexible premiums and adj DB. Policyowner decides where next premiums (CV) will be invested.
Spouse Term Rider
spouse to be added to coverage for a limited per of time and for a specified amount;usually ends when spouse turns 65
Equity Indexed Universal Life
universal life policy with equity index as its investment feature; policy's cash value is dependent upon performance of equity index, cash value and death benefit; not guaranteed; sale of this product doesn't require securities license
Dividend Options
1. Cash Option: insurer sends the policy owner a check for the amount of the dividend as they are declared 2. Reduction of Premium: insurer uses the dividend to reduce the next year's premium 3. Accumulation at Interest: Insurance Co. keeps the dividend and it accumulates interest. Owner can withdraw dividends at any time. 4. 1 year Term Option: dividend used to purchase additional insurance to increase the overall DB 5. Paid up additions option: used to purchase a single premium addition to the face amount of permanent option. no new policies are issued
Surrender Charge
A charge imposed at the surrender of a life insurance policy during its surrender charge period and designed to enable the insurer to recover its unrecovered business-acquisition expenses
Entire Contract
A contract clause stating that all pieces of the agreement between insurer and insured are found in the contract. This can include the application, endorsements, and conditions.
Per Capita Beneficiary
"By the Head" A type of life insurance policy beneficiary class designation in which the class members all stand in the same relationship to the policyowner and the class members who survive the insured share the policy proceeds equally
Per Stripes
"by way of" or "by the bloodline/branches". Distribution where a beneficiary's share of the policy's proceeds will be passed down to the beneficiary's living child or children in equal shares should the named beneficiary predecease the insured.
Grace Period
- A stated period of time after the premium due date during which the policy remains in force even though the premium has not been paid. Usually 30 days. 30 days notice before termination of coverage
War or Military Service Clause
- Status clause excludes payment of proceeds if insured dies while in military. Results clause excludes payment if the insured dies as a result of declared war.
Mode
is the manner or frequency that the owner pays premium
Single Premium Whole Life
One lump sum single premium payment at the time of application funds the entire policy in this type of whole life insurance. Provides a level DB
Fixed Amount Installments
Pays a fixed, specified amount in installments until the proceeds are exhausted
Term Insurance
Temporary protection only provides for the number of years specified in contract. if the insured dies during the coverage period, DB paid to beneficiary. if policy lapses before insured's death, no DB is paid. NO cash values that can be drawn upon (provides only for DB =pure protection. Greatest amount of coverage for lowest premium 3 types: level, increasing, decreasing
Insured's Estate
The estate (assets and liabilities left by the insured at death) is the beneficiary in the following circumstances: When the estate is named beneficiary by the policyowner, When no beneficiary was named by the policyowner and When all named beneficiaries are deceased at the time of the insured's death. DB may be included in estate taxes.
Policy Loan
This option is found only in policies that contain cash value. The policyowner is entitles to borrow an amount equal to the available cash value. Loan Value= cash value-(unpaid loans+interest)
Revocable Beneficiary
Type of beneficiary designation which grants no rights in the life policy until after the insured dies. Can be changed (or revoked) at any time by the policy owner while the insured is still alive.
Absolute Assignment
A permanent and irrevocable transfer of all rights of ownership.
Modified Life
A type of whole life insurance; reduced premiums in the early years and then higher premiums in the later years
Industrial Life Insurance Policy
Also called home service life insurance, class of life insurance that was issued in small amounts, premiums were paid weekly or monthly, and the agent collected the premiums at the insured's home
Return of Premium Rider
An increasing amount of Term insurance that always equals the total amount of premiums paid to date
Universal Option B
DB includes annual increase in CV so the benefit increases each year by amt. CV increases. Total DB will always= face amount + CV
Universal Option A
DB remains level while CV gradually increases
Grantor/trustee
Establishes the trust gives legal title of a property to another (trustee) to be used for the benefit of the trust beneficiary
Interest Sensitive Whole Life
Fixed premium. a whole life policy written using current assumptions concerning mortality, interests and expenses. Cash value can grow at rates higher than the guaranteed minimum. Guaranteed DB
Universal Life
Goes by the generic name of flexible premium adjustable life. The death benefit (face amount) can be increased or decreased depending on the insurance needs of the policyowner. The insurer will usually require proof of insurability. The policyowner has the flexibility to increase the amount of premium going into the policy and to later decrease it again. can skip premium payments as long as there is enough CV to cover cost of insurance. The insurance companies may give the policyowner a choice to pay either the minimum premium or the target premium. Insurance is annually renewable term insurance. Insured selects level of premium, CV, DB, premium paying pd.
Hazardous Occupations Clause
Individuals who have a hazardous job or hobby may be excluded from death benefit coverage. Insurers may simply decline coverage for a hazardous occupation or hobby, or increase the rates.
Credit Insurance
Insurance on a debtor in favor of a lender, intended to pay off a loan or the balance due thereon if the insured dies or is disabled. Credit Life is a type of decreasing term insurance and the face amount of the policy is limited to the amount of the loan. Generally not used as Mortgage Protection Insurance
Provisions
Rights of insurance contract, fairly uniform. National Assoc. of Insurance Commissioners (NIAC)
Primary Beneficiary
The person who is named as first to receive benefits from a policy.
Third party Ownership Insurance
a policy owned by one person insuring the life of another person. policy owner, insured, and insurer. example parent owns a policy on an under age child, buy-sell agreement, key person (employee) insurance
Dividends
a return of excess premium and premiums and are not taxable to the owner. Insurance cannot guarantee dividends.
Children's Term Rider
allows the children of the insured (natural, adopted, or stepchildren) to be added to coverage for a limited period of time for a specified amount. Usually expires when the minor reaches a certain age (18, 21). Most riders provide the minor with the option of converting to a permanent policy without evidence of insurability.
Juvenile Life
any life insurance written on the life of a minor
Common disaster clause
applies when both the insured and primary beneficiary die as a result of the same accident. it states that the primary beneficiary dies first and protects the interest of the contingent beneficiary
Waiver of Monthly Deductions
as the policyowner to make pre-authorized check payment to waive the monthly deductions during a disability
Incontestability
clause that prevents insurers from contesting statements made by insureds in applications for insurance after the passage of a stipulated number of years (2)
Right to Examine
free look allows the policy owner 10 days to look over policy and if for any reason, return it for a full refund
Life Income Joint and Survivor
guarantees an income for two or more recipients forong as they live most contracts provide that the surviving recipient will recieve a reduced payment after the 1st recipient dies. Most commonly joint and 1/2 survivor or joint and 2/3 survivor
Family Term Rider
incorporates the spouse term along with the children's term rider in a single rider. When added to a whole life policy, the _______ _____ rider provides level term life insurance benefits covering the spouse and all of the children.
Interest Only Option
insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals
Modes of Payment
other than annually require the policyowner to pay a service fee for the additional administrative costs incurred by the insurer.
Level Term Insurance
most common type of temporary protection purchased. level premium and level death benefit throughout the life of the policy. AKA Annually Renewable Term:(ART) Provides coverage for one year and allows the policyowner to renew coverage each year without evidence of insurability.
Reinstatement
o Allows the restoration of a policy that lapsed due to late premium payments back to its original active status rather than being considered canceled and reissue. Usually no longer than 3 years.
Waiver of Cost
A disability rider, found in Universal Life Insurance, that waives the cost of the insurance but does not waive the cost of premiums necessary to accumulate cash values.
Non-Forfeiture Options
A legal provision whereby the policyholder may take the accumulated cash values in a policy as 1) Reduced Paid-Up Permanent insurance; 2) Extended Term insurance, or 3) Surrender the policy for payment of its cash value, less any outstanding loans. Also known as "Guaranteed Values". When surrendering for cash, any amount paid out in excess of premiums paid in is taxable as ordinary income. Once a policy is surrendered for cash, it may not be reinstated.
Automatic Premium Loan Provision
A rider in a Life policy authorizing the insurance company to use the cash value to pay premiums not paid by the end of the grace period. May be present in Whole Life or Endowment policies only, never Term. This rider is free, but must be selected by the policy owner.
Uniform Simultaneous Death Clause
A uniform law adopted by most states providing that if the primary beneficiary and insured die in the same accident and there is no proof that the beneficiary outlived the insured, the proceeds are paid as if the primary beneficiary died first.
Facility of Payment Clause
At times it may be difficult for an insurer to clearly ascertain who the correct beneficiary is under a particular policy. This clause was developed to allow an insurer to pay benefits to someone other than the insured or a beneficiary under certain specified conditions in order to prevent potential litigation against the insurer.
Whole Life Insurance
Permanent Protection. As long as premium is paid> covered for life premium base don age at time of issue so it is level throughout the policy. Build Cash Value which owner can borrow against (outstanding loans deducted from DB) 3 types- straight, limited, single
Guaranteed Insurability
Permits Insured to buy specific amounts of additional insurance at specified intervals (usually 3 years) without evidence of insurability (like planning for a baby or marriage)
Accelerated Death Benefit
Policy provision that allows full or partial payment of the policy's death benefit before the insured's death if he/she is terminally ill.
Adjustable life
offer policy owner best of both worlds (perm. or term); policy owner can make adjustments as their needs change by +/- premium or premium-paying period or +/- face amount with proof on insurability; can change period of protection, convert policy type, cash value only develops when premiums paid are > cost of the policy
Straight Life
A basic policy that charges a level annual premium for the lifetime of the insured and provides a level, guaranteed death benefit- has lowest annual premium.
Waiver of Premium
A disability insurance policy provision that an employee does ot have to pay any premiums while disabled. Also known as elimination period.
Assignment Provision
A life insurance policy provision that allows a policy owner to freely transfer his policy to another person or institution. There are two types of Assignments
Life Income option
A life insurance policy settlement option under which the insurance company agrees to pay the policy proceeds in period installments over the payee's lifetime. The amount of payments is based upon the value of the contract and the life expectancy of the recipient. Does not guarantee that the entire death benefit will be distributed but cannot outlive payments.
Survivorship Life
A life insurance policy that pays a death benefit upon the death of the last surviving insured individual; often used to insure a husband and wife; also called second to die life insurance.
Misstatement of Age or Gender
A life policy provision that says if the insured's age or sex is discovered to be different from what was on the application an adjustment will be made to the policy's coverage based on the correct age or sex.
Joint Life
A policy that covers the lives of two or more people and benefits are paid upon the death of the first person. There is no remaining coverage for the survivor(s).Can be term or perm. Premium based on average of both ages
Change of Beneficiary Provision
Allows the policyowner to change the policy beneficiary if so desired as long as the beneficiary designation is revocable
Contingent Beneficiary
An alternate beneficiary designated to receive the policy proceeds in the event that the primary beneficiary dies before the insured.
Collateral Assignemnt
Assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reiumbursed out of policy proceeds for the amount owed. The benficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death. Reverts back to assignor after loan has been paid
Exclusions
Causes of loss, exposures, conditions, etc. listed in the policy for which the benefits will not be paid.
Settlement Options
Choices available to the insured/owner for distribution of insurance proceeds.
Spendthrift Clause
Clause included in some life policies that intends to protect policy proceeds from a beneficiary's creditors by establishing a trust to receive the death benefit. Under this arrangement, the policy proceeds are paid out as periodic income rather than in a lump sum. The payout could be arranged as a fixed payment for as long as the money lasts or for a fixed period of time. The proceeds are then usually protected from creditors until the terms of the trust have been fulfilled.
Interest in Insurance Proceeds
If Insurer doesn't pay within 30 days of a loss, then the insurer needs to pay interest at the legal rate from the date of loss/death to pay date
Aviation Clause
Limits or excludes coverage when the insured is participating in specified types of air travel. Coverage is usually confined to regularly scheduled flights of commercial airlines. Often applies to student pilots.
Irrevocable Beneficiary
Once elected, cannot be changed without named beneficiary.s consent, since they have a "vested" interest in the policy benefits. A policy loan would also require the consent of the Irrevocable Beneficiary, since if you die with a loan outstanding, they would receive less.
Limited-Pay Whole Life
Premiums for coverage designed to be paid well before age 100. Common are 10-pay and 20-pay life where coverage is paid for in 10 or 20 years shorter paying period=higher premium-= faster accumulation of CV
Long Term Care LTC
Provide for the payment of part of the death benefit in order to take care of the insureds health care expenses
Living Needs Rider
Provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years
Graded-Premium Whole Life
Similar to modified life in that premiums start out relatively low and then level off at a point in the future. Typically starts with a premium that is approximately 50% or lower than the premium of a straight life policy. The premium then gradually increases each year for the period of usually five or ten years and then remains level thereafter.
Group Life Insurance
provided under a master contract for members of qualified groups. Generally written as a one year renewable term plan without medical examinations and at rates that are more favorable than individual policies.
Fixed Period Option
settlement option for death proceeds in which insurer pays the bene. equal pmts at reg intervals over a spec. period of time
Single Life Option
single beneficiary receives a specified amount of money periodically for life until death