Chapter 5

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.

*Reduced Paid-Up Option

the policyowner pays no more premiums but the face amount is decreased.

Hazardous Occupation or Hobby

If the insured dies as a result of a hazardous occupation or hobby, the insurer will not pay the claim.

Alcohol/Narcotics

If the insured dies or is injured as a result of alcohol or narcotics, the insurer will not pay the claim

Accidental Death Benefit Rider (multiple indemnity)

Pays an additional sum to the beneficiary if the insured dies due to an accident the amount paid is a multiple of the policy face amount such as double or triple the original benefit. Truly the cheapest way to add a lot of coverage for a period of time

The Guaranteed Insurability Rider (future increase option)

Permits the policy owner 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

*Extended Term Option

Permits the policy owner 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 non forfeiture option is equal to the net death benefit of the lapsed policy

"Incontestability Period"

Provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured's lifetime, usually one or two years after issue. After that period, the policy is considered incontestable

Free Look

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.

*Cash Option

Take the cash

Grace period

A period after the due date of a premium during which the policy remains in force without penalty. If an insured dies during the grace period of a life insurance policy before paying the required annual premium, the beneficiary will recieve the face amount of the policy minus any required premiums. For life insurance the grace period is typically one month. For health insurance, remember Aunt Grace's Birthday 7( makes payments more than once a month)-10 (makes premium payments once a month)-31(Makes Premium payment less than monthly (Quarterly, semiannually, ect.))

Absolute Assignment

A 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 thought the assignment is absolute in form

*Accumulate Interest Option

Allows dividends to accumulate interest. Interest is the ONLY thing you can be charged tax on

Automatic Premium Loan Provision (or rider)

Allows the insurance company to deduct overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM in the event they don't receive a payment from you. This can continue for as long as they don't receive a payment and you still have cash value. Once all of your cash value is gone, if you don't start paying your policy will lapse. This is just like any other cash value loan.

Accelerated Benefit Rider

Allows the insured to recieve 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. Acceleration Benefit Example: Your doctor said you are going to die, so you aren't going to stop paying your insurance (since you know you'll need it soon) Insurance company now knows you are going to die soon which means they are going to have a to pay out the benefit. To make things a little easier and less stressful, they will give YOU some of the proceeds NOW and deduct from what would go to your beneficiary.

Misstatement 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 applications. The misstatement of age provision allows the insurer to adjust the benefit payable if the age of the insured was older at the time of application than is shown in the policy, benefits would be reduced accordingly. The reverse would be true if the insured were younger than listed in the application

*Cash Surrender

Allows the policy owner to recieve the policy's cash value. Policy owner no longer has coverage at this point. Normally the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is 6 months (delayed payment provision)

Waiver of Premium Rider

Allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent and have sustained through the waiting period (90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void. Waiver: Covers the PRIMARY INSURED does NOT provide income. Is NOT a loan. The insurance company is "waving" the premiums. It's just as if the insured made the premiums every month.

Assignment Clause

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

Other insureds

Also known as Dependent riders may be added to a primary policy to cover a spouse or "another insured", children or adopted child

Payor Provision (Rider or Clause)

Available under certain juvenile life insurance policies and provides for the waiver of future premiums if the person responsible for paying them dies or is disabled before the policy becomes fully paid or matures as a death claim, or as an endowment, or the child reaches a specific age.

Exclusions

Features of an insurance policy stating that the policy will not cover certain risks. They are 6 common exclusions in insurance

Collateral Assignment

Is an 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.

Policy Loan (cash withdrawal( Provisions

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 3 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.

*One-Year term Option

Purchase one-year term protection

*Paid-Up additional Option

Purchase single payment whole life coverage

Reinstatement

Putting a lapse 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 black premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5-7 years. To reinstate any any policy you need: A reinstatement application, statement of good health, all black premiums.

*Reduced Premiums Option

Reduces premium payments

Consideration Clause

States a policy owner must pay a premium in exchange for the insurer's promise to pay benefits. A policy owner's consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. "Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM and how much, how often I agree to pay. Please consider me."

Entire Contract

States the insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract. We can't send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE CONTRACT

Commitment of a Felony/illegal occupation

The insured dies or is injured while committing a crime of participating in an illegal occupation, the insurer will not pay the claim

Aviation

The insurer will not pay the claim if the insured dies or is injured due to involvement with aviation such as military pilot flying a jet aircraft

War or Military Service

The insurer will not pay the claim if the insured dies while in active military service or due to an act of war.

Insuring clause (Or insuring agreement)

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..."

Dividend Options

The options a policy owner has when receiving dividends payments from an insurance policy. Participating policies pay dividends to policy owners if the company's operations result in a divisible surplus. Recall that dividends are a return of overcharged premiums, and are therefore not taxable. Insurers typically pay dividends on an annual basis. Keep in mind, with dividends, the policy is still active. The following dividend options are available to policy owners for settling dividend payments

Suicide Clause

The policy will be voided and no benefit will be paid if the insured commits suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide

Nonforfeiture Options

the options you have for your cash value if you terminate a policy that has cash value. You are closing your account (surrendering your policy) what do you want us to do with your cash (so you don't forfeit it)? When a policy owner decides he does not want his insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining, he must use one of the following non forfeiture options: