Life Policy Riders, Provisions, Options and Exclusions

Return of Premium (Rider) WHOLE LIFE POLICY

Implemented using increase term insurance. When added to the Whole Life Policy, it provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary. Usually expires at the age of 60.

Disability Riders

Accelerated or living benefit riders- riders provide for partial payment of the death benefit prior to the insured's death.

Reduced Paid-up Insurance Nonforfeiture Option

Policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy. The new policy builds its own cash value and will remain in force until death or maturity. Essentially, the insured doesn't have to pay any more premiums and can still retain some amount of life insurance. example on page 47

Cash (Dividends)

Policy owner receives a check for the amount of their dividend.

Automatic Premium Loans (Provisions)

Special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. Sometimes this means automatically using cash value to pay an outstanding premium at the beginning of a premium grace period. A loan for which the insurer WILL CHARGE INTEREST. If the insured dies without repaying the loan or interest, the cost is taken out of death benefits. Insurer may defer requests for other loans for up to 6 months, loan requests for payment of premiums must be honored immediately. Commonly added to contracts with a cash value at no additional charge.

Reduction of Premiums (Dividends)

Dividend goes toward paying next year's premium.

Family Term Rider

Incorporates the spouse term rider and the children's term rider in a single rider. When added to a WHOLE LIFE POLICY, family term riders provide LEVEL TERM LIFE insurance benefits covering the spouse and all of the children in the family. Family Term = Spouse Term + Children's Term

Extended Term Nonforfeiture Option

Insurer uses policy cash value to convert to term insurance for the same face amount as the former permanent policy. Duration of the new coverage lasts for as long as the cash value will pay for. If the policyowner neglects choosing a nonforfeiture option, the insurer will automatically pick the extended term option in the event of termination of the original policy.

Level or Flexible (Premium Payment Policy Provision)

Level premium- premium remains the same throughout the duration of the contract Flexible premium- like universal life insurance, the policyowner has the choice to pay more or less than the planned premium.

Paid-Up Options (Dividends)

1) Accumulates the dividends of all interests 2) Uses accumulated dividends + Interest + policy cash value = to pay the policy up early *With whole life insurance that usually ends at the age of 100, using the paid up option the policyowner is able to pay up the policy early.

Fixed Period (Settlement)

Fixed-Period Installment Option (period certain): Specified period of years is selected and equal installments are paid to the recipient, continuing for that period even if the recipient dies before the end of the period. Size of each installment is determined on the amount of principle, guaranteed interest, and the length of period selected. Longer the period, smaller the installments Option does not guarantee income for the life of the beneficiary, but does guarantee that the entire principle will be distributed.

Misstatement of Age and Gender (Provisions)

If the applicant has misstates his or her age or gender on the application in the event of a claim, the insurer is allowed to adjust benefits to an amount that the premium at the correct age or gender would have purchased.

Interest Only (Settlements)

Insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals (monthly, quarterly, semiannually, or annually). Insurer promises a certain amount of interest and will often pay interest in excess of the guaranteed rate. This is considered a temporary option as the proceeds are retained by the insurer until some later point when the proceeds are paid out in a lump sum or paid under one of the settlement options. When the beneficiary is allowed to pick a settlement option, interest option is sometimes picked as a way to buy time for the beneficiary to decide which settlement option they want to pick.

Settlement Options

Methods used to pay the death benefits to beneficiaries upon the insured's death or pay the endowment benefit if the insured lives to the endowment date. Option is set at the time of the application and may always be changed during the life of the insured, but not the beneficiary. If the policyowner does not choose settlement, then the beneficiary can choose upon the time of the insured's death.

Spouse/Other-Insured Term (Rider) Other-insured term is usually in LEVEL TERM INSURANCE

Other insured rider- provides coverage for one or more family members other than the insured. Rider is USUALLY LEVEL TERM INSURANCE attached to the base policy covering the insured. Also known as family rider. Spouse term rider- rider covers just the spouse of the insured and have coverage for a limited time and for a specific amount (usually expires when the spouse turns 65)

Cash Payment (Lump Sum) (Settlement)

Pay the process in cash (lump sum). Payments of the principle face amount after the insured's death are not taxable as income.

Waiver of Monthly Deduction (Rider) USUALLY IN UNIVERSAL LIFE AND VARIABLE LIFE PLANS

Pays all monthly deductions while the insured is disabled, after a 6 month waiting period. This only pays the monthly deduction, not the full premium necessary to accumulate cash value. This rider is usually found in Universal Life or Variable Universal Life products. Length of time the rider will pay monthly deduction depends on the insured's age of becoming disabled. *Monthly deduction includes: the cost of insurance charge expense charge cost or charges of any benefits added to the policy by the rider, endorsement or amendment, at which are specified in the policy to be deducted from the account value.

Grace Period (Premium Payment Policy Provision)

Period of time after the premium due date that the policyowner has to pay the premium before the policy lapses. (usually 30-31 days)

Owner's Rights (Policy Provision)

The policyowner has the ownership rights under the policy, not the insured or the beneficiary. This gives them the power to: -naming/changing the name of beneficiaries receiving the policy living benefits -selecting benefit payment options and assigning the policy.

Living Needs Rider

provides for the payment of part of the policy death benefit if the insured is diagnosed with terminal illness that will result in death within 2 years. Purpose of this rider is to provide the insured with the necessary funds to take care of medical and nursing home expenses that incur as a result of the illness. Remainder of proceeds are paid to beneficiary at the time of the insured's death.

Term Riders USUALLY ATTACHED TO WHOLE LIFE POLICIES

Allow for additional amount of temporary insurance to be provided on the insured without the need to issue another policy. Usually attached to a whole life policy to provide greater protection at a reduced cost.

Fixed Amount (Settlement)

Fixed-Amount Installment Options- Pays a fixed, specified amount in installments until the proceeds are exhausted. If the recipient dies before the proceeds are exhausted, the contingent beneficiary will receive the finishing installments. The size of each installment determine how long the benefits will be received. Does not promise installments the entire life of the beneficiary, but will promise all proceeds to be paid out.

Entire Contract (Policy Provision)

Instates that the: policy a copy of the application and riders or other amendments ^constitute the entire contract. Neither insurer or insured may change policy provisions once the policy is in effect without both parties agreeing to it and the change being fixed in the contract.

Accumulation of Interest (Dividends)

Insurance company keeps the dividend in an account where it accumulates interest. This interest is taxable when credited to the policy whether or not the policyowner receives interest.

Nonforfeiture Options (Policy)

Since permanent life insurance policies have cash values, certain guarantees are built into the policy that cannot be forfeited by the policy owner. These guarantees are required by state law to be included in the policy.

One-Year Term Option (Dividends)

Uses dividends to purchase additional insurance in the form of one-year term insurance, increasing the overall policy death benefit. Choice of using it as a single premium on as much as one-year term insurance as it will buy, or to purchase term insurance equal to the policy's cash value for as long as it will last. If the insured dies within their one year term, the beneficiary receives both death benefits of the original policy and the one year term insurance.

Modes (Premium Payment Policy Provision)

When premiums are due and how often they will be paid Premium Mode- manner or frequency the policyowner pays the policy premiums. If the policyowner chooses a mode other than annual, an additional charge will be added to offset the loss of earnings since the company does not have the entire premium at once and additional administrative costs are associated with more frequent billing. Types of frequency are: annual, semi-annual, quarterly, or monthly payments. *If the insured dies? during the time the premium has been paid, insurer must refund an unearned premium along with policy proceeds.

Beneficiary Designations (Policy Provision)

Beneficiary (person to receive benefits) may be a person, class of persons (children), insured's estate, institution/other entity such as foundation, charity, corporation or trustee of a trust. Beneficiary does not have insurable interest in the insured and the policyowner does not have to name a beneficiary in order for the policy to be valid. Benefits to a minor will either be paid to the trustee of the minor if the trust is named beneficiary, or paid directly by the court.

Assignments (Policy Provision) *Assignment of who gets what in the policy

Policyowner has the RIGHT TO TRANSFER partial or complete OWNERSHIP of the policy to another person WITHOUT CONSENT OF THE INSURER. The transfer does not change the insured or amount of coverage, only CHANGES WHO HAS THE RIGHT TO POLICY OWNERSHIP. Absolute Assignment- transferring all rights of ownership, without need of insurable interest to the new insured Collateral Assignment- transfer of partial rights to another person, usually done to secure a loan or some other transaction. Usually once the debt/loan is repaid, the assigned rights go back to the original policyowner.

Payor Benefit (Rider)

Primarily used with juvenile policies or any life insurance written on the life of a minor. If the payor, usually parent or guardian, becomes disabled for at least 6 months or dies, the insurer will waive the premium until the minor reaches a certain age such as 21. This is also used when owner and the insured are two different people.

Long-Term Care (LTC)

Purchased often as a separate policy, can also be marked as a rider to life insurance policy. These riders provide for the payment of part of the death benefit in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home. Benefits reduce the amount of payable cash to the beneficiary upon death.

Revocable and Irrevocable (Policy Provision)

Revocable- the policyowner may change the revocable designation without the consent or knowledge of the beneficiary at any time. Irrevocable- Designation may not be changed without written consent of the beneficiary, as most of the time they may have vested interest in the policy. The policy owner also may not borrow against the policy's cash value or assign the policy to another person without beneficiary's consent.

Riders Affecting Death Benefit Amount

Some riders affect the amount of death benefit payout, either increasing it through multiple indemnity or refund of premiums, or decrease if a portion of the death benefit was paid out to the insured while still living.

Common Disaster (Policy Provision)

When the insured and the primary beneficiary die at the same time: Common Disaster Clause- assumes the primary beneficiary died first, so proceeds will be paid to either the contingent beneficiary or to the insured's estate. Beneficiary must die within 14-30 days of the insured for the death to be interpreted as before the insured.

Policy Riders

Written modifications attached to a policy that provide benefits not found in the original policy. Requires additional payments and help tailor the policy to the specific needs of the insured.

Free Look (Policy Provision)

Provision allows policyowners a specified number of days from the receipt to look over the policy and if dissatisfied for any reason, return for a full refund of the premium. This period starts when the policy owner receives the policy.

Consideration (Policy Provision)

Both parties must provide some value (consideration) in order for the contract to be valid. The consideration given by the insurer promises to pay in accordance with the terms of the contract.

Effect on Death Rider

Payable Death Benefit = Face Amount - Amount Withdrawn - Earnings lost by insurer in interest.

Children's Term (Rider)

Allows children of the insured to be added to coverage for a limited period of time and specific amount. This is also under term insurance and expires when the minor reaches the age 18 or 21. Most riders allow the minor the option of converting to a permanent policy WITHOUT evidence of insurability. This allows temporary life insurance coverage on all children in the family for ONE PREMIUM, based on the average number of the children.

Waiver of Premium (Rider)

Waives the premium of the policy if the insured becomes totally disabled. Coverage remains in force until the insured is able to work again, continuing to be waived if the insured is never able to return to work. Most insurers wait 6 months from the disability report before waiving the first premium. Rider usually expires when the insured reaches age 65. For the insured to qualify for this benefit, they must meet the policy's definition of total disability. This means they cannot perform work and cannot perform the duties of their own occupation for the first 2 years. Also no education, training or experience. No benefits are payable for partial disability.

Surrender Charge

fee charged to the insured when a life policy or annuity is surrendered for its cash value.

Accidental Death and Dismemberment Rider (AD&D)

pays the principle (face amount) for accidental death and pays a percentage of that amount, or capital sum, for accidental dismemberment. Accidental death portion is the same as the accidental death rider. The dismemberment portion usually determines the amount of he benefit according to the severity of the injury. Full principle amount will be paid for loss of two hands, two arms, two legs or the loss of vision in both eyes. A capital amount is usually limited to half the face value and i payable in the event of loss of one hand, arm, leg or eye.

Exclusions (Provisions)

Exclusions- Type of risks the policy will not cover. a) Aviation- noncommericial pilots (may cost additional premium for coverage) b) Hazardous Occupation or Hobbies- skydiving, autoracing (may lead to a higher premium) c) War or Military Service- Status Clause: excluded all causes of death while the insured is on active duty Results Clause: excludes the death benefit if the insured is killed as a result of an act of war. d) Suicide- If the insured commits suicide within 2 years following the policy effective date. The insurers liability is to refund the premium. Anytime after 2 years pays out as normal to the beneficiary.

Accelerated (Living) Benefit

Accelerated Death Benefit- Allows early payment of a portion of the death benefit if the insured has any of the following conditions: . terminal illness . medication condition requiring extrodinary medical intervention . medical condition with extensive treatment that threatens insured's lifetime . inability to perform activities of daily living (ADL's) . permanent institutionalization or confinement to a long-term care facility .any other condition proven by the Department of Insurance The maximum benefit is usually a PERCENTAGE OF THE FACE AMOUNT of the insurance (usually 50% but is legal for insurers to pay off 100%) of death benefits paid off before the insured dies. The face amount of insurance is reduced after payments. This does not lead to reduction of the premium necessarily but the premium may be waived.

Reinstatement (Provisions)

Allows a lapse policy to be put back in force, with the maximum time limit being 3 years after the policy lapsed. The policyowner must: 1) Provide evidence of insurability 2) Pay all back premiums plus interest 3) May be required to pay outstanding loans and interest This is a good option rather than getting new insurance because it restores to the original status and retains all values that were established at the insured's issue age.

Guaranteed Insurability (rider)

Allows the insured to purchase additional coverage at specific future dates (usually 3 years) or events (marriage, birth of child, etc) without evidence of insurability or an additional premium. When doing so, the insured purchases additional coverage at their attained age and usually expires at the insured's age of 40.

Insuring Clause (Policy Provision)

Insurers promise to pay death benefits upon insured's death. Tells: parties involved premium coverage length death benefit Located in the policy face page Defines: who the parties to the contract are (parties in contract) the premium to be paid (premium amount) how long coverage is in force (length of coverage) the amount of death benefits. (benefits paid)

Dividends

Paid only on participating policies. Policyowner purchases from a participating insurer, they pay a "grossed up" premium. The higher premium is charged as a safety margin in the event that the insurer's losses are higher than anticipated. This dividend can be repaid to the policy owner. Dividends are a return of excess premiums and for that reason are not taxable to policyowners. Insurance companies cannot guarantee dividends. Either: Cash Reduction of Premiums Accumulation of Interest Paid-up Additions Paid-up Option One-year Term Option

Nonfamily Insureds (Rider)

Insure someone who is not a member of the family. Substitute Insured/Change of Insured Rider- does not permit additional insured, instead allows for the change of insured. Most commonly used with key person insurance, when the key person or employee retires or terminates employment. The rider permits the policyowner, owner or employee to change the insured to another key employee, subject to their insurability.

Life Income (Settlement)

Life Income Option- Also known as Straight Life! Provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient is alive. The amount of each installment plan is based on the recipient's life expectancy and the amount of principle. If the beneficiary dies shortly after they begin receiving the installments, the balance of the principle is forfeited to the insurer. Life Income With Period Certain Options- "best of both worlds" when it comes to lifetime income and guaranteed installment plans. Payments are guaranteed for the lifetime of the recipiant, also a specific period is guaranteed. If the recipient dies shortly after receiving the payments, a beneficiary will receive the payments for the rest of that planned period. Installments for life income with period certain option will be smaller than the life income only option. Life Income Joint Survivor- Guarantees an income for two or more recipients for as long as they live. The surviving recipient will receive a reduced payment after the first recipient dies. Reduced option most commonly written as "joint and 1/2 survivor" or "Joint and 2/3 survivor" as surviving beneficiary receives the portion split from when both beneficiaries were alive. This option is most commonly selected by a policyowner desiring to protect two beneficiaries such as elderly parents. Without period certain option, as well as the life income option, there is no guarantee that all the life insurance proceeds will be paid out if all beneficiaries die shortly after the installment begins. This option does promise income for all lives of the beneficiaries.

Accidental Death Rider

Pays sum multiple of the face amount if death is the result of an accident as defined in the policy. Death must occur within 90 days of the accident. The benefit is normally TWO TIMES (Double indemnity) the face amount, sometimes TRIPLE face amount (triple indemnity) for accidental death. Accidental death does not include: 1) Health problems/disability 2) Exclusions (self inflicted injuries, war, hazardous hobbies, other exclusions that are usually not covered.) ^These would be covered under the base policy unless specifically excluded. *These do not provide additional cash value or additional benefits that may be purchased from policy dividends. Usually expires at the age of 65

Policy Loans and Withdrawls (Provisions)

Policy Loan- option is found only in policies with cash value, the policyowner is allowed to borrow an amount equal to the available cash value. Outstanding loans and accrued interest will be deducted from the policy proceeds upon the insured's death. The policy will not lapse with the outstanding policy loan unless the amount of the loan and accrued interest exceed the available cash value. And the insurer must provide a 30 day written notice to the policyowner that the policy is going to lapse. Insurance companies may defer the policy loan request for up to 6 months, unless the reason for the loan is to pay the policy premium. *Policy loans are not subject to income taxation.

Cash Nonforfeiture Option

Policyowner surrenders the policy for the current cash value at the time when the coverage is no longer needed or affordable. If the cash value exceeds premiums paid, the excess is taxable as ordinary income. Once this option is selected the insured is no longer covered and the policy cannot be reinstated.

Incontestability (Provisions)

Prevents the insurer from denying a claim due to statements in the application after the policy has already been enforced for two years, even if there is a material misstatement of facts or concealment of material fact. However, during the first two years the insurer may contest a claim based off inaccurate or misleading information in the application.

Primary and Contingent (Policy Provision)

Primary Beneficiary- has first claim to the policy proceeds following the death of the insured. There can be multiple primary beneficiaries with divided proceeds split amongst them all. Contingent Beneficiary- (secondary or teriatary beneficiary) has second claim if the primary beneficiary dies before the insured. *If none of the beneficiaries are alive at the insured's death and no beneficiary has been named, the insured's estate will receive the proceeds of a life insurance policy. (may be included in the insured's taxable estate if this occurs)

Paid-Up Additions (Dividends)

Purchase a single premium policy in addition to the face amount of the permanent policy. No new separate policies are issued. Each of these single premium payments will increase the death benefit of the original policy. The insured can either use the dividend to purchase a single premium for as much one-year insurance as it will buy. OR purchase term insurance equal to the policy's cash value for as long as it will last. If the insured dies during the one year term, the beneficiary receives both the death benefit of the original policy and the death benefit of the one-year term insurance.