Life Provisions, Riders, Options, and Exclusions

What is the incontestability clause?

Insurer can't contest misrepresentations after policy has been in effect for 2 years.

What does choosing extended term as a nonforeiture option do?

It allows for a purchase of extended coverage equal to the maximum amount of time the cash value will cover

What is an automatic premium loan?

It is a rider that can be added to a cash value life insurance policy in case the insured forgets to pay their premium. It takes effect at the end of the grace period.

What is the payor benefit rider?

it functions like a waiver of premium rider if the payor becomes disabled for 6 months or longer or if they die. The payments resume when the minor reaches age 21.

What happens to a death benefit if the insured and any beneficiaries all die?

it goes to the insured's estate.

To use a class designation for beneficiaries means to do what?

name the beneficiaries as a group (ex: all of my children equally)

When can an irrevocable beneficiary be removed from a life insurance policy?

only if that beneficiary provides written consent of their removal

A rider attached to a life insurance policy that provides coverage on the insured's other family members is called what?

other-insured rider.

What is the dividend option used to pay off the policy sooner by using the dividends?

paid up option (not paid up additions these are different)

What is the difference between waiver of premium rider and the payor benefit?

payor benefit is for when the owner is not the insured and is disabled, the waiver of premium is for if the owner is the insured and is disabled.

What are the two class designations for beneficiaries?

per capita, per stirpes (not stripes)

What is the "one year term" dividend option?

the dividend purchases one year term insurance

What is an absolute assignment in life insurance?

the entire policy is assigned

What is the name of the option that purchases one year term insurance with dividends?

the one year term option

When does an insurer pay accelerated benefits?

When the insured becomes terminally ill or faces other immediate financial hardship

In an Entire Contract provision, a policy must always contain what?

a copy of the original application

What type of rider allows the purchase of additional coverage at specified future dates or events, without evidence of insurability?

a guaranteed insurability rider.

What is a policy loan?

a policyowner may borrow an amount equal to the available cash value. they are only available in whole life policies

What is a period certain?

a specified period of years when equal installments are paid to the recipient

Which mode of payment will not result in a service fee, thereby incurring the lowest overall payment?

annual

What are the most common modes of payment for life insurance policies?

annual, semi-annual (6 months), quarterly (3 months), monthly

If a policyowner fails to pay a premium on a whole life policy after the grace period, but the policy remains in force, this is because of what?

automatic premium loan

If the insured dies, during the period certain, who receives the benefits?

beneficiary.

Nonforfeiture values guarantee what for the policyowner?

certain benefits cannot be lost

If an insured pays an annual premium, and the insurer promises to pay benefits inline with the terms of the contract, this is called what?

consideration

If the policy contains a fixed period (period certain) installment option, how long will the policy pay the insured?

for their entire life

What situation would cause a death benefit to go to the contingent beneficiary instead of the beneficiary?

if the beneficiary dies before the insured does.

What is the insuring clause?

is the basic agreement between the insurer and the insured. it states the insurer's promise to pay the death benefit upon the insured's death.

What is the downside of using a class designation for beneficiaries?

it can be vague and not convey the intent properly

What is a reduced paid up policy?

the original policies cash value is used as a single premium to purchase a permanent policy with a reduced face amount (death benefit)

What is assignment in life insurance?

the policyowner can transfer complete or partial ownership of the policy to another person.

What type of insurance is best used to receive a return of premium rider?

Increasing term

How long does it take for the incontestability clause to take effect in life insurance policies?

2 years

How long is an insurance company allowed to defer policy loan requests?

6 months

In a life insurance policy what is the name of a beneficiary to the beneficiary?

A contingent beneficiary

What are the two types of assignments in life insurance policies?

Absolute, and collateral

What is a "rider" in insurance?

Additions to a policy that modify existing provisions

What is a guaranteed insurability rider?

Allows insured to purchase additional insurance at later date w/o having to prove insurability. Additional premium based on insured's attained age.

What is unique about a children's term rider, that doesn't apply to other "other insured" riders?

Children's term rider covers all children without increasing the cost.

What type of rider increases the amount of insurance automatically based on a specific index to hedge against inflation?

Cost of Living Rider

Which nonforeiture option has the highest amount of insurance protection?

Extended term. It keeps the same death benefit, but for a shorter period of time

If a policy purchases spouse term and children's term riders, what is this called?

Family term rider

When a life insurance policy is surrendered, can it be reinstated after paying off loans and unpaid premiums?

If a life policy is surrendered it cannot be reinstated.

What is the common disaster provision?

If an insured and their beneficiary are both dead as a result of the same event and die within 30 days of each other it is treated as them dying at the same time, which means it's treated as if the beneficiary died first.

What happens to the death benefit if the beneficiaries were grouped with the classification of per capita?

It is split by the amount stated to the people stated, only. if a named individual is dead, then that money is forfeited to the insurance company.

What happens to the death benefit if the beneficiaries were grouped with the classification of per stirpes?

It is split by the amount stated to the people stated, or their offspring. if a named individual is dead, then that money is divided amongst their immediate descendants.

What happens to funds exceeding the premiums paid in a cash surrender nonforeiture option?

It is treated as taxable income

Why is the guaranteed insurability rider not available to all insureds with no additional premium?

It is usually not available to people over 40.

What does the "paid-up" additions do with dividends?

It purchases smaller amounts of the exact same type of policy which increases the death benefit.

What is the difference between Joint settlement option and a Joint and Survivor settlement option?

Joint pays until the first dies, joint and survivor continues paying at a reduced rate when the first dies.

What are the two terms associated directly with premiums?

Level or flexible premium

What does the insured receive with the Disability Income Benefit Rider if they become disabled?

Monthly premium waiver, and a monthly income

If the policyowner makes an assignment of the policy to another person, does the policyowner need permission from the insurer?

No, but they must notify the insurer in writing.

Are dividend amounts always guaranteed benefits?

No.

What happens to the death benefit if a policyowner reassigns the policy?

Nothing.

Which dividend option allows an insured to use dividends to pay off their policy sooner?

Paid up option

Which dividend option increases the death benefit?

Paid-up additions

What is collateral assignment in life insurance?

Part or all of the benefits are assigned.

What is a fixed-period installment option also called?

Period Certain

Which nonforfeiture option provides coverage for the longest period of time?

Reduced paid up

What are the two most common types of other-insurer riders?

Spouse term, children's term

If children's insurance is attached to a whole life policy, what type of insurance is it usually?

Term

If a whole life policy lapses or is surrendered prior to maturity, what can be done to retain some form of coverage?

The cash value of the original policy can be used to purchase a single premium policy with a reduced face amount (reduced paid up insurance)

If a policy contains a period certain settlement option, what happens to the principal and the interest in all cases?

The entire amount is paid out (fOr CeRtAiN har har har)

What happens when the policyowner selects the cash option for the dividends?

The insurance company sends the policy owner a check usually annually

What is the difference between a "Waiver of premium" rider and a "Disability Income Benefit" rider?

They both waive the premium, but only the Disability Income Benefit provides a monthly income.

Which dividend option is selected automatically by insurance companies if policyowners do not select an option for their dividends?

They will choose, "paid-up additions" (must say additions, and not options) which purchases smaller versions of the same policy to increase the death benefit.

Will the waiver of premium rider waive the premium immediately in the event of total disability of the insured owner? What happens specifically?

They will have to wait through the waiting period before the premiums are waived, however they will receive a refund for the premiums they are required to paid during the waiting period

What is the best practice for naming beneficiaries?

To specify each beneficiary by name and by the amount they are to receive

What is the type of rider that allows a company to forgo collecting premiums if the insured is disabled?

Waiver of Premium rider

If a policy contains a fixed period (period certain) installment option, and the insured dies during this time, how long will the beneficiary receive payments?

the remainder of time in the period certain.

What is the limit on the amount of cash you can loan from term insurance policies?

there is no cash value in term insurance policies

What must happen in order to receive the waiver of premium rider's effect?

total disability. (also a waiting period)

If premium payments were waived for a minor's life insurance policy because the payor became disabled, when would the policy resume premium payments?

when the minor turns 21.