Arizona Life Insurance Exam - Life Insurance Policy Provisions, Options, and Riders

Right to Examine

(also known as free look) The policyowner has 10 days from delivery receipt to look over the policy and return it for a full refund of premium

Contingent Beneficiary

A beneficiary who has second claim to the policy proceeds after the death of the insured (usually after the death of the primary beneficiary)

Trust

An arrangement in which funds or property are held by a person or corporation for the benefits of another person (trust beneficiary)

Single Life Option

Can provide a single beneficiary income for the rest of their life when choosing life income

Life with Period Certain Option

Can provide an income for the beneficiary for a certain period when choosing life income (so if the beneficiary dies, the insurance company will continue to pay to their beneficiary)

Joint and Survivor Option

Can provide an income for two or more recipients for as long as they live when choosing life income

Dividend Options

Dividends are paid on participating policies and they are options as to how they are paid

Policy Title

Every policy must include on its face and back a ____________ that describes the policy in brief

Policy Loan

Found only on policies that contain cash value, the policyowner is entitled to borrow an amount equal to the available cash value and return it later, with interest

Automatic Premium Loans

If by the end of the premium paying grace period, the premium has not been paid, most policies with cash value will automatically take a loan from cash value to pay the premium

Cash Refund Option

If the annuitant dies before the annuity fund is depleted, a lump-sum settlement would be made to the beneficiary

Limitation of Liability

In Arizona, this provision states that insurers cannot exclude or restrict liability for death caused in a specific manner or occurring while the insured has a specific status (except for exclusions)

Common Disaster Clause

Listed in the Uniform Simultaneous Death Law

Cash Loans

Loans available to the policyowner from cash value loan value=cash value-(unpaid loans+interest)

Standard Policy Provision

Must be included in all life insurance policies -Ownership -Assignment -Right to Examine (free look) -Payment of Premium -Grace Period -Reinstatement -Misstatement of age or gender -Incontestability -Payment of Claims -Limitation of Liability -Exclusions

Policy Settlement

Once the policy matures, the insurer may pay less than the face amount to account for any unpaid premiums or policy loans still out

Classes

Term used to define beneficiaries listed, it can be vague or specific, such as listing 'my children' or 'my children with so and so'

Paid-Up Additions

The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy, these will increase the death benefit of the original policy

Principal Amount

The face value of the policy, the original amount invested before the earnings

Paid-Up Insurance

The insurer first accumulates the dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early

Accumulation at Interest

The insurer keeps the dividend in an account where it accumulates interest, the policyowner is allowed to withdraw the dividends at any time

Fixed-amount Installments

The insurer pays a fixed, specified amount until the proceeds are exhausted

Cash Payment of Settlement

The insurer pays the beneficiaries or policyowner the face amount in the form of a lump sum (this is the primary settlement option)

Interest-Only

The insurer retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals

Cash Payment of Dividends

The insurer sends the policyowner a check for the amount of the dividend as it is declared, annually

Grace Period

The period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (30 days for AZ) (if the insured dies during the ____________ the death benefit is payable, minus the missing premium) (31 days for group policies)

Entire Contract

The policy and a copy of the application, along with any riders or amendments, constitute the entire contract and must be provided

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 the former policy

Exclusions

The types of risks a life insurance policy will not cover

Settlement Options

These are the methods used to pay the death benefits to a beneficiary upon the insured's death

Revocable

These beneficiaries can be changed by the policyowner without their consent

Irrevocable

These beneficiaries have a vested interest in the policy and cannot be removed or changed without their written consent, they must also consent to the policyowner borrowing against the cash value

Nonforfeiture Options

These guarantees are included in permanent insurance policies and cannot be forfeited by the policyowner

Riders

Written modifications attached to a policy that provide benefits not found in the original policy, may require an additional premium

Per Stirpes

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

Per Capita

'by the head', evenly distributes death benefits among the living beneficiaries

Accelerated Benefit Rider

(AKA Living Needs Rider) This 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 (to try to cure the illness)

Withdrawals

(AKA Partial surrenders) Universal life policies allow partial ___________ of the policy cash value, the death benefit will be reduced by the amount of any partial surrender

Fixed-period Installments

(AKA Period certain) the insurer pays for a specified period of years and in equal installments

Life Income

(AKA straight life) this settlement option provides the recipient with an income that he or she cannot outlive, installment payments are guaranteed for as long as the recipient lives, if they die, the rest goes to the insurer

CLIFF

*C*ash Payment *L*ife Income *I*nterest Only *F*ixed-period Installments *F*ixed-amount Installments

CRAPPO

*C*ash Payment *R*eduction of Premium *A*ccumulation at Interest *P*aid-up Additions *P*aid-up Insurance *O*ne-year Term

REC

*R*educed Paid-up Insurance *E*xtended Term *C*ash Surrender Value

WASH

*W*ar *A*viation *S*uicide *H*azardous Activities

WAC

*W*ithdrawals *A*utomatic Premium Loans *C*ash Loands

Primary Beneficiary

A beneficiary who has the first claim to the policy proceeds after the death of the insured

Activities of Daily Living

A person's essential activities that include bathing, dressing, eating, transferring, toileting, continence (also known as ADLs)

NAIC

National Association of Insurance Commissioners, an organization composed of insurance commissioners from all 50 states, formed to resolve insurance regulatory issues

Ownership

Only the policyowner has the _________ rights under the policy, and not the insured or beneficiary. They pay the premium, and have insurable interest in the insured, they also name and change the beneficiary, receive the living benefit, and select a benefit payment option

One-year Term

The insurer uses the dividend to purchase additional insurance in the form of one-year term that increases the death benefit

Reduction of Premium

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

Extended Term

The insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy, the duration of the term last for as long a period as the amount of cash value will purchase

Cash Surrender Value

The policyowner surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable, the insured is no longer covered

The Results Clause

The provision states that if the insured's death is only excluded if it is due to an act of war

Modifications

These 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 (no agent has the right to make _____________)

Uniform Simultaneous Death Law

This law states that if the primary beneficiary and the insured die due to the same event, the primary beneficiary will be interpreted to have died first and the death benefit will go to the contingent beneficiaries, rather than the primary beneficiary's estate

Incontestability

This 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

Family Term Rider

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

Waiver of Cost of Insurance

This rider is found in Universal Life Insurance, if the insured becomes completely disable, the cost of insurance is waived but the cost of premiums necessary to accumulate cash value is not

Return of Premium Rider

This rider is implemented by using increasing term insurance, when added to a whole life policy, it provides that at death prior to a given age, the face amount is payable and all premiums previously paid are also payable

Disability Income

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

Payor Benefit Rider

This rider is primarily used with juvenile policies, similar to the waiver of premium rider but for in case the payor (guardian) becomes disabled

Accidental Death Rider

This rider pays some multiple of the face amount if the death is the result of an accident as defined by the policy (either double of triple indemnity)

Other Insured Rider

This rider provides coverage for one or more family members other than the insured, (AKA family rider), can be specific to spouse on term policies (AKA spouse term rider)

Waiver of Premium

This rider waives the premium for the policy if the insured becomes totally disabled, this rider usually expires when the insured reaches age 65

Absolute Assignment

Transfer of all right of ownership to another person or entity, permanent and total transfer

Collateral Assignment

Transfer of partial rights to another person, usually done in order to secure a loan or some other transaction

Assignment

Transfer of rights of policy ownership without the consent of the insurer, but must inform them

Installment Refund Option

If the annuitant dies before the annuity fund is depleted, the beneficiary would receive the continuing annuity payments

Minor

If the beneficiary is a _____, the death benefit will be paid to their guardian or to a trustee of the _____ if listed in the policy

The Suicide Provision

If the insured commits suicide within 2 years of policy effective date, they are only entitled to a refund of premiums, after 2 years, suicide is not excluded

Reinstatement

This provision allows a lapsed policy to be put back in force, with a maximum time limit of 3 years (they must provide evidence of insurability, and pay all back premiums and interest) (surrendered polices cannot be reinstated)

Misstatement of Age or Gender

This provision allows the insurer to adjust the policy at any time due to a _____________________________, must be adjusted to the truthful amount

The Status Clause

This provision states that if the insured is on active duty in the military, their death would be excluded

Payment of Claims

This provision stipulates that upon receipt of a written proof of loss, the insurer must pay the death benefit to the beneficiary immediately

Payment of Premiums

This provision stipulates when the premiums are due, how often they are to be paid, and to whom

Cost of Living Rider

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

Children's Term Rider

This rider allows children of the insured to be added to coverage for a limited period of time for a specified amount

Guaranteed Insurability Rider

This rider allows the insured to purchase additional coverage at specified future dates or events (like a marriage or birth) without evidence of insurability, for an additional premium