II. POLICY RIDERS, PROVISIONS, OPTIONS, AND EXCLUSIONS - 21% of EXAM

What are the 5 Settlement Options?

1. Lump sum 2. Interest only 3. Fixed-period installments 4. Fixed-amount installments 5. Life income

What are the 5 dividend options?

1. Cash Payment 2. Reduction of Premium Payments 3. Accumulation at Interest 4. One-year Term Option 5. Paid-up Additions

What are the 3 nonforfeiture options in life insurance policies?

1. Cash surrender 2. Extended term insurance 3. Reduced paid-up insurance

Businesses

A business can be named as the beneficiary of a life insurance policy.

Accelerated Benefits

Accelerated benefits allow policyowners to use their policy's death benefits tax-free while they are still alive, or if they are terminally or chronically ill. A terminally ill person must be expected to die within two years. Examples of terminal and chronic illnesses are cancer and AIDS. Is unable to perform at least two activities of daily living without assistance, Has a disability, or Is cognitively impaired and requires supervision to ensure health and safety. The Health Insurance Portability and Accountability Act (HIPAA) of 1996 requires that proceeds from accelerated benefits are exempt from federal income tax.

Annuity Rider

An annuity rider can be added onto a life insurance policy. Annuities, which protect against the chance of depleting income for prolonged life

Living Benefits

Aside from nonforfeiture options, which will be discussed in the next module, living benefits are options for using cash value in a life insurance policy.

Beneficiaries

Beneficiaries are the named individuals or entities designated by the policyowner to receive the policy proceeds upon the insured's death.

Beneficiaries

Beneficiaries are the named individuals or entities designated by the policyowner to receive the policy proceeds upon the insured's death. The policyowner may name any person or legal entity as beneficiary. More than one beneficiary may be named. An estate, trust, charitable organization, institution or other legal entity may be named as a beneficiary. The policyowner is not required to name a beneficiary. The beneficiary does not need to have an insurable interest in the life of the insured.

Other Provisions

Modifications, Exam, Autopsy, and Excess Interest Provisions

Felony Exclusion

Death that occurs as a result of the insured committing a felony may be excluded. For example, if an insured is shot and killed by police during the commission of an armed robbery, their death may result in the insurer's refusal to pay out death benefits.

What are the 3 Policy Options?

Divided Options Nonforfeiture Options Settlement Options

What are the 8 Policy Riders?

Guaranteed insurability Rider Waiver of Premium Rider Automatic Premium Loan Payor Provisions Rider Accidental Death Benefit Return of Premium Rider Cost of Living Other insureds Rider

Hazardous Occupation or Hobby Clause

If the insured dies as a result of a hazardous occupation or hobby, the insurer will not pay the claim. Examples of hazardous occupations or hobbies include: acrobatic pilots, auto racers, and skydiving. Examples of hazardous occupations include: crop-dusting pilots, professional auto racers, and oil field scuba diver. Instead of excluding coverage all together, sometimes insurers will charge a higher premium for those involved in hazardous occupations or hobbies.

Tertiary Beneficiary

Naming beneficiaries by succession. If both the primary and contingent beneficiaries predecease the insured, then the tertiary beneficiary will receive the policy proceeds.

Primary Beneficiary

Naming beneficiaries by succession. The first person to receive policy proceeds upon the insured's death.

Accidental Death and Dismemberment Rider (AD&D)

The accidental death and dismemberment rider may be added to a life insurance policy to pay benefits for dismemberment. The loss must occur within a certain time period of the accident, such as 90 days. The accidental death and dismemberment rider pays a principal sum if the insured loses any of the following due to an accident: Both hands Both arms Both legs Vision in both eyes AD&D Rider = Pays Principal Sum

Waiver of Premium

The waiver of premium rider allows the policyowner to waive premium payments during a disability, and keeps the policy in force. Waiver of premium rider coverage requires an additional premium charge. The waiver of premium rider is an option that may be rated or denied by the insurer. The disability must be total and permanent. After a certain age (usually 60 or 65), the waiver of premium rider is void. If the policyowner becomes disabled right before the rider expiration date, the rider will still apply. There is usually a waiting period of 3 or 6 months once the policyowner becomes disabled before the first premium will be waived. The policyowner is not required to pay back the waived premiums if they recover from the disability. The waiver of premium rider can only be added to a term policy because there is no cash value.

Dividend Options

There are five dividend options: Cash Payment Reduction of Premium Payments Accumulation at Interest One-year Term Option Paid-up Additions

War or Military Service Clause

There are two kinds of war or military service exclusions: 1): Status clause - the insurer will not pay the claim if the insured dies while in active military service. 2): Results clause - the insurer will not pay the claim if the insured dies due to an act of war. The war or military service clause is only in effect during wartime.

Disability Riders

Waiver of Premium Waiver of Cost of Insurance Disability Income Rider Payor Rider Accidental Death and Dismemberment

Cash Payment

With the cash payment option, the policyowner receives a check for the amount of the dividend.

Types of Beneficiary Designations

primary, secondary, tertiary

Reinstatement

A required provision in a life insurance policy which permits the policyowner to reinstate a policy that has lapsed, as long as the policyowner can provide proof of insurability, within 3 years.

Incontestable Clause

A required provision in a life insurance policy which prevents the insurer from denying a claim or voiding a life insurance policy, except for nonpayment of premiums, after the policy has been in force for a certain number of years, usually 2.

Rights of Ownership

A required provision in a life insurance policy which stipulates the rights of the policyowner.

Grace Period

A standard provision for group life and health insurance, stating that a grace period of at least 31 days is allotted for nonpayment of premium during which period the policy remains in force.

Misstatement of Age/Sex

A standard provision for group life and health insurance, stating that if the insured misstates his age, the insurer will either adjust the premiums or the benefits. The method for this adjustment must be stated in the policy. Misstatement of Age = Correct Premium or Death Benefit

Term Rider

A term rider adds term coverage to an existing life insurance policy. There are several varieties of term riders, including: Spouse/other insured, Children, Family, Return of premium and Return of cash value.

Excess interest provision

A provision stating that when a life insurance policy's interest rate becomes greater than the assumed interest rate, the policy will build excess cash value. The insurer will provide options for paying the excess cash to the insured via cash dividends or paid-up additions.

Consideration Clause

A required provision in a life insurance policy stating that a policyowner must pay a premium in exchange for the insurer's promise to pay benefits. Consideration Clause = Policyowner's Premium Responsibility

Assignment Clause

A required provision in a life insurance policy stating that policyowners have the right to transfer policy rights to another person or entity. Assignment Clause = Transfers Ownership

What are the 7 Beneficiary Designations?

1. Individuals 2. Businesses 3. Estates 4. Minors 5. Trusts 6. Charities 7. Classes of individuals

Entire Contract

A required provision in a life insurance policy stating that the insurance policy itself (including any riders and endorsements/amendments) and the application, if attached to the policy, comprise the entire contract between all parties. Entire Contract = Policy + Application + Riders

Execution Clause

A required provision in a life insurance policy stating that the policy is established when all parties to the contract have met the policy's conditions.

Irrevocable Beneficiary

A beneficiary who essentially becomes co-owner of a life insurance policy. The policyowner must receive the irrevocable beneficiary's written consent for any change made to the policy.

Charities

A charity may be named beneficiary of a life insurance policy.

Minors

A minor can be named as a beneficiary, but because a minor cannot legally receive policy proceeds, a guardian or trustee must be appointed who can legally receive the policy proceeds and manage them until the minor reaches the legal age. A trust can be established if a guardian cannot be relied upon to manage the funds. In most cases, minors should not be named as beneficiaries. Insurance companies may make restricted life payments to an adult guardian on behalf of the minor beneficiary. The insurer may also keep the policy proceeds to accrue interest until they may be paid to the minor when he or she reaches the age of majority or when an adult guardian has been appointed. Finally, the insurer may put the policy proceeds in a trust on behalf of the minor.

Trusts

A trust can be named as the beneficiary. In this scenario, the policyowner gives the legal title of the insurance policy to another person, the trustee, for the benefit of the trust beneficiary. Legally, the trustee cannot benefit from the trust, but is paid to manage the property on behalf of the trust beneficiary. The advantage of naming a trust is that it is a secure way to establish a scholarship fund, give money to an institution, or to assure that policy proceeds are disbursed exactly as the policyowner intends. Drawbacks include the high costs of administering a trust and the trust beneficiary's inability to intercede if the trustee is not managing the trust correctly.

Long-term Care Rider

A type of accelerated benefit which is used to pay long-term care costs. The long-term care rider may be separate from the life policy, in which case the accelerated benefit does not reduce the death benefit, or may be incorporated into the life insurance policy, thereby reducing the death benefit or policy cash value. A living needs rider may pay up to 80% of the death benefit. Prior hospitalization is often required for the rider to kick in. Long-term Care Rider = Accelerated Benefits Rider

Cash Surrender Option

As the name implies, the cash surrender option allows the policyowner to receive the policy's cash value. In most states, policies that build cash value must begin to accrue cash value by the end of the third policy year. For industrial life policies, cash value must be available after five years. During the first two policy years, premiums are used to pay acquisition and administrative expenses Once the cash surrender value is exercised: No death benefit will be paid, The policy cannot be reinstated, Any outstanding policy loans plus interest would be deducted from the cash surrender value, and A surrender fee is charged at the time of cash surrender. Depending on the state, the insurance company may be permitted to delay payment of cash surrender for up to 6 months from the request. This is called the delayed payment provision and provides insurance companies a buffer if they encounter a financial crisis. 6 months = How long payment can be delayed.

Common Disaster Clause

Clause protects the contingent beneficiaries' rights by stipulating a certain number of days the primary beneficiary must outlive the insured after a common accident causing near-simultaneous death in order for the primary beneficiary to receive the policy proceeds.

Lump Sum

Cash payment, or lump sum payment, of the policy proceeds is still prevalent today. If the policyowner does not choose a settlement option for the beneficiary, the policy proceeds default to payment in lump sum. In this case, the beneficiary is permitted to choose a settlement option upon the insured's death. If the policyowner does select a settlement option, it cannot be changed. Lump sum distribution is not taxed.

Classes

Classes of individuals may be named as beneficiaries. Naming a class of beneficiaries allows the policyowner to name a group of individuals generally, without naming each individual member of the group. This saves the policyowner the hassle of changing beneficiaries when births and deaths occur. Examples of class designations are: "All my children," "All of my living siblings," or "All living and active players of the Wildcats team."

Disability Income Rider

If the policyowner becomes totally and permanently disabled, the insurer will pay the insured a periodic income, and in some policies, it also waives the policy premiums. The periodic income is based on the policy's face amount and is paid weekly or monthly during the insured's disability. There is usually a waiting period of 3 or 6 months once the policyowner becomes disabled to establish that the disability is permanent.

Conditions for Payment

In order for an insured to receive the accelerated benefit, the insured must have a terminal illness, or in some policies confinement to a nursing home suffices for payment. The amount of the accelerated benefit varies by policy, but is usually anywhere from 25% - 80%. Insurers are permitted to pay out the entire death benefit. The accelerated benefit is not subject to tax, since the funds are used to pay for medical care.

Medical Examination and Autopsy

Insurers may require the proposed insured undergo a medical examination at the insurer's expense prior to issuing coverage, if necessary, such as for large amounts of coverage. The insurer may also request a deceased insured to undergo autopsy for good cause, if not prohibited by state law, while a claim is pending.

Modifications

Life insurance provision stating that policy changes must be made by an authorized officer of the insurer and attached to the policy and only the policyowner has the right to request changes.

Waiver of Cost of Insurance

Life insurance rider that allows a universal life policyowner who becomes disabled to waive the cost of death protection but does not waive the cost of premium required to build cash value.

Accelerated Living Benefit Rider

Life insurance rider which allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness.

Children's Term Rider

Life insurance rider which covers children with term protection, usually until age 21. The children's term rider permits children to be insured under term rider protection on a life insurance policy for a certain length of time. Children's term riders usually expire when children reach the age of 18 or 21. When children reach the limiting age, they are usually given the option to convert their term coverage to whole life. Biological, step and legally adopted children can be insured under term riders.

Aviation Clause

The aviation exclusion states that the insurer will not pay the claim if the insured dies due to involvement with aviation, such as a military pilot flying a jet aircraft. Individuals flying in commercial aircraft as fare-paying passengers would not be excluded from coverage. Each policy's aviation clause is different. Some policies specify that flights must be regularly scheduled, whereas, other policies cover nonscheduled flights as well. Most insurers today will not deny coverage to people involved in aviation; instead, insurers will charge higher premiums to compensate for the added risk. Aviation Clause = Charge Higher Premiums

Life Income

Life insurance settlement option in which an annuity is used to pay the policy proceeds. The beneficiary is provided a stream of income that cannot be outlived. The amount of each payment depends on: The beneficiary's life expectancy (age and gender), The amount of the policy proceeds, The interest rate, and Any payout guarantees. There is some risk inherent in the life income option. If the beneficiary lives well beyond their expected lifespan, the insurer must pay out-of-pocket after the principal has been depleted. However, if the beneficiary dies earlier than expected, the balance of the principal is forfeited to the insurer. Because of the risk involved with the life income option, insurers provide additional options to ensure that part or all of the policy proceeds are disbursed. These additional guarantees lower the amount of the payments. There are several versions of the life income option including the following. These will be discussed in greater depth in the annuities chapter. Cash refund Installment refund Straight life Life with period certain Period certain Joint and survivor

The premium mode is stipulated. Premium modes include:

Monthly, Quarterly, Semiannually or Annually. Annual Premiums = Least Expensive Monthly Premiums = Most Expensive In some cases, a single premium is paid for the entire policy. In most cases, premiums are paid in advance and to the producer or the insurer's home office. The less frequently premiums are made, the lower they will be. More frequent premium payments incur additional administrative costs; on top of that, the insurer loses earnings since it does not have the premium for the entire year. Paying annual premiums is the least expensive premium payment mode.

Nonforfeiture Options

Nonforfeiture options/values are guarantees that are required by law to be part of life insurance policies that build cash value. Insurers are required to make nonforfeiture values available when policyowners discontinue premium payments for any reason. Insurers are required to provide a table of guaranteed nonforfeiture values to policyowners for at least a 20-year period with the policy. This table is specific to the coverage purchased and shows each of the nonforfeiture options after a certain number of years. There are three nonforfeiture options: Cash surrender Extended term insurance Reduced paid-up insurance

Individuals

One or more individuals may be named as beneficiaries. If more than one person is named, then the policy proceeds are divided as indicated in the policy.

Suicide Clause

Optional life insurance provision stating that the policy will be voided and no death benefit will be paid if the insured commits suicide within a stipulated time period.

Options

Options involve how policy funds are utilized. These are choices on how to distribute a sum of money.

Policy Loan and Withdrawal Provisions

Policies that permit cash value 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. The policyowner has the right to the policy's cash value. Policy loans are not taxable, but loans are subject to interest.

Exclusions

Policy exclusions are optional, and may be included in life insurance policies at the discretion of the insurer. These provisions exclude or limit coverage and are intended to protect the insurer from adverse selection and misuse of policies.

Spendthrift Clause

Prevents creditors from seizing life insurance policy proceeds provided there is at least one named beneficiary, excluding the insured's estate.

Incontestability

Provision in individual health insurance policies stating that the policy becomes incontestable and cannot be voided or claims denied after two years (three years in some states) except in the case of fraud.

Withdrawals or Partial Surrenders

Provision in universal life insurance policies that provides for withdrawals or partial surrenders of policy cash value.

Provisions

Provisions are the characteristics, privileges, duties of all parties, and rights of a policy. These protect policyowner.

Changing Beneficiaries

Revocable Versus Irrevocable Beneficiaries may be named as revocable or irrevocable. The policyowner can change revocable beneficiaries without their consent. With irrevocable beneficiaries, the policyowner must receive their written consent to exercise any ownership rights, except for the right to pay premiums. Revocable = Changeable Irrevocable = Unchangeable Revocable beneficiaries typically cannot assign a portion of the policy proceeds because the policyowner can remove them at any time. However, an irrevocable beneficiary has a good chance of assigning a portion of the policy proceeds. If an irrevocable beneficiary makes an assignment, but predeceases the insured, the assignment is cancelled unless it was made in writing or the policyowner agrees to the assignment in writing.

Riders

Riders are policy elements that "ride on" or add to the existing coverage by modifying provisions or coverage. These add or modify/ customize coverage.

What are the 15 Policy Provisions?

Rights of ownership Standard Provisions Entire Contract Insuring Clause Free Look Consideration Grace Period Reinstatement Policy Loan incontestable Assignment Accelerated Benefits Suicide provisions Misstatement of Age /Sex Automatic Premium Loan

Accidental Death and Dismemberment

Standalone accident-only policy which only pays benefits if an insured dies or has a dismembered body part as a result of an accident.

Accidental Death Benefit Rider or Multiple Indemnity

The accidental death benefit (ADB) rider, also referred to as a multiple indemnity rider, pays an additional sum, termed the principal 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. Accidental Death Rider = Only For Accidental Death

Accumulation at Interest

The accumulation at interest option allows the insurer to retain the dividend to be invested and grow in value. The dividend earns a rate specified in the policy. The policyowner can withdraw the dividend at will tax-free, but any interest earned on the dividend is taxable. Dividends left to accumulate at interest are separate from the policy's cash value.

Cost of Living Adjustment (COLA) Rider

The cost of living adjustment (COLA) rider allows the policy face amount to be adjusted to account for inflation based on the consumer price index (CPI). If the face amount is increased, the premium will be increased. If the face amount is decreased, the premium will be decreased. If the face amount cannot be adjusted, then an increasing term rider is added to the coverage. The policyowner has the option of accepting or declining such changes to the policy. COLA = Inflation Protection

Effect on Death Benefit

The death benefit is the face amount reduced by the amount of accelerated benefit paid to the insured. Example: If Linda has a $100,000 life insurance policy and receives $40,000 accelerated benefits for her terminal illness and the insurer loses $200 of interest, then Linda's beneficiary will receive $59,800 in death benefits when she dies.

Extended Term Option

The extended term option permits the policyowner to use the policy's cash values to buy paid-up term insurance. The cash values act as a single premium to purchase the extended term coverage, and the amount of the paid-up coverage is equivalent to the original policy's face value. The length of the term protection is based on the amount of cash value in the original policy and the insured's age at the time the extended term is purchased. Any outstanding policy loans plus interest would be deducted from the cash surrender value prior to purchasing extended term coverage. The insurer institutes the extended term option by default if the policyowner cannot be reached after the grace period lapses or if the policyowner does not select a nonforfeiture option. However, if the insured has a rated policy, meaning the insured is a higher risk, the insurer will typically not offer the extended term option because of adverse selection. With the extended term option, the original policy may be reinstated within the terms of the reinstatement provision.

Facility-of-payment Provision

The facility-of-payment provision allows the insurer to choose a beneficiary if the insurer cannot get in contact with the named beneficiaries after a certain amount of time. The facility-of-payment provision is used when the named beneficiary is a minor, the named beneficiary has predeceased the insured, a claim has not been submitted, or it is known to the insurer that another party has paid the deceased insured's final expenses and burial costs.

Family Term Rider

The family term rider combines the spouse and children's term rider in one rider. When a family term rider is added to permanent coverage, then the family term rider is level term.

Fixed-amount Installments

The fixed-amount installment option uses an annuity to pay the policy proceeds, but the payment amount is specified instead of the period of time. Payments consist of principal and interest and are paid until the principal and interest reach zero. The length of time installments will be paid is based on: The amount of the policy proceeds, The amount of each payment, and The interest rate. The larger the payment amount, the shorter time period payments will be received. More favorable interest rates will lengthen the payout period. This settlement option guarantees that the entire amount of the policy proceeds will be paid out. If the beneficiary dies before the balance reaches zero, then a contingent beneficiary will receive the remaining payments.

Fixed-period Installments or Period Certain

The fixed-period or period certain, installment option use an annuity to pay the policy proceeds to the beneficiary for a certain number of years. Payments consist of principal and interest, and the principal reduces to zero by the end of the period. The amount of each installment is based on: The length of the period, The amount of the policy proceeds, and The interest rate. Longer payment periods result in lower payments. Income is guaranteed for the entire period specified, so if the recipient dies before the period ends, then a contingent beneficiary would continue to receive payments until the period lapses.

Guaranteed Insurability Rider (GIR)

The guaranteed insurability rider (GIR), sometimes referred to as the future increase option, permits the policyowner to buy additional permanent life insurance coverage at specific points in time in the future (i.e., marriage, births, etc.) without requiring the insured to provide proof of insurability. Guaranteed Insurability = Increase Coverage without Proof of Insurability

Estates

The insured's estate may be named as beneficiary. This designation is used in cases where: There are no living beneficiaries, The policyowner did not name any beneficiaries, or The beneficiary is found guilty of murdering the insured. The insured's estate is defined as all of the insured's assets and liabilities. The advantages of naming the insured's estate as beneficiary are to provide liquid capital to pay for estate taxes, the insured's final expenses and the insured's outstanding debts. Disadvantages are that policy proceeds must go through probate court because they are considered part of the insured's gross estate for tax purposes. This can be costly, time-consuming and subject the policy proceeds to creditors.

Insuring Clause

The insurer's promise to pay covered losses as long as the insured pays the premiums and abides by the terms and conditions. Insuring Clause = Insurer's Promise To Pay

One-year Term Option

The one-year term option or fifth dividend option allows the policyowner to use the dividend as a single premium to purchase one-year term protection. The amount of the term coverage is based on the insured's attained age, and the face amount can be no more than the amount of the policy's cash value. Example: Suppose Tom receives a $200 dividend, and he has $70,000 in cash values. If $125 of the dividend suffices to buy $70,000 worth of one-year term coverage, then Tom can use the remaining $75 of the dividend on other dividend options. If the insured dies while the one-year term coverage is in effect, the insurer will pay the face amount on both the permanent policy and the one-year term coverage.

Paid-up Additions

The paid-up additions option allows the policyowner to use the dividend as a single premium to purchase an additional amount of whole life coverage. The amount of coverage that can be purchased is based on the insured's attained age when the paid-up addition is purchased. A new policy is not issued with paid-up additions. Instead, the paid-up addition coverage is added onto the policy's face amount. Insurers usually require that the type of coverage purchased with paid-up additions is the same type as the original policy. If the policyowner does not select a dividend option, the insurer will automatically use the paid-up additions option.

Payment of Premiums

The payment of premiums provision stipulates: When premium payments are due, How they must be paid, and To whom they must be paid.

Payor Rider

The payor rider is used for juvenile life insurance. The payor rider states that if the individual paying the premiums becomes disabled or dies before the child reaches a certain age, such as 21 or 25, the policy premiums will be waived until the child reaches the specified age. The policy will stay in force while the premiums are waived. This rider protects parents or guardians who purchase life insurance on their children from lapsing coverage if they become disabled or die before the child is of age to assume policy ownership.

Free Look Provision - Right to Examine

The policyowner is permitted 10 days from the date the policy is delivered to examine the policy. Free Look = Starts on Delivery-10 Days If the policyowner is not satisfied with the policy for any reason, the policy can be returned to the insurer to be canceled, and the policyowner will receive a full refund of any premium paid. The free look must be attached to the policy.

Reduced Paid-up Option

The reduced paid-up insurance option allows the policyowner to purchase paid-up whole life coverage at a reduced face amount based on the amount of the policy cash value. The cash value acts as a single premium to purchase reduced paid-up insurance. Any outstanding policy loans plus interest would be deducted from the cash surrender value prior to purchasing reduced paid-up insurance. In other words, the reduced paid-up nonforfeiture option provides continuing cash value build up, even though the policyholder is no longer contributing any money into the policy. With the reduced paid-up insurance option, the policy may be reinstated to the original face amount within the terms of the reinstatement provision. Key points about the reduced paid-up option: 1): The policy is paid-up with the cash value used as a single premium to purchase the reduced face amount coverage. 2): No more premium payments are made. 3):The insured's attained age is used to determine the amount of reduced paid-up coverage. 4):Reduced paid-up insurance is the same type of whole life coverage as the original policy, except all policy riders are eliminated.

Reduction of Premium Payments

The reduction of premium payments option allows the policyowner to use the dividend to offset the cost of a future premium payment. Example: If the next year's annual premium is $1,500 and the dividend received is $300, then the next year's premium would be reduced to $1,200.

Return of Cash Value Rider

The return of cash value rider allows a whole life policy's cash value to be included in the death benefit. Similar to the return of premium rider, this rider doesn't actually return the policyowner's cash value; instead, the rider provides the additional benefit through an increasing term rider that always equals the policy's cash value. The return of cash value rider was created as a response to policyowners who misunderstood how cash value in permanent life insurance accrues interest to equal the policy face amount.

Return of Premium Rider

The return of premium rider pays the total amount of premiums paid into the policy as long as the insured dies within a certain time period specified in the policy. The death benefit is comprised of the face amount plus the total premiums paid into the policy. Most policies drop the return of premium rider when the insured reaches age 60. The return of premium rider is simply an increasing term rider that matches the total premium input. This rider can be costly because as the insured ages, the cost of term protection increases.

Spouse & Other-insured Term Rider

The spouse other-insured term rider gives term protection for a specific period of time and amount. The rider typically expires when the spouse/other-insured reaches a certain age, such as 65.

Interest Only

With the interest only option, the insurer retains the policy proceeds, which become the principal, and pays out only the growth on the principal to the beneficiary on a scheduled basis, such as monthly or annually. The principal is paid out in cash or via another settlement option at some point in the future. A minimum guaranteed interest rate is quoted to the beneficiary. In many cases, the interest only option is used in tandem with other settlement options, especially in situations where more than one person is receiving payments from the policy proceeds. Sometimes the policyowner will specify the beneficiary's right of withdrawal of the principal, such as after a certain number of years or upon a certain age. If the beneficiary dies before the funds are depleted, then a contingent beneficiary will receive payments.