Chapter 9 - part 2/ Life PPOR Review

Entire contract

Riders are available to help the insured customize their life insurance contract to fit their individual needs. All of the following are common riders, EXCEPT: Entire contract is not a rider. Waiver of premium is a popular rider that serves as a type of disability insurance for those under age 60 or 65. If the insured becomes disabled during the term of the policy and cannot pay premiums, a waiver-of-premium rider ensures that the policy will be maintained by the insurer through the policy term. The provision continues as long as the insured remains disabled or until the policy term expires. The accelerated death benefit rider is designed to anticipate cases such as terminal illness involving high medical costs, whether in a hospital stay or in hospice care. This rider allows the insured to collect some or all of the payout while still alive - to provide for care and living expenses. The return of premium rider is as close as you can get to a money-back guarantee. Some or all of the insureds premiums will be returned if the insured survives the policy's term. The premiums are significantly higher up front.

Annually

Premium payments for life insurance are made in advance. Typically they are paid to the insurer's home office or to the agent. The premium payment mode defines the timing of the payments. Usually the payment mode with the best economy is: The less frequently the insurance company has to process premium payments, generally, the more economical the payments. If the annual premium on a policy is $480, the bi-annual premium might add up to $490, the quarterly premiums might add up to $500 and the monthly premiums might add up to $520 per year.

a. Proof of insurability may be required b. All back premiums need to be paid c. It has not been more than three years since the policy lapsed

The Clark family's insurance policy lapsed when Mr. Clark was out of work. The policy was not surrendered for its cash value. Under what conditions can the policy be reinstated? Reinstatement is usually possible if it has not been more than three years, proof of insurability is provided, back premiums are paid and it was not surrendered for its cash value. It is advantageous to reinstate a lapsed policy as opposed to purchasing a new policy because the age of the insured when the policy was first issued is used - resulting in a lower premium. The incontestability clock would start again on a reinstatement. The correct answer is: All of the above

The benefits are paid to the beneficiary, minus the outstanding premium.

A grace period is a component of every life insurance contract. The grace period is the amount of time, following the date that the premium is due, that the policy will remain in force. If the insured dies during the grace period, how will it affect the proceeds of the policy? If the insured dies during the grace period, the insurer would pay benefits, minus the outstanding premium.

September 1st

April completed her insurance application on the 9th of August. She paid her initial premium on the 10th of August. The insurance company issued the policy on the 16th of August. Her agent delivered the policy on the 17th of August. The insurer has a 15-day free look provision. When does she need to return the policy if she decides she does not want to purchase it, and wants her premium refunded? The free look period starts when the policy is delivered. If April decides against purchasing the policy, she must return it by September 1st. (15 days from when it was delivered) in order to get a full refund.

Settlement Option

How benefits are paid to a beneficiary upon death in a life policy is a: Settlement Options are how a beneficiary can receive the death proceeds.

Insuring clause

Paul is reading over his insurance contract. In which clause would the insurance company's promise to pay be included? The insuring clause contains the insurer's basic promise to pay a sum of money in the event of a covered loss to the beneficiary.

None of the above

Randall's company has taken out a life insurance policy on a key employee - John. John is the insured, but the company is the owner of the policy. What rights does John have as the insured? Usually the owner and the insured are the same, but not always. The company is the owner. In this case, the insured has none of the rights listed. It is the policyowner that maintains all of the rights.

Insuring clause

The front page of all insurance policies must contain which of the following? The insuring clause is a statement of the policy particulars, including what the insurance company is responsible for, what they will do, and how claims will be handled. The insuring clause is always on the front page of the policy.

Entire contract clause

The provision in a life insurance contract which states that the entire agreement between the insurer and the insured is contained in the contract, including the application if attached, insuring agreements, exclusions, conditions, declarations and endorsements is called the: The provision in a life insurance contract that states that the entire agreement between the insurer and the insured is contained in the contract, including the application if attached, insuring agreements, exclusions, conditions, declarations and endorsements is called the entire contract clause. The insuring clause states that in consideration for the payment of a premium, the insurer agrees to provide life insurance protection for the insured. The consideration clause states that the insurance protection is provided in consideration of the application made by the insured and the payment of the initial premium. The premium payment and representations made in the application are the insured's consideration. The promise to pay the benefits is the insurer's consideration.

It can be applied for at any time.

To protect a policyholder from an inadvertent lapsing of a contract, the automatic premium loan (APL) provision may be added to a cash value life policy. Which of the following statements is not true about this provision? The APL provision usually must be requested at the time of the original policy application. The policy will lapse if there is insufficient cash to cover the premium payment and if the policy lapses for this reason, it cannot be reinstated. Any outstanding policy loans are deducted from the death benefit.

If the premium payor dies, premiums are waived until the insured child is a specified age such as 21 or 25.

When a minor child is the insured, which of the following is true about the payor rider? If the person responsible for paying the premium dies, the rider waives premiums until the insured child reaches a specified age such as 21 or 25.

The disability must always occur prior to age 75.

If an insured becomes permanently and totally disabled, a waiver of premium rider on their life insurance contract would allow coverage to remain in force, without payment of premiums, during the period of the disability. Which of the following is not true about a waiver of premium rider? The premium for the waiver of premium disability rider does not increase cash value of the policy. Premiums are waived retroactively when the waiting period has been met. Most insurance companies specify the disability that must occur before the insured is 60 or 65 years of age.

Family term rider

Certain riders allow the insured to add people to the policy as additional insureds. Which of the following is a type of additional insured rider? A family term rider combines the spouse and the children's rider to cover the family. The payor rider provides for premiums to be paid if the payor of the premiums for a juvenile dies or becomes disabled. The substitute insurance rider is commonly used in business to exchange (substitute) one employee for another on a policy - as when an employee leaves the company and is replaced by another (new) employee.

Accelerated benefits

Karl's grandmother has been diagnosed as being in end-stage renal failure. What provision of her life policy will giver her access to funds for rent, food and necessary medical services? The accelerated benefits provision/rider allows the insured tax free access to policy death benefits when the insured is suffering from a terminal or severe chronic illness. These funds are commonly used for rent, food and medical services. The disability income rider waives premium payments when the policyowner is totally disabled and also provides the policyowner with an income each month. A cost of living rider helps to guard against inflation eroding the benefits of a policy. The insured can increase the amount of insurance without providing proof of insurability. The waiver of premium rider provides that if the insured becomes totally (and permanently) disabled, the premium payments are waived and the insurance contract remains in force.

Policy loan

Matt is a little short on cash and wants to access some of the cash in his life policy. A partial cash value distribution can be made. If he has the intention to repay the cash he takes out from his policy, it is considered a: If Matt intends to pay the money back, it is considered a loan. There is no legal requirement to pay it back, but interest is assessed by the insurer on the borrowed funds. Outstanding loans are deducted from the death benefit if the insured dies without repaying them. A withdrawal and partial surrender are presumed not to be repaid. They have the same impact on benefits. Withdrawals can be taxable, loans generally are not taxed.

a. Hospice care b. Adult day care c. Cost of living expenses

A long-term care rider is a provision that can be added to a cash value life insurance policy. If the insured becomes confined to a nursing home, this rider would reimburse health care expenses. Certain optional benefits may also be provided such as: All of the items listed can be optional long term care benefits. The structure of the benefits includes elimination periods of 10-100 days, benefits triggered by impaired daily living activities, and skilled, custodial and home health care. The correct answer is: All of the above

Accumulation at interest option

A participating life policy refunds a portion of the premiums paid to the insured. These refunds are in the form of an annual dividend. Dividends are determined by the difference between the gross premiums paid, and the loss experience of the insurer. What option allows the policyholder to leave the dividends with the insurer to accumulate interest? It is the accumulation at interest option that allows the policyholder to leave the dividends with the insurer to accumulate interest. The cash dividend option provides that dividends credited to the policyholder be paid with a check. The paid-up additions option allows the policyholder to purchased additional insurance which is added to the face amount of the policy. The paid-up option gives the policyholder the opportunity to pay the policy up early - using the dividends.

When Howard dies, Helena has already passed away

As Howard was filling out his life insurance application, he questioned whom he should name as his primary and contingent (or secondary) beneficiaries. He decided to name his wife Helena as the primary beneficiary, and his son Collin as the contingent beneficiary. What is the most likely circumstance for Collin to receive the benefits of Howard's policy? A beneficiary is a person (or entity) entitled to death benefits paid by a life insurance policy. If Helena were alive when Howard dies, she would receive the death benefit. If Helena were no longer alive when Howard dies, Collin would receive the death benefit from Howard's policy. The contingent beneficiary can only receive the death benefit if the primary beneficiary dies before the insured.

Guaranteed insurability rider

Mrs. Olsen worries that her health may deteriorate in the future. She wants to provide adequate coverage for herself and her family. Which rider should she consider for her life policy? The guaranteed insurability rider allows a policyholder to purchase additional life insurance coverage in the future without providing evidence of insurability. The rider provides specific dates on which additional life insurance policies can be bought. The older the insured gets, the fewer dates he/she has to purchase more life insurance. In some instances, after a certain age, the rider may not be able to be purchased or added. The guaranteed insurability rider could be considered a worthwhile investment to include in a life insurance quote if Mrs. Olsen worries that her health might change.

There is no added premium for this rider.

The payor rider is sometimes added to a life insurance contract on a juvenile. The purpose of the rider is to make sure that the coverage on the juvenile does not lapse if the adult (the person responsible for paying premiums) becomes disabled or dies. Which of the following is not true about the payor rider? Payor rider is important if you are buying a policy on a juvenile (child). By taking this rider the payor (person that is making the premium payments) makes sure that in case of his/her unfortunate death/ dismemberment, before the premium payment term ends, the premiums are waived and the policy remains in force.

Assignment

When the policyholder sells, gives or pledges a policy as collateral, it is called: A policy assignment provision in a life insurance contract is one that permits the owner of the policy to sell, give or pledge the policy as collateral. Consideration - a requirement for a valid informal contract that is met when each party gives or promises to give something of value to the other party. Incontestability is the clause that prevents an insurer from denying a claim, except for nonpayment of premiums, after the policy has been in force for over 2 years. Settlement is how the proceeds of the policy are to be paid when the policy matures.

Uniform simultaneous death act

A common life insurance provision is the ___________, which states that if there is insufficient proof to show order of death when the insured and beneficiary die in the same accident, it is presumed that the insured died last, and the proceeds are payable to the named contingent beneficiary. Both the uniform simultaneous death act and the common disaster provision state that when death of the insured and the beneficiary occur at the same time, it is presumed that the insured died last. This allows the benefits of the policy to be paid to the secondary beneficiary or the insured's estate - as opposed to the estate of the primary beneficiary. Per stirpes pertains to the beneficiary's living children getting equal shares of the benefits. Per capita is per person - meaning that policy proceeds are paid only to the named - living - beneficiaries. Facility of payment is a provision that allows the insurance company to select a beneficiary if the named beneficiary is deceased, a minor, or cannot be found. Spendthrift clause allows the insured to protect the proceeds of a policy from a beneficiary that spends lavishly. The proceeds are paid in something other than a lump sum, and protected from the beneficiary's creditors.

Paid-up additions option

When setting up a policy, the policyholder chooses how he/she wants the benefits to be paid when the policy matures. Which of the following is not a settlement option available to most policyholders? The paid-up addition option is a dividend option. The fixed amount option is used if the primary consideration is the amount of time during which policy proceeds are liquidated. A fixed amount of income is designated to be paid at fixed intervals until funds are gone. The fixed period option involves liquidation of proceeds over a period of years - paid even if the beneficiary dies. Proceeds are paid in equal installments over a fixed period of time. The life income option is where distribution of proceeds is based on life contingencies. They are like a life annuity and serve much the same functions.

a. The insurer pays Daniel a specified amount each month. b. The income continues for the duration of the disability. c. There is a waiting period before benefits are paid.

Daniel has a disability income rider on his life policy. With a disability income rider: The disability income rider pays a specified amount each month, based on the face amount of the policy. The income continues for the length of the disability, after waiting period requirements have been fulfilled. The disability must meet the insurer's criteria for total and permanent, and is usually determined by a physician approved by the insurer. The correct answer is: All of the above

a. Conducting an illegal activity b. Acts of war c. Flying an experimental aircraft

Tim has added an accidental death rider to his life insurance contract. He knows that he will be charged an additional premium for this coverage, but because he lives in a dangerous neighborhood, he thinks the coverage is a good idea. For which of the following will the insurer exclude the payment of benefits? All insurers maintain a list of events and circumstances that void the insured's entitlement to the accidental death benefit. Death by illness, suicide, non-commercial aviation, war, and natural causes are generally not covered by the accidental death benefit. Death while under the influence of any non-prescribed drugs or alcohol are usually exempt, as well. Participating in illegal activities also exempt the insured from coverage. The correct answer is: All of the above

Non-participating

The nonforfeiture option is designed to protect the policyholder from losing their entire investment if a policy is cancelled or surrendered. Which of the following is not a nonforfeiture option? Non-participating pertains to policy dividends. Cash surrender value is an option for the policyholder to surrender the policy for the cash value. The value increases each year that the policy remains in force. When the policy is surrendered, it is returned to the insurance company, and they have 6 months to pay the cash value to the insured. Reduced paid up insurance gives the policyholder the option to use the cash value of the policy to purchase a single premium contract of the same form (i.e., 20-pay life, ordinary life, etc.) as the original policy. The face amount of the coverage will be less, but no premium payments will be required. Extended term option offers an extended term policy in place of the cash value policy. The policyholder can ask the insurer to use the existing cash value to purchase term insurance - equal to the face amount of the original policy.

The policyowner retains the right to borrow against the policy.

All life policies require that some sort of beneficiary be named. Usually it is a person, but it can also be an estate, trust, charity, church, or a company. A beneficiary that can be changed at any time is a revocable beneficiary. An irrevocable beneficiary, however, cannot be changed so easily. All of the following statements are true about irrevocable beneficiaries, EXCEPT: With an irrevocable beneficiary designation, the policyowner cannot borrow against the policy without the consent of the irrevocable beneficiary. Irrevocable beneficiaries are common in divorce settlements, and also in some cases with private loans for business ventures and mortgages. The person or company lending the money can require that insurance be in place to cover the debt and is named as an irrevocable beneficiary to insure that no changes are made to the life policy without their consent.