Life policy riders, provision, options, and exclusions

dividend options

-Cash -Reduction of premium -Accumulation at interest -Paid-up additions (automatic) -one year term

types of assignment

-absolute -collateral

family term rider

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

irrevocable beneficiary designation

may not be changed without the written consent of the beneficiary -Policyowner can also not borrow against the policy's cash value or assign the policy to another person without the beneficiary's agreement

settlement options

methods used to pay the death benefits to a beneficiary upon the insured's death or age 100 -cash (automatic) - Life income - interest only - fixed period - fixed amount

options

offer insurers and insureds ways to invest or distribute a sum of money available in a life policy

life income with period certain

payments are guaranteed for a lifetime of the recipient, but there is also a specified period that this is guaranteed

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 90 days of such accident -Benefit is normally two times (double indemnity) the face amount

common disaster

provides that the insured and the primary beneficiary died in a common disaster, it is presumed that the primary beneficiary died first, so the proceeds will be paid to either the contingent beneficiary or to the insured's estate -Primary beneficiary death must occur within 14 to 30 days of the insured -Protects the contingent beneficiary

life income (straight life)

provides the recipient with an income that he or she cannot outlive

dividends

return of excess premiums, not taxable when paid to the policyowner -Insurer uses dividend to reduce the next year's premium -Interest on dividends is taxable

insuring clause

sets forth the basic agreement between the insurer and the insured -States insurer's promise to pay the death benefit -Located on the policy's face page -Defines who the parties to the contract are, the premium to be paid, how long coverage is on force, and amount of death benefit

automatic premium loan

special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium

assignments

specifies the policyowner's right to assign (transfer rights of ownership_ the policy -must advise the insurer in writing -Transfer of life insurance policy does not change the insured or amount of coverage, it only changes who has the policy ownership rights

entire contract provision

stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract -No statements made before the contract was written can be used to alter the contract -Neither the insurer nor the insured may change policy provisions once in effect without both parties agreeing to do so -Entire contract= policy + copy of application + any riders or amendments

waiver of premium rider

waives the premium for the policy if the insured becomes totally disabled -Coverage remains until the insured is able to return to work -If never able to return, premiums will be waived -6 month waiting period from time of disability until first premium is waived

return of premium

when added to a whole life policy, it provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary -Implemented by using increasing term insurance

incontestability

prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years

payor benefit rider

primarily used with juvenile policies, if the payor becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age

suicide

protects the insurers from individuals who purchase life insurance with the intention of committing suicide -Policies stipulate a period of time during which death benefit will not be paid if insured commits suicide -Beneficiary will be entitled to a refund of premiums

long term care rider

provide for the payment of part of the death benefit in order to take care of the insured's health care expenses, which are incurred in a nursing home

reduction of premium dividend option

The insurer uses the dividend to reduce the next year's premium

life policy provisions and options

-entire contract -insuring clause -free look -consideration -owner's rights -beneficiary designations -premium payment -reinstatement -policy loans, withdrawals, partial surrenders -nonforfeiture options -dividends and dividend options -incontestability -assignments -suicide -misstatement of age and gender -settlement options -accelerated death benefits

paid up dividend option

accumulates the dividends and then uses them, plus interest, and the policy cash value to pay the policy up early -If insured did not choose dividend option, insurer automatically uses paid up to increase death benefit

riders

added to a policy to modify provisions that already exist

term riders

allow for an additional amount of temporary insurance to be provided on the insured without the need to issue another policy · Usually attached to a whole life policy to provide greater protection at a reduced cost

flexible premium

allow the policyowner to increase or decrease the premium during the policy period

children's term rider

allows children of the insured to be added to coverage for a limited period of time for a specified amount -Provide temporary life insurance coverage on all children of the family for one premium

waiver of monthly deduction rider

pays all monthly deductions while the insured is disabled, after a 6 month waiting period -Include the actual cost of insurance charges, expense charges, and costs or charges for any benefits added to the policy by rider, endorsement or amendment, and which are specified in the policy to be deducted from the account value

accidental death and dismemberment rider

pays the principal (face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment

policy loans

policyowner is entitled to borrow an amount equal to the available cash value -Found only in policies than contain cash value (whole life)

owner's rights

-Policyowner- only one to have ownership rights -Can change beneficiary, receives the policy's living benefits, selects benefit payment options, and assigns the policy -Pays policy premium and has insurable interest

war or military service exclusion

-Status clause- excludes all causes of death while the insured is on active duty in the military -Results clause- only excludes the death benefit if the insured is killed as a result of an act of war

life policy exclusions

-aviation -hazardous occupations or hobbies -war or military service

nonforfeiture options

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

beneficiary designations

-primary and contingent -revocable and irrevocable -common disaster -minor beneficiaries

life policy riders

-waver of premium -waiver of monthly deduction -guaranteed insurability -payor benefit -accidental death and dismemberment -term riders -other insureds -long term care -return of premium

accumulation at interest dividend option

A policy dividend option under which the policy dividends are left on deposit with the insurer to accumulate at interest

fixed period installment option

A specified period of years is selected, and equal installments are paid to the recipient -also called period certain

fixed amount installment options

pays a fixed, specified amount in installments until the proceeds are exhausted -Recipient selects a specified fixed dollar amount to be paid until the proceeds are gone

accelerated death benefits

allow the early payment of a portion of the death benefit if the insured has any following conditions: -Terminal illness -Medical condition that requires extraordinary medical intervention to survive -Medical condition that without extensive treatment drastically limits the insured's lifetime -Inability to perform activities of daily living -Permanent institutionalization or confinement to a long term care facility -Any other conditions approved by the department of insurance

reinstatement

allows a lapsed policy to be put back in force -Maximum time limit is 3 years after the policy has lapsed -Have to provide evidence of insurability -Required to pay back all premiums plus interest -A policy that has been surrendered cannot be reinstated

guaranteed insurability rider

allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events without evidence of insurability, for an additional premium

misstatement of age and gender

allows the insurer to adjust the policy at any time due to a misstatement of age or gender on the application · Will result in adjustment of premiums or benefits

free look

allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied, return it for full refund of premium -Started when the policyowner receives the policy, not when insurer issues it -10 day period, 100% refund of premium

minor beneficiaries

benefits will be paid to their guardian, put into a trust, or paid as directed by the court

consideration

both parties to a contract must provide value in order for the contract to be valid -Value offered by the insured is the premium and statements made in application -Value given by insurer is the promise to pay in accordance with the terms of the contract

hazardous occupation exclusion

death that results from a hazardous occupation or hobby may be excluded coverage, underwriter also has option of charging a higher premium for insuring these risks

provisions

define the characteristics of an insurance contract and are fairly universal from one policy to the next

aviation exclusion

exclude coverage for noncommercial pilots, or require an additional premium for the coverage

primary beneficiary

has first claim to the policy proceeds following the death of the insured -Policyowner may name more than one, as well as how the proceeds are to be divided

contingent beneficiary

has second claim in the event that the primary beneficiary dies before the insured

estate

if none of the beneficiaries are alive at the time of the insured's death, or if no beneficiary is named, all of the proceeds of a life insurance policy will go in the insured's estate

spouse term rider

if the rider covers just the spouse and allows the spouse to be added to coverage for a limited period of time for a specified amount

interest only option

insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, annually) -Temporary

extended term insurance

insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy -Duration lasts for as long a period as the amount of cash value will purchase -Automatic nonforfeiture option: same face amount, shorter term of coverage

collateral assignment

involves a transfer of partial rights to another person -Usually done in order to secure a loan or some other transaction -Partial and temporary -Once the debt of the loan is repaid, the assigned rights are returned to the policyowner

absolute assignment

involves transferring all rights of ownership to another person or entity -Permanent and total transfer of policy rights -New policyowner does not need to have insurable interest

one year term insurance dividend option

policyowner has choice to either use the dividend as a single premium on as much one year term insurance as it will buy, or to purchase term insurance equal to the policy's cash value for as long as it will last

cash surrender value

policyowner surrenders the policy for the current value at a time when coverage is no longer needed or affordable -Cannot be reinstated once surrendered

other insureds rider

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

premium mode

the manner or frequency that the policyowner pays the policy premium -Annual, semi-annual, quarterly, or monthly payments -If select mode other than annual, additional charge to offset the loss of earnings for insurance company

grace period

the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses -Usually 30 to 31 days -Purpose is to protect policyholder against an unintentional lapse of the policy -If insured dies during this period, death benefit is payable, but any unpaid premium will be deducted from death benefit

beneficiary

the person or interest to which the policy proceeds will be paid upon the death of the insured -Does not have to have insurable interest -Policyowner does not have to name one -Can be an individual, class, minor, estates, or trusts

reduced paid up insurance

the policy cash value is used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy -Remains in effect until death or maturity

revocable beneficiary designation

the policyowner, without the consent or knowledge of the beneficiary, may change a decision at any time

level premium

the premium remains the same throughout the duration of the contract

lump sum

upon the death of the insured, or at endowment, the proceeds are paid in cash unless the recipient chooses a different method -If no selection made, proceeds automatically paid to beneficiary in single cash payment -Not taxable as income