Policy Exclusions and Prohibitions

War Exclusion

The war exclusion excludes paying the death benefit if the death directly resulted from war. (War clause is another name for this exclusion.)

Prohibited Policy Provisions

The business of insurance is regulated mainly at the state level. As such, states can control the provisions of insurance contracts issued within their borders. Most states do not permit insurance companies to include any provision in their contracts that -limits the period for filing a lawsuit against the insurance company to less than one year after a triggering event is noted; -makes the settlement of the cash value at maturity less than the sum of the face amount plus dividend additions less any loan amount; -makes the acts or representations of the producer binding on the insured; -makes the producer also the insured; and -allows the policy to be forfeited if the total owed on a policy loan is less than the loan value of the policy.

Quiz

Question 1 The suicide exclusion provision of a typical life insurance policy excludes coverage if death is the result of suicide within 1 year following policy issue. 3 years following policy issue. 6 months following policy issue. -2 years following policy issue. The standard suicide provision denies payment of the death benefit if, during the first two years following policy issue, the insured commits suicide. Question 2 Nancy lives in Texas, where she purchases a policy from an agent representing Excel Insurance Company, which is domiciled in Minnesota. She names her sister, who lives in Maryland, as the primary beneficiary. Which of the following entities most controls the precise terms of the policy issued to Nancy? The Maryland Department of Insurance The Minnesota Department of Insurance The federal government -The Texas Department of Insurance While an insurer's state of domicile is most responsible for the insurer's conduct and financial integrity, it is the state where the policyowner purchases the policy that most controls the precise terms of the policy provisions and coverages. Question 3 All of the following are standard life insurance policy exclusions EXCEPT hazardous hobby exclusion -6-month legal action limit provision war clause suicide provision There is no provision by this name, and besides that, most states do not permit insurance companies to include any provision in their contracts that limits the period for filing a lawsuit against the insurance company to less than one year after a triggering event is noted. Question 4 Wilson buys life insurance but commits suicide three years later. Wilson's beneficiary will get which of the following from the insurer? a return of the premiums paid -the full death benefit nothing a return of premiums paid, plus interest Because Wilson's suicide occurs after the exclusion period, the insurer will pay the full death benefit. But even If the suicide had occurred during the exclusion period, the insurer would have returned the premiums paid, plus interest. Question 1 All the following statements about standard policy exclusions are correct EXCEPT, Standard exclusions found in most policies last for the life of the policy, even after the contestability period ends. The war exclusion usually excludes paying the death benefit if the death directly resulted from war. If an insurer excludes a risk from coverage, then it is not covered, and the insurer will not pay the policy's benefit if death results from that risk. *The war and commission of a felony exclusions are required by law. The war exclusion usually excludes paying the death benefit if the death directly resulted from war. Question 2 Most states permit insurers to include a provision in their life insurance policies that does which of the following? makes the value of the policy at policy maturity anything less than the face amount plus dividend additions minus any outstanding loan amount. allows the insurer to cancel the policy if the total amount owed on a policy loan is less than the cash value of the policy. *excludes coverage of death that occurs while the insured is operating an aircraft. limits the period for filing a lawsuit against the insurer to less than one year after a contested claim. Life insurance policies may exclude coverage for aviation and hazardous occupations and hobbies. If the aviation exclusion is included, then it excludes paying a death claim if the insured was involved in operating an aircraft as a crew member. Question 3 Jones commits suicide 18 months after buying a life insurance policy that contains a standard suicide provision. Jones's beneficiary will get which of the following from the insurer? nothing a return of the premiums paid only *a return of premiums paid, plus interest the full death benefit Because the suicide occurred within the suicide exclusion period, the insurer will not pay the death benefit but will instead return the premiums paid, plus interest. Question 4 Which of the following most accurately describes the standard life insurance policy war clause? The war exclusion excludes paying the death benefit if the insured dies while in the military, but only if there is a declared war in effect. The war exclusion excludes paying the death benefit if the insured dies when there is a declared war in effect. *The war exclusion excludes paying the death benefit only if the death is the direct result of war action. The war exclusion excludes paying the death benefit if the insured dies while in the military, whether or not there is a declared war in effect. The war exclusion excludes paying the death benefit only if the death directly resulted from war.

Policy Exclusions and Prohibitions

Life insurance policies typically exclude certain risks from coverage. Some risks may be excluded for a lifetime while others are excluded for a specified time period. At the same time, most states cite provisions that are prohibited from being included in policies issued in their states

Standard Policy Exclusions

A peril that is excluded from coverage means that it is not covered and that the policy's benefit will not be paid if death results from that risk. The following standard policy exclusions are found in most policies. They are excluded for the life of the policy, even after the contestability period ends. These standard exclusions are not required by state insurance regulation, but are permitted: -war -aviation(as crew member) -hazardous occupations and hobbies -commission of a felony -suicide (first two years)

Aviation and Hazardous Occupation and Hobbies Exclusions

Life insurance policies may exclude coverage for aviation and hazardous occupations and hobbies. If the aviation exclusion is included, then it excludes paying a death claim if the insured was involved in operating an aircraft as a crew member. Travel as a passenger in an airliner is not included in this exclusion. The hazardous occupations or hobby exclusions exclude a death benefit if the insured dies as a result of his or her occupation or hobby. Alternatively, some policies allow coverage of these risks. But, they would likely charge an additional premium if the insured engages in these activities

Suicide Provision

The suicide provision is included in virtually all life insurance policies. It serves to deny paying the death benefit if, during the first two years following policy issue, the insured commits suicide. After the two-year period passes, death by suicide is covered. The purpose of this provision is to deter those who take out a policy solely to gain a benefit by committing suicide. If an insured does commit suicide during the two-year exclusion period, the insurance company returns the premiums paid, with interest. Most states recognize the two-year suicide period, though some limit this period to one year.