life insurance policy provisions, options, and riders

dividend options

- Cash in Hand - Apply Dividends Against Premium Payments - Allow Dividends to Accumulate at Interest - Use Dividends to Buy Paid-up Additions - Use Dividends to Purchase One-Year Term Insurance

Payor Benefit Rider

Primarily used with juvenile policies; otherwise; it functions like the waiver of premium rider. Insurer waives premiums until dependent is a certain age

collateral assignment

involves a transfer of partial rights to another person. Usually done to secure a loan, partial and temporary assignment of some of the policy rights, once the debt or loan is repaid, the assigned rights are returned to the policy owner

absolute assignment

involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

irrevocable designation

may not be changed without the written consent of the beneficiary

situations the facility of payment clause may be used

named beneficiary is a minor, named beneficiary is deceased, insurer did not receive death benefits claims within a specified period of time, costs for the deceased insure's final medical or funeral expenses were incurred by another party and not the beneficiary

results clause

only excludes the death benefit if the insured is killed as a result of an act of war, either declared or undeclared

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 usually occur within 90 days of the accident- double indemnity(double the amount) triple indemnity(triple the amount)

grace period

period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days), purpose is to protect the policyholder against an unintentional lapse of the policy

accelerated benefits rider

permits an insured to submit a claim for living benefits from a policy under one of the following circumstances: diagnosed with a terminal illness, needs long-term care, requires permanent confinement to a nursing home, diagnosed with a dread disease

payment of premiums

policy stipulates when the premium is due, how often to be paid, if the insured dies during a period of tume for which the premium has been paid the insurer must refund any unearned premium along with the policy proceeds

revocable designation

policyowner can without the consent or knowledge of the beneficiary, change at any time

cash surrender option

policyowners may request an immediate cash payment of their cash values when their policies are surrendered.- surrender charge, no longer covered and can't be reinstated

automatic premium loans

Prevents the unintentional lapse of a policy due to nonpayment of the premium

per capita

by the head, evenly distributed benefits among the living named beneficiaries

loan value

cash value - (unpaid loans + interest)

Nonforfeiture Options

cash value, reduced paid-up insurance, extended term insurance

Partial Withdrawals or Partial Surrenders

A partial withdrawal of cash value is permitted in a Universal or a Variable Universal Life policy. A partial withdrawal is considered a partial surrender of the policy. A partial surrender is actually paid from the policy value and either reduces the amount of the death benefit or the amount of cash value in the policy. Since this is not considered a loan, annual interest is not charged. Taxation applies to any interest on the cash value paid out as a withdrawal. In other words, any amount paid in excess of the premium is subject to taxation. When a partial withdrawal is made, the policy's cash or account value will be reduced by the amount of the withdrawal. There may be a surrender or withdrawal charge associated with the withdrawal. The insurer may limit the number of withdrawals that can be made annually or the amount of the withdrawal specifying minimums and maximums.

children's term rider

Allows children of the insured to be added to coverage for a limited period of time for a specified amount.- most riders allow the minor the option to convert to a permanent policy without evidence of insurability

payable death benefit

Face Amount - Amount Withdrawn - Earnings lost by insurer in interest

policy loan option

Is found only in policies that contain cash value. The policyowner is entitled to borrow an amount equal to the available cash value. Any outstanding loans, and accrued interest, will be deducted from the policy proceeds upon the insured's death. The insurer must provide 30 days written notice to the policyowner that the policy is going to lapse. An insurance company may defer a policy loan for up to 6 months.

Reduced Paid-Up Insurance Option

The cash-surrender value is applied as a net single premium to purchase a reduced paid-up policy

Return of Premium Rider

Upon death, death benefit is paid + the aggregate of premiums paid to date; add-on to Term policy ONLY.

cost of living rider

addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured

reinstatement

allows a lapsed policy to be put back in force, maximum time limit for reinstatement is usually 3 years after the policy has lapsed, a policy that has been surrendered cannot be reinstated

Guranteed insurability rider

allows the insured to purchase additional coverage at specified future dates(usually every 3 years) without evidence of insurability, for an additional premium- usually expires at the insured's age 40

facility of payment clause

allows the insurer to pay a portion of the proceeds to any relative or person who has possession of the policy and appears equitably entitled to the payment- most commonly found in group life, industrial, or fraternal insurance contracts

Right to Examine (Free Look)

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, free-lock period starts when the policyowner receives the policy, not when it is issued- MA all individual policies issued with the face amountof less than $25,000-10 days, replacing insurers must provide free-lock periods extending 20 days beyond the delivery of their policies

spouse term rider

allows the spouse to be added to coverage for a limited period of time and for a specified amount.. the rider is usually term level insurance and usually expires when the spouse turns 65

effect on death benefit

any policy of life insurance may pay the death benefit early under the following circumstances: terminal illness, catastrophic illness, eligibility for long-term care

misstatement of age

because the age affects the premiums the insurer has the right to adjust the benefit to an amount that the premium would have purchased at the correct age of the insured if the age is misstated on the application

per stirpes

by the bloodline, distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs

modifications

changes in the policy must be endorsed on, or attached to, the policy in writing over the signature of an executive officer of the insurer, policyowner may request changes but only an executive officer can make the changes

trusts

commonly established for minors or to create a scholarship fund

status clause

excludes all causes of death while the insured is on active military duty

waiver of cost of insurance rider

found in universal life insurance, in the event of disability of the insured, this rider waives the cost of the insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values

primary beneficiary

has first claim to the policy proceeds following the death of the insured

contingent beneficiary

has second claim in the event that the primary beneficiary dies before the insured- dont receive anything if the primary beneficiary is still living at the time of the insured's death

common disaster clause

if the insured and the primary beneficiary die at approximately the same time from a common accident with no clear evidence as to who died first, a problem may arise in identifying which person died first. if it is ruled that the insured died first, the policy proceeds are to be paid to the estate of the primary beneficiary, if no contingent beneficiary is named. if it is ruled that the beneficiary died first, the proceeds will be paid to the contingent beneficiary or the estate of the insured if there is no contingent beneficiary

uniform simultaneous death law

if the insured and the primary beneficiary died in the same accident and there is no sufficient evidence to show who died first, the policy proceeds are to be distributed as if the primary beneficiary died first

disability income rider

in the event of disability the insurer will waive the policy premiums and pay a monthly income to the insured

Total Disability

inability to engage in any work

family term rider

incorporates the spouse term rider along with the children's term rider in a single rider

incontestability

prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a material fact- during the first two years an insurer may contest a claim if the insurer feels that inaccurate or misleading information was provided

spendthrift clause

protects beneficiaries from the claims of their creditors

other insured rider

provides coverage for one or more family members other than the insured

accelerated benefit/living needs rider

provides for an early 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

Waiver of Premium Rider

should the owner be disabled and cant earn an income, after 6 months, all premiums will be paid by the insurer during the disability period; After 6 months, the premiums will be repaid- expires when the insured reaches 65

Entire Contract Provision

stipulates that the policy an a copy of the application, along with any riders or amendments, constitute the entire contract

conditions for accelerated benefit

terminal illness, medical condition that requires an extraordinary medical intervention for the insured to survive, medical condition that without extensive treatment drastically limits the insured's life time, inabilities to preform activities of daily living, permanent institutionalization, or any conditions approved by the department of insurance

settlement options

the alternative ways a beneficiary can receive life insurance benefits in the event that the insured person dies

Extended Term Option

the insurer uses the policy cash value to convert to term insurance for the same face amount as the former policy. the duration of the new term coverage lasts for as long a period as the amount of cash value will purchase. if the policyowner has neglected to purchase one of these non-forfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy.

exclusions

types of risks the policy will not cover ex. aviation, hazardous occupation, and war and military service

Interest on Life Insurance Proceeds

when an insured dies, proceeds from an individual life insurance policy must include payment of interest at the rate for proceeds left on deposit with the insurer, beginning 30 days after the death of the insured- not payable until the insurer receives proof of the insureds death- if the insurer doesnt pay interest on proceeds, interest rate will be 6%

disability riders

written modifications attatched to a policy that provide benefits not found in the original policy