Ch 4 Cliff Notes: Policy Provisions, options, and riders

Exclusions

A feature of a life insurance policy stating that the policy will not cover certain risks

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.

amount for accidental loss or loss of 2 hands, feet, eye sight, etc. 1/2 face value for loss of 1 foot, hand, eye, etc. One foot and one hand = 100% face value.

Accidental Death and Dismemberment (AD&D): FACE VALUE=

Guaranteed Insurability Option Rider

Allows a policyowner to purchase additional life insurance coverage at specified dates without providing evidence of insurability.

Accumulate Interest Option

Allows dividends to accumulate interest.

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. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM in the event they don't receive payment from you. This can continue for as long as they don't receive a payment and you still have cash value. Once all of your cash value is gone, if you don't start paying, your policy will lapse. This is just like any other cash value loan.

Accelerated Benefit Rider

Allows the insured to 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. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

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 Loans

Allows the insurer to automatically use the policy cash value to pay an overdue premium. There is no cost for this provision.

Cost of Living Rider

Allows the policy face amount to be adjusted to account for inflation based on the consumer price index

Reduced Premiums Option

Allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year's premium payments Just keep them and next year dont charge me as much

Waiver of Premium Rider

Allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent and have sustained through the waiting period (90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void.

Conformity with State Statues

Any policy provision that is in conflict with state statutes in the state where the insured lives at the time the policy is issued is automatically amended to conform with the minimum statutory requirements.

Owner's Rights Provision

Defines the person who may name and change beneficiaries, select options available under the policy, and receive any financial benefits from the policy.

Overcharged premiums Taxable

Dividends are the return of _______ and therefore are not _______

Payor Rider

If the individual paying the premiums on a juvenile life policy becomes disabled or dies, the Payor Rider ensures that premiums will be waived

Hazardous Occupation or Hobby

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

Unpaid Premiums

If there is an ___ ___ 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

charged tax on.

Interest is the ONLY thing you can be

No

Is the exclusions section included in the policy face (first page of the insurance policy)?

Discretionary Provision

Limits the way a court can review a claim denial and makes it difficult for the court to conduct a fair review of the claim. Some states have enacted laws that prohibit ___ ___ because they are designed to protect the insurance company.

Accidental Death and Dismemberment

May be added to a life insurance policy. Pays benefits for dismemberment and accidental death. Pays a principal sum for loss of both hands, both arms, both legs, or loss of vision in both eyes.

Accidental Death Benefit Rider (multiple indemnity)

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

Guaranteed Insurability Rider (future increase option)

Permits the policyowner to buy additional permanent life insurance coverage at specific points of time in the future without submitting proof of insurability. It also includes specific events like marriage and births, without requiring the proof of insurability. Usually the benefit is allowed every 3 years, up to the original face amount of the policy

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.

Policy Loan Provision

Policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds.

Accidental Death Benefit Rider (Double Indemnity)

Provides an additional amount of insurance usually equal to the face amount of the base policy if the cause of death was an accident.

Payor Provision (Rider)

Provides waiver of premiums if the adult premium-payor should die or, with some policies, become totally disabled.

One-Year Term Option

Purchase one-year term protection

Paid-Up Additions Option

Purchase single payment whole life coverage

Time of Payment of Claims

The _ _ _ _ _ provision provides for immediate payment of the claim after the insurer receives notification and proof of loss. • If the claim involves disability income payments, they must be paid at least monthly if not at more frequent intervals specified in the policy • The purpose of the Time of Payment of Claims provision is to prevent the insurance company from delaying claim payments • You did your part (Paid your bill and got injured/sick/ etc.) now the insurance company has to immediately do our part (Pay you) and it can't be less often than monthly, or you wouldn't be able to pay your bills.

Payment of Claims

The ___ ___ ___ provision is an insurance contract specifies how and to whom claim payments are to be made Payments for loss of life are to be made to the designated beneficiary If no beneficiary has been named, death proceeds are to be paid to the deceased insured's estate. Claims other than death benefits are to be paid to the insured. • Should the insurance company pay you, or the doctor, or someone else?

Illegal Occupation

The ___ ___ provision specifies that the insurer is not liable for losses attributed to the insured's being connected with a felony or participation in any illegal occupation.

Incontestable Clause

The clause in a life insurance contract that prohibits the insurer from questioning the validity of the contract after a certain period of time has elapsed.

net death benefit of the lapsed policy.

The coverage provided with the extended term nonforfeiture option is equal to the

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. • provides the insurer adequate time to research a claim • At least give the insurance company 2 months to take care of you before you take them to court.

Change of Beneficiary

The insured, as policyowner, may change the beneficiary designation at any time unless a beneficiary has been named irrevocably.

Aviation

The insurer will not pay the claim id the insured dies due to involvement with aviation, such as a military pilot flying a jet aircraft

War or Military Service

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

Insuring Clause

The insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss.

Notice of Claim

The notice of claim provision describes the policyowner's obligation to the insurer to provide notification of loss within a reasonable period of time Typically, the period is 20 days after the occurrence or a commencement of the loss, or as soon thereafter as is reasonably possible

Collateral Assignment

The partial and temporary transfer of rights to another person or entity. Collateral assignments are usually intended for securing a loan with a creditor.

Suicide Clause

The policy will be voided and no death benefit will be paid if the insured commits suicide within 1 year from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide

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.

Change of Occupation

This provision also allows the insurer to reduce the maximum benefit payable under the policy if the insured switches to a more hazardous occupation or to reduce the premium rate charged if the insured changes to a less hazardous occupation

Accelerated Benefit

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

Nonforfeiture Options

Three options available by law to policyowners that enable them to recover a policy's cash-value upon surrender of that policy. (1) Cash (2) Reduced Paid-Up Insurance (3) Extended Term Insurance

Cash Option Reduced Premiums Option Accumulate Interest Option Paid-up Additions Option One-Year Term Option

What are the dividend options that are available for policyowners

the beneficiary will receive the face amount of the policy less any required premiums

What happens if an insured dies during the grace period of a life insurance policy before paying the required annual premium

the transfer is complete and irrevocable, and the assignee receives full control over the policy and full rights to its benefits

What happens under absolute assignment

The entire contract includes the actual policy and the application * It states that nothing outside of the contract (the contract includes the signed application and any attached policy riders) can be considered part of the contract * It also assures the policyowner that no changes will be made to the contract or waive any of the provisions after it has been issued, even if the insurer makes policy changes that affect all policy sales in the future. This, however, does not prevent a mutually agreeable change or modifying the contract after it has been issued. * Any change to a policy must be made with the approval of an executive officer of the insurance company whose approval must be endorsed on the policy or attached in a rider * This mandatory health policy provision states that the policy, including endorsements and attached papers, constitutes the entire insurance contract between the parties * We can't se

What is included in the entire contract

6 months

What is normally the max amount of time a life insurance company may legally defer paying the cash value of a surrendered policy

Absolute Assignment

When the assignee receives full control of the policy and rights to the policy benefits from the current policyowner.

Beneficiary Designation

Where the policyowner indicates who is to receive the proceeds.

Settlement Options

Where the ways in which the proceeds can be paid out or settled are explained.

Cash Surrender Nonforfeiture Option

allows the policyowner to receive the policy's cash value.

The 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.

Physical Exam and Autopsy

entitles a company, at its own expense, to make physical examinations of the insured at reasonable intervals during the period of a claim, unless it's forbidden by state law. • Forget everything you learned on "Law and Order," only the state can forbid an autopsy. You gave up your (and your families) rights to refuse when you applied for insurance.

common exclusions or restrictions

injuries due to war or an act to war, self-inflicted injuries, and those incurred while the insured is serving as a pilot or crew member of an aircraft

Claims Forms

it is the companies responsibility to supply a claim form to an insured within 15 days after receiving notice of claim if the insurance company fails to send out the claims forms within the time perused required by the provision, the insured should submit the claim in any form, which must be accepted by the company as adequate proof of loss

Cash Option

its your money, you can take it and run

other exclusions

losses resulting from suicide, hernia (as an accidental injury), riots, or the use of drugs or narcotics. losses due to injuries sustained while committing a felony, or attempting to do so, also may be excluded. Foreign travel may not be excluded in every instance, but extended stays oversees or foreign residence may cause a loss of benefits. Occupational injuries and illnesses are covered by Workers' Compensation and typically excluded

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.

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.

exclusions and restrictions

situations or conditions which are not covered or covered with substantial limits

Grace Period

the period of time policy owners are allowed to pay overdue premiums during which the policy remains in force usually 30 days

Reduced Paid-Up Option

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

Proof of Loss

the statement that an insured must given an insurance company to show that a loss actually occurred. ( after a loss occurs, or after the company becomes liable for periodic payment, the claimant has 90 days in which to submit proof of loss.)

Intoxicants and Narcotics

• The insurer is not liable for any loss attributed to the insured while intoxicated or under the influence of narcotics. • Losses due to injuries sustained while committing a felony, or attempting to do so, also may be excluded

Cancellation

• Though prohibited in a number of states, the provision for ___ gives the company the right to cancel the policy at any time with 45 days' written notice to the insured • This notice must also be given when the insurer refuses to renew a policy or change the premium rates • If the cancellation is for nonpayment of premium, the insurer must give 10 days' written notice to the insured, unless the premiums are due monthly or more frequently • The ___ provision also allows the insured to cancel the policy any time after the policy's original term has expired by notifying the insurer in writing

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.