Chapter 4 Life Policy Provisions and Options

Free Look (Right to Examine Period)

10 days; owner has a right to rescend if dissatisfied in any way

Reinstatement

3 years from lapse (up to 5 years); insured must provide evidence of insurability to reinstate at same premiums;

Grace period

30-31 days past premium due date before a policy lapses

Policy Loans Provisions

Cash value policy after 3 years; interest charged annually; interest may be fixed or variable;

Policy Loan Rate Provisions- Flexible Rate

adjustable; maximum rate based on Moody's corporate bond yield average

Facility of Payment Clause

allows the insurer to pay a relative or other the benefits in absence of living beneficiary; maybe payback someone for funeral costs...

Exclusions

aviation, status, war, hazardous occupation, suicide

Life Policy Settlement Characteristics

benefits paid in lump sum; tax free; beneficiary cannot change policy owner's settlement option

Dividend Options

cash, premium reduction, accumulate at interest, paid up additions

Spendthrift Clause

denies the beneficiary the right to assign his/her interest in the policy; prevents creditors of insured and/or beneficiary from getting benefits before beneficiary

Entire Contract Clause

describes parts of the life insurance contract; policy, riders, amendments, copy of ap; nothing can be incorporated by reference

Mode of Premium

frequency of payments and to whom the premiums are payable

Insuring Clause (Proof of Death)

identifies the parties to the contract and the perils or conditions in which it will pay; it is the insurance companies promise to pay the policy's death benefit to the named beneficiary AFTER receiving due PROOF of DEATH .

Suicide Clause

if insured commits suicide within 2 years of contract, insurers liability is limited to refund of premium. If after 2 years, insurer pays death benefit to beneficiary

Non-forfeiture Options (Guaranteed Values)

in policies with cash accumulation; protect policy owner against total loss of benefits if policy should lapse; Cash surrender; reduced paid up; extended term

Incontestability Clause

insurer cannot contest any part of contract after 2 years

Settlement Options

interest only; fixed amount; fixed period; life income option (straight life and life income period certain)

Policy Loan Rate Provisions- Fixed Rate

maximum fixed interest rate of 8% or less as stated in policy

Automatic Premium Loans (APL)

must be elected by policy owner, and can be cancelled anytime. enables insurer to automatically borrow against cash value; available on cash value policies only; does not require additional premium

Changes (Modifications)

must be in writing and signed by executive officer of the insurer, approved by policy onward made part of entire contract

Absolute Assignment

original owner names a new owner; considered a permanent assignment; owner of juvenile policy wants to transfer ownership when insured turns 18

Surrenders

owner of cash value policy surrenders the entire policy; policy may have a surrender charge schedule lasting 10-20 years (Cash Value-Cash Surrender Value=Surrender Charge)

Beneficiary Designation- Per Stripes

pay a deceased beneficiary's share to the heirs of the beneficiary who predeceases the insured.

Beneficiary Designation- Per Capita

pay to surviving beneficiaries equally; 3 kids, one dies, 50% to 2 remaining; assumed policies are paid this way unless otherwise specified

Life Income Period Certain Settlement Option

payments guaranteed for lifetime of recipient or a specified period of time, whichever is longer. If recipient dies, payments go to another person until end of certain period.

Straight Life Settlement Option (Pure or Life income only)

payments guaranteed for the lifetime of the recipient. Upon death, payments will cease. $ amt. depends on age and gender of recipient; SINGLE LIFE option as payments will not be made to anyone other than original recipient

Life Refund Settlement Option

payments made for lifetime of recipient. Upon death, recipient's beneficiary gets CASH REFUND (lump sum) or installments of any balance.

Joint /Survivor Income Settlement Option

payments to 2 or more recipients; when one dies, payments go on with survivor/s

joint Life Income Settlement Option

payments to 2 or more; stop if one dies

Paid up Option

pays off policy more quickly than scheduled. If companies overall performance declines, premiums may have to be resumed

Partial Withdrawal

permitted in Universal or Variable Universal Life policy; considered partial surrender; any amount paid in excess of premium is subject to taxation

Owner's Rights Clause

policyowner retains all rights to the policy

1 Year Term

purchases a single premium, 1 year term benefit. premiums are calculated at the insured's attained age. also referred to as the fifth dividend option

Dividends

result from excess investment earnings, favorable mortality and expense savings; available on participating policies issued by mutual insurers; paid annually; not taxable until premiums paid have been recovered;

Consideration clause

specifies the amount and the frequency of premium paid

Assignment

transfer of ownership

Collateral Assignment

used when insurance policy is used as a collateral for a loan; transfer of ownership is temporary

Standard Provisions-Individual only

what duties and responsibilities are; how policy works; spells out agreement; no charge

Unified Simultaneous Death Act

when insured and primary beneficiary die in same accident, assumed insured died last, protecting the secondary beneficiary