AD Banker Chapter 4

Entire Contract Clause

-describes the parts of the life insurance contract -consists of the policy, riders (endorsements), amendments, and a copy of the application

Policy Loan Rate Provisions

-fixed rates can have a maximum fixed interest rate of 8% or less -adjustable (variable) interest rate, the maximum rate is based upon Moody's corporate bond yield average and is stated in the policy -loan amount cannot exceed the available cash surrender value

Misstatement of Age or Gender

An insurer can refund any overpaid premiums if the amount of premium paid was greater than should have been paid. The insurer can reduce the face amount in cases where the amount of premium paid was less than that which should have been paid

Premium Reduction Dividend Option

Dividends are applied toward the next premium due

Suicide Clause

If the insured commits suicide, while sane or insane, within typically 2 years from the issue date, the insurer's liability is limited to a refund of premium. If the insured commits expi suicide after the suicide clause has expired, the insurer must pay out the death benefit to the named beneficiary.

Premium

Mortality- interest= net premiums Net premiums+ Expenses= Gross premiums

Status Clause

No coverage for individuals with military status since these individuals are provided coverage through the government

Hazardous Hobbies or vocation

No coverage if death is related to a hazardous hobby as stated in the policy, such as sky diving or hot air ballooning.

Hazardous Occupation

No coverage if death is related to a hazardous occupation as stated in the policy, such as stunt drivers or auto racers

Results Clause (War Clause)

No coverage if death is the result of war declared or undeclared.

Fixed Amount Settlement Option

Payments are for a specified dollar amount paid monthly until the benefits are exhausted

Fixed Period Settlement Option

Payments are guaranteed for a specified period of time, such as 10 or 20 years, after which time payments will cease

Joint and Survivor Income Option

Payments are guaranteed for the lifetime of 2 or more recipients. Upon the death of the first recipient, payment continues to the survivor(s) until death of the survivor

Straight Life (Pure or Life Income Only)

Payments are guaranteed for the lifetime of the recipient

Life Income Period Certain

Payments are guaranteed for the lifetime of the recipient or a specified period of time, whichever is longer

Joint Life Income Option

Payments are guaranteed to 2 or more recipients until the first recipient dies, then all payments cease

Life Refund

Payments are made for the lifetime of the recipient

Paid-Up Dividend Option

Pays off the policy more quickly than scheduled

Reduced Paid-Up

Present cash value is used to buy a single premium, permanent paid-up policy of a reduced face amount

1-Year Term Dividend Option

Purchases a single premium, 1-year term benefit

Paid-Up Additions Dividend Option

Purchases single premium, additional permanent benefits at the insured's attained age

Accumulate at Interest Dividend Option

The dividends are retained by the insurer and the interest rate paid the policyowner is compounded annually

Revocable Beneficiaries

The policy owner may change a revocable beneficiary at any time.

Irrevocable Beneficiaries

The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable beneficiary is named, the owner gives up the right to make changes to the policy that affect the coverage or benefits without consent of the beneficiary

Cash Dividend Option

The policyowner receives the declared dividends in the form of a check on or near each policy anniversary

Surrenders

This action will cancel the insurance coverage. The policy owner is entitled to receive the cash surrender value in the policy

Incontestability Clause

Within the first 2 years of a policy, the insurer may contest a claim and void the contract upon proof of a material misstatement or fraud

Suicide

Within the first 2 years, death due to suicide is excluded from coverage as stated in the suicide clause.

Life Income Settlement Option

allows the insurer to use the death benefit to purchase an annuity on behalf of the beneficiary

Aviation

applies most specifically to student pilots or those with a newly issued pilot's license with a limited number of hours of flying experience

Minors Beneficiary Designations

are named as beneficiaries, but no trust has been established, the funds are placed in a settlement option (held with interest), with the insurer acting as trustee. The guardian or legally responsible adult may receive payments for the benefit of the child, until the child is eligible to receive the lump sum at the age of majority

Dividend Options

available on participating policies issued by mutual insurers. They are paid annually if declared and cannot be guaranteed

Exclusions

conditions stipulated in the contract for which the insurer will not provide coverage

Interest Only Settlement Option

death benefit proceeds may be left with the insurer while interest payments are paid at least annually or more frequently

Reinstatement

designed to put a policy back in force as if the lapse never occurred

Collateral Assignment

does not cause a permanent change in ownership. However, the rights of the owner will be subject to the assignment (typically used when an insurance policy is used as collateral for a loan)

Automatic Premium Loans (APL)

enables the insurer to automatically borrow against the cash value to cover a premium payment to prevent the contract from lapsing unintentionally

Standard Provisions

explain what the contract consists of, what duties and responsibilities the parties to the contract have, how the policy works, and basically spells out the agreement between the policyowner and the insurance company

Mode of Premium

frequency of premium payments and to whom the premiums are payable

Common Disaster Clause

if an insured and primary beneficiary die as a result of the same event, the primary beneficiary must survive the insured by a specific period of time (usually 90 days) or the insurance company will assume the insured died last (the primary beneficiary died first)

Individual/Named Beneficiary Designations

individual is specified by name as the beneficiary

Cash Refund

lump sum, how life insurance benefits are paid unless another mode of settlement has been selected

policy loan

may be made in a cash value policy once there is sufficient cash value to borrow against, which must be made available no later than by the end of the third policy year.

Partial Withdrawals or Partial Surrenders

only permitted in a Universal or a Variable Universal Life policy paid directly from the cash value and reduces both the amount of the death benefit and the amount of cash value in the policy

Owner's Rights (Ownership Provision)

policy owner retains all rights in the policy

Accelerated Death Benefits

provide for early payment of a portion of the face amount prior to death. This provides tax-free access to policy benefits based on an insured qualifying as terminally ill or chronically ill

Tertiary Beneficiary

receives policy proceeds if both the primary and the contingent beneficiaries predecease the insured

Contingent or Secondary Beneficiary

receives the death benefit only if there is no primary beneficiary alive following the death of the insured

Non forfeiture Options (Guaranteed Values)

required in policies that accumulate cash values and protect the policy owner against total loss of benefits if the policy should lapse due to nonpayment of premium or is intentionally cancelled

Consideration Clause

specifies the amount and frequency of premium paid by the owner as something of value provided in exchange for the company's promise to pay

Primary Beneficiary

the first in line to receive the death benefit upon the death of the insured

Insuring Clause (Proof of Death)

the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the insured died while the policy was in force

Extended Term

the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy

Absolute Assignment (permanent assignment)

the original owner will name a new owner of the policy

Cash Surrender

the policy owner will receive the cash surrender value stated in the policy less any outstanding loans and accrued interest

Grace Period

the time period provided after the premium due date before a policy lapses, a typical grace period is a month (30 or 31 days) unless state law specifies otherwise

Assignment

the transfer of ownership

Class or Classification Beneficiary Designations

used in instances where each beneficiary is not directly identified by name. The wording of the class designation must be specific and carefully worded to remove any doubt of the owner's intentions

Free Look (Right to Examine Period)

usually 10 days, unless state law specifies otherwise, to allow the policy owner following receipt of the policy to look it over. If dissatisfied for any reason, the owner has the right to return it for a full refund of any premiums paid