LIFE INSURANCE POLICES
Legal Actions
- The insured cannot take legal action against the company in a claim dispute until after 60 days from the time the insured submits proof of loss. - At least give the insurance co 2 months to take care of you before you take them to court.
Policy Loan Provision
- allows the policyholder to borrow the cash value of his life insurance - insured is *not* paying interest on his own money since the cash value legally belongs to the insurer - policyholder must pay interest on the loan to offset the loss of interest to the insurer, but loans are NOT taxable
Types of whole life insurance include:
1. Straight whole life 2. Limited pay whole life 3. Single-premium whole life 4. Modified whole life 5. Graded whole life
Equity Index Universal Life insurance (EIUL)
A permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index, like the S&P 500. Indexed universal life insurance policies typically contain a minimum guaranteed fixed interest rate component along with the indexed account option. Indexed policies give policyholders the security of fixed universal life insurance with the growth potential of a variable policy linked to indexed returns.
Modified Endowment Contract (MEC)
A policy that is overfunded, according to IRS tables, is classified as a Modified Endowment Contract. Policies that do not meet the 7-pay test are considered MEC's and will lose favorable tax treatment. IF* withdrawn prior to age 59 1/2, there is a 10% penalty
Consideration Clause
A policyowner must pay a premium in exchange for the insurer's promise to pay benefits. A policyowner'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.
Absolute Assignment
All ownership rights in the policy are transferred to a new owner from the current policyowner or assignee.
Time of Payment of Claims
Allows insurers 45 days after receiving notice and proof of loss in which to pay or deny the claim
Wavier of Premium Rider
Allows owner to waive premium during a disability & keeps the policy in force. Disability must be total/permanent and have sustained through the waiting period (90 days or 6 months)
Guranteed Insurability Rider
Allows policyowner to purchase additional life insurance coverage at specified dates without providing evidence of insurability.
Automatic Premium Loan 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.
Acclerated 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.
Change of Occupation
Allows the insurer to adjust benefits if the insured changes occupations
Misstatement of Age or Sex
Allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application.
Automatic Premium Loan
Allows the insurer to borrow from the cash value to pay unpaid premium after grace period expires. It makes sure that the policy does not lapse.
Cost of Living Rider
Allows the policy face amount to be adjusted to account for inflation based on the consumer price index.
Cash Surrender
Allows the policyowner to receive the policy's cash value. Policyowner 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).
Entire Contract
An insurance policy provision stating that the application and policy contain all provisions and constitute the entire contract.
Accidental Death and Dismemberment
An insurance policy which pays a specified amount or a specified multiple of the insured's benefit if the insured dies, loses his/her sight, or loses two limbs due to an accident.
Collateral Assignment
Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured's death.
Payment of Claims
Claims that specifies how and whom claim payments are to be made
Adjustable Life Policies
Combining TERM & WHOLE into a single plan. Allows you to vary your coverage as your needs change without requiring evidence of insurability. Owners determine how much protection is needed and how much owner wants to pay.
Policy Face
Contains a summary of the type of policy and the coverage provided by the policy. It Identifies the insured, the term of the policy (the effective date and termination date), and how the policy can be renewed.
Joint Life Policy
Covers two or more lives and provides for the payment of the proceeds at the death of the first among those insured, at which time the policy automatically terminates.
Variable Whole Life Insurance
Created to help offset the effects of inflation on death benefits. It's permanent life insurance with many of the same characteristics of traditional whole life insurance. The main difference is the manner in which the policy's values are invested. With variable life insurance policies, the policy values are invested in the insurer's separate accounts which house common stock, bond, money market, and other securities investment options. The basic characteristics of a variable life policy are: fixed premiums, a guaranteed minimum death benefit which fluctuates over the minimum, and cash values which fluctuate and are not guaranteed.
Credit Life Insurance
Designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid Beneficiary is usually the lender Cost of group life insurance is usually paid entirely by borrower. Decreasing term policy is most often used.
Exclusions
Features of a life insurance policy stating that the policy will not cover certain risks
Cancellation
Give company the right to cancel the policy at any time with 45 days' written notice to the insured.
Level Term
Has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. However, the premiums will increase at each renewal.
Payor Rider (or Payor Clause)
If the individual paying the premiums on a juvenile life policy becomes disabled or dies, the Payor Rider ensures that premiums will be waived.
Unpaid Premiums
If there is an unpaid premium at the time a claim becomes payable, the amount of the premium is to be deducted from the sum payable to the insured or beneficiary.
Term Life Insurance
Insurance that provides financial protection from losses resulting from a death during a definite period, or term. Policies issued until a certain age provide coverage from their date of issue until the insured reaches a specified age. Cost is LOWER than Whole life
Limited Pay Whole Life
Insured is covered for entire life, but premiums are paid for a limited time. As the premium payment period shortens, cash values increase faster and the fixed premiums are higher.
Industrial Life Insurance
Issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.
Variable Universal Life (VUL)
Life insurance that builds cash value. Combines characteristics of both Universal life and Variable life. Ability to invest in sparate accounts whose values vary, also give owner flexibility in how making premium payments. Evidence of insurability can be required for an individual covered by a variable universal life policy when the death benefit is increased.
Modified Whole Life
Low premiums in the early years and jumps to a higher premium in the later years and remains fixed thereafter. Premiums increase just once.
Notice of Claim
Obligation to notify the insurance co. of a claim in a reasonable period of time. Typically, 20 days after the occurrence or as soon thereafter as is reasonably possible.
Single Premium Whole Life
Pay entire premium in one lump-sum and have coverage for the insured's entire life. - AN immediate nonforfeiture value and cash values are created. Premium is used to set up policy's reserve
Multiple Protection Policies
Pays a benefit of double or triple the face amount if death occurs during a specified period. If death occurs after the period expires, only face amount is paid.
Accidental Death Benefit Rider
Pays an additional sum to the beneficiary if the insured dies due to an 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.
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, usually 30 days
Guaranteed Insurability Rider
Permits Insured to buy specific amounts of additional insurance at specified intervals (usually 3 years) without evidence of insurability
Reinstatement
Permits the policyowner to reinstate a policy that has lapsed- as long as the policyowner can provide proof of insurability and pays all back 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. -Needs: Reinstatement app., statement of good health, all back premiums 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.
Nonforfeiture Options
Policyowner decides he does not want his life insurance policy anymore, he has the option to surrender his policy.
Beneficiary Designation
Policyowner indicates who is to receive the proceeds
Ordinary Life Insurance
Principal type of life insurance that includes both temporary (TERM) life insurance, permanent (WHOLE, UNIVERSAL, VARIABLE) coverage, as well as ENDOWMENT policies.
Accidental Death Benefit Rider
Provides an additional amount of insurance usually equal to the face amount of the base policy if the cause of death was an accident.
Whole Life Insurance
Provides both living and death benefits. Provides permanent life insurance protection for the insured's entire life. It also provides living benefits such as cash value and policy loans.
Term Life Insurance pt. 2
Provides the greatest amount of death benefit per dollar of initial cash outlay. Unlike WHOLE life insurance, term policies do NOT build cash value. (Level, Decreasing, Increasing)
Payor Rider
Provides waiver of premiums if the adult premium-payor should die or, with some policies, become totally disabled.
Dividend Options
Return of overcharged premiums and are NOT taxable. 1: Cash (tax-free); 2: Apply to future premiums; 3: Retained by Insurer @ interest; 4: Buy Paid-up WL policy add-ons; 5: Pay-up existing policy; 6: Buy 1-yr. Term policy.
Incontestable Clause
States that the insurer cannot contest the policy after it has been in force two years during the insured's lifetime
Proof of Loss
Sworn statement that must usually be furnished by the insured to an insurer before any loss under a policy can be paid
Annual Renewable Term
Term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.
Renewable Term
Term insurance that guarantees insured the right to continue term coverage after expiration of initial policy period without having to prove insurability. At the lowest possible cost for a limited period of time.
Decreasing Term
Term insurance that provides an annually decreasing face amount over time with level premiums. * Usually used for mortgage protection*
Increasing Term
Term insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount with level premiums.
Convertible Term
Term policy that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability. May be changed to permanent coverage without evidence of insurability.
Claim Forms
The company's responsibility to supply a claim form to an insured within 15 days after receiving notice of claim. - 15 days
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.
Free Look
The policyowner 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.
Assignment Clause or Provisions
The right to transfer policy rights to another person or entity. The new owner is known as the assignee.
Settlement Options
The way the policy is paid off and could be selected at time of policy origination 5 options 1) Lump Sum 2) Fixed Period (allows for income for a definite period of time) 3) Fixed amount (can be altered) 4) Interest Only (only interest is paid out and is taxable) 5) Life Income - single premium ineediate annutiy
Family Plan Policies
These are designed to insure all family members under one policy. Usually the family head is covered by permanent (whole life) insurance and the spouse/children are included on the same policy as level term life riders (family term riders) . The term coverage on the spouse and children are normally convertible to permanent coverage without evidence of insurability.
Term Rider
Type of life insurance product which covers children under their parent's policy
Graded Whole Life
Under a typical graded premium life insurance policy, the premium increases yearly for a stated number of years, then remains level. Premiums continue to stay level for the remainder of the policy. For example, a policy can start out low in a graded whole life and increase a small amount every year up until the fifth year, then levels off for the remainder of the policy.
Waivers for Impairments
When an insurance company does not cover a loss due to a specific condition the insured has. This is usually called an impairment rider. • If the insured's condition improves, the company may be willing to remove the waiver.
Family Income Policy
Whole life and decreasing term (begins date of purchase) Provides monthly income to a beneficiary if death occurs during a specified period after date of purchase. Only face value is paid to the beneficiary since the decreasing term expired.
Family Maintenance Policy
Whole life and level term (begins date of death). Provides income to a beneficiary for a selected period of time if an insured dies during that period. At the end of the income- paying period, the beneficiary also receives the entire face amount of the policy. If an insured dies after the end of the selected period, the beneficiary receives only the face value of the policy.
Straight Life
Whole life insurance with a level face amount and fixed premiums payable over the insured's entire life. Premium payments made until death of insured or age 100.
Interest Sensitive Whole Life
Whole life where cash value can increase beyond stated guarantee if economic conditions warrant. Premiums can vary to reflect the insurer's changing assumptions with regard to its death, investment, expense factors.
Universal Life
Whole life, characterized by considerable flexibility. Changes may be made with relative ease by the policyowner with these flexible-premium policies. Allows owners to determine the amount and frequency of premium payments which will adjust the policy face amount. Cash value are subject to minimum interest guarantee
Whole Life
insurance that provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium.