Chapter 4B Policy Provisions, Options and Riders

Exclusions

are features of an insurance policy stating that the policy will not cover certain risks.

which of the following protects a policyowner from a misrepresentation caused by an innocent mistake?

incontestable clause

in order to activate the reinstatement clause of a lapsed life insurance policy, the insured MUST

provide evidence of insurability to the insurer

the two major actions required for a policy holder to comply with the reinstatement clause are

provide evidence of insurability, pay past due premiums

all of the following are considered to be nonforfeiture options available to a policyowner accept

reduction of premium

If an insured dies during the grace period with no premiums paid

the policy would be payable, minus the premium amount

Increasing Term Rider

will allow for a greater amount of coverage each year. Increasing term riders provide an additional term insurance face amount at death, equal to either all premiums paid or the amount of cash value.

Grace Period

Period of time after the premium due date during which premiums may still be paid, and the policy and its riders remain in force.

which of the following is a reinstatement condition?

Proof of insurability

Insuring Clause (or Insuring Agreement)

The insuring agreement is the insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage, "We ensure to INSURE you for..."

Incontestable Provision (Period)

States that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time, typically two years. Over the years, case law has established precedence that the Incontestable Clause applies to cases of fraud.

Cash Option

The "cash" dividend option allows the policy owner to cash out the dividends they receive.

minus indebtedness and without interest

The suicide clause of a life insurance policy states that if an insured commits suicide within a stated period from the policy's inception, the insurer will only be liable for a return of premiums paid

Nonforfeiture Options

Three options available by law to policyowners that enable them to recover a policy's cash-value upon surrender of that policy. (1) Cash (2) Reduced Paid-Up Insurance (3) Extended Term Insurance

which of these is considered to be a living benefit option in a life insurance policy?

accelerated death benefit

which of the following is considered to be an alternative to a life settlement?

accelerated death benefit rider

Dividend Options

are the options a policy owner has when receiving dividend payments from an insurance policy.

One-Year Term Option

dividend option allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy.

Reduced Paid-Up Option

nonforfeiture option allows the policy owner to reduce the policy's benefit amount and, in turn, cease making premium payments

a provision in a whole life policy that allows a policyowner to terminate the policy in return for a reduced paid-up policy of the same type is called a

nonforfeiture provision

A provision that allows a policyowner to withdraw a policy's cash value interest free is a(n)

partial surrender

Reduced Premiums Option

Allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year's premium payments

Cash Surrender Option

A nonforfeiture option that allows whole life insurance policy owners to receive a payout of their policy's cash values. The policy owner no longer has coverage at this point.

Consideration Clause

A policy owner must pay a premium in exchange for the insurer's promise to pay benefits.

Level Term Rider

Adds an additional fixed, level death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy

Dependent Riders (Other Insureds Rider)

Dependents may be added to as additional (other) insureds through the use of a dependent rider. Other insured riders are typically used for spouses and children.

an insurer will accept a premium from the insured and continue the coverage in full force as though it was not late during which time period?

Grace period

An error was made on Mary's life insurance application. Which of the following areas are errors commonly made on applications for which the incontestable clause does NOT apply? Marital status Age Address an error was made on Mary's life insurance application. which of the following areas do errors commonly occur on applications and for which the incontestable clause does not apply

Age

Accelerated Benefit Rider

Allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Assignment Clause

allows the right to transfer policy rights to another person or entity

Accumulate Interest Option

Allows the policy owner to leave dividends with the insurer to accumulate interest. In turn, the policy owner will be required to pay taxes on any interest (profit) generated by the dividend.

Collateral Assignment

Assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured's death.

what is an insurance policy's grace period?

Period of time after the premium is due but the policy remains in force

Guaranteed Insurability Rider

Permits the policyowner to buy additional permanent life insurance coverage at specific points of time in the future without submitting proof of insurability. It also includes specific events like marriage and births, without requiring the proof of insurability. Usually the benefit is allowed every 3 years, up to the original face amount of the policy.

Absolute Assignment

Policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.

Under a life insurance policy, what does the insuring clause state?

The insurer's obligation to pay a death benefit upon an approved death claim

Which dividend option would an insurer invest the policyowner's money and add any interest earnings as the dividends accrue?

accumulation at interest option

Decreasing Term Rider

adds an additional decreasing death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy

Missstatement of Age or Sex Provision

allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application.

Paid-Up Additions Option

allows the policy owner to exchange the dividend for an additional single payment whole life policy

Wavier of Premium Rider

allows the policy owner to waive premium payments during a disability and keeps the policy in force. The waiver of premium rider is not a loan and does not provide cash payments to the policy owner.

Automatic Premium Loan Provision

an overdue premium is automatically borrowed from the cash value after the grace period expires

Policy Loan (Cash Withdrawal) Provisions

apply to policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is three years. These loans, with interest, cannot exceed the guaranteed cash value, or the policy is no longer in force. The policy owner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds.

Reinstatement Provision

is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It Permits the policy owner to reinstate a policy that has lapsed as long as the policy owner can provide proof of insurability and pays all back premiums, outstanding loans, and interest.

what is an insurer required to do when faced with an error made under the misstatement of age provision

pay age-corrected benefits

Accidental Death Benefit Rider

pays an additional sum to the beneficiary if the insured dies due to a covered accident

Return of Premium Rider

pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a certain time period specified in the policy. It also returns premiums to the living insured at the end of a specified period of time, as long as the premiums have been paid.

Extended Term Option

permits the policyowner to use the policy's cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy.

Suicide Clause

states that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance. The primary purpose of a suicide provision is to protect the insurer from applicants contemplating suicide.

Entire Contract Provision

states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the entire contract between all parties

Free Look Period

states the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

An insured individual and the policy's beneficiary die from the same accident. The common disaster provision states the insurer will continue as if

the insured outlived the beneficiary

Dorian exercised a nonforfeiture option by using his life policy's cash value to purchase an extended term insurance option. When the term insurance expires,

the protection ends

free-look provision gives the policy owner

the right to return the policy for a full refund within a specified number of days

Payor Provision (Rider or Clause)

waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled.