Chapter 4: Life Insurance Policy Provisions, Riders, and Options

What is the purpose of the Automatic Premium Loan provision?

It prevents the unintentional lapse of a policy due to nonpayment of the premium.

What is the purpose of a grace period?

To prevent unintentional policy lapse for nonpayment of premiums.

Which rider allows the early payment of a portion of the death benefit to the insured?

Accelerated death benefit rider.

Which dividend option increases the death benefit?

Paid-up additions increase the death benefit of the original policy by whatever amount the dividend will buy.

Which riders increase the amount of the death benefit?

Accidental death rider- pay double or triple the amount of face value. Cost of living rider- automatically increases the amount of insurance based on an inflation index. Return of Premium- pays back all the premiums in addition to the death benefit.

What is the difference between absolute and collateral assignment?

An absolute assignment permanently transfers all rights of ownership to another person or entity. A collateral assignment is a transfer of partial rights to another person.

Which nonforfeiture option is automatically selected if the policyowner has not made a selection?

If the policyowner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy.

What happens to an unpaid policy loan at insured's death?

If there are outstanding loans at the time of the insured's death, the amount will be considered a debt to the policy and the death benefit will be reduced by the amount of indebtedness.

What are the 3 nonforfeiture option in life insurance policies

Reduced paid-up insurance, Extended term, and Cash surrender value. (REC)

What is the free-look period, and when does it begin?

The free-look period allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. It starts when the policyowner receives the policy, not when the insurer issues the policy.

What contitutes the entire contract?

The policy and a copy of the application, along with any riders or amendments, form the entire contract.

What is the difference between a revocable and irrevocable beneficiary?

The policyowner may change a revocable beneficiary at any time. An irrevocable designation, however, may not be hanged without the written consent of the beneficiary.`

What settlement options are available in life insurance policies?

Cash payment (lump-sum), Interest only, Life income, Fixed-period installments, and Fixed-amount installments. (CLIFF)