ch. 4 life insurance policies

Time of Payment of Claims

- Provides for immediate payment of the claim after the insurer receives notification and proof of loss. - 45 days

notice of claim

- The policyowner's obligation to the insurer to provide notification of loss within 20 days after the occurrence (or as soon 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.

Grace Period

The period of time policyowners are allowed to pay an overdue premium during which the policy remains in force, usually 30 days.

Single Premium Whole Life

Allows the insured to pay the entire premium in one lump-sum and have coverage for the insured's entire life. • An immediate nonforfeiture value is created • An immediate cash value is created • A large part of the premium is used to set up the policy's reserve

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 Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.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 Provision

Allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application.

Cost of Living Rider

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

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.

Free Look Provision

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.

Proof of Loss provision

The statement that an insured must give an insurance company to show that a loss actually occurred. After a loss occurred, the claimant has 90 days in which to submit proof of loss.

Automatic Premium Loan Provision

allows the insurance company to automatically take a loan against the policy's cash value to pay the premium due if the required premium is not paid by the end of the grace period.

Change of Occupation provision

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

partial surrender

An interest-sensitive life insurance policyowner may be able to withdraw the policy's cash value interest free.

Conformity with State Statutes

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 of that state

straight life insurance

Basic whole life insurance with a level face amount and fixed premiums payable over the insureds entire life. premium payments made until death of insured or age 100

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.

cancellation

- Though prohibited in a number of states, the provision for cancellation 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 cancellation provision also allows the insured to cancel the policy any time after the policy's original term has expired

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.

Convertible Term Insurance

A Term Life policy that can be converted any time to a permanent type of coverage without proof of insurability. Conversion premiums are based on current age and coverage cannot be increased. Most Term is convertible, but not all. Most Group insurance (which is usually Annual Renewable Term) is convertible by law during its 31 day grace period.

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. Potential extra interest based on the investments of the company's general account.

Joint Life Policy

A policy that covers two or more people. The age of the insureds are "averaged" and a single premium is charged. It uses permanent insurance (as opposed to term) and pays a death benefit when one of the insureds dies. The survivors then have the option of purchasing an individual policy without evidence of insurability. The premium for a joint life policy is less than the premium for separate, multiple policies.

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 this clause.

Accumulate Interest Option

Allows dividends to accumulate interest. Interest is the ONLY thing you can be charged tax on.

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.

owners rights provisions

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

Policy Loan Provision

Describes the conditions by which a policyowner can borrow from the policy's cash value.

Payor Rider (or Payor Clause)

If the individual paying the premiums on a juvenile life policy becomes disabled or dies, the 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.

Interest Sensitive Whole Life

Interest-sensitive life insurance is a type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant. This is also called current assumption whole life insurance. It also gives the insured the opportunity to either increase the face amount or use the extra cash value to lower future premiums. Premiums can vary to reflect the insurer's changing assumptions with regard to its death, investment, and expense factors. CAWL (current assumption whole life) policies are almost always a MEC due to accelerated premiums.

Survivorship Life Policy

Joint life policy in which the policy proceeds are paid out upon the death of the second insured. Synonymous with second-to-die joint life policy.

Juvenile Insurance

Life insurance which is written on the lives of a minor. The adult applicant is usually the premium payor as well, until the child comes of age and is able to take over the payments. A payor provision is typically attached to juvenile policies. It provides that, in the event of death or disability of the adult premium payor, the premiums will be waived until the child reaches a specified age (such as 18, 21, or 25).

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.

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.

Multiple Protection Policies

Pays a benefit of double or triple the face amount if death occurs during a specified period.

Accidental Death and Dismemberment

Pays a principal sum for loss of both hands, both arms, both legs, or loss of vision in both eyes

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.

One-Year Term Option

Purchase one-year term protection

Paid-Up Additions Option

Purchase single payment whole life coverage

Cash Option Dividend

Take the cash

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 Insurance

Term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.

Decreasing Term Insurance

Term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection.

Increasing Term Insurance

Term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

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.

Legal Actions Provision

The insured cannot take legal action against the company in a claim dispute until 60 days after the insured submits proof of loss

Change of Beneficiary

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

Intoxicants and Narcotics Provision

The insurer is not liable for any claims that result while the insured is intoxicated or under the influence of drugs.

limited pay life

This is whole life insurance where the insured is covered for his 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. For example, under a life paid-up at 65 policy, premiums are only paid until the insured is 65 years old. With a 20-pay life policy, the insured only pays for 20 years. These policies are in effect until the insured's death or they reach age 100.

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

Graded Whole Life

Under a typical graded premium life insurance policy, the premium increases yearly for a stated number of years, then remains level.

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.

Family Income Policies

Whole life and decreasing term insurance (begins date of purchase). Provides monthly income to a beneficiary if death occurs during a specified period after date of purchase. If the insured dies after the specified period, only the face value is paid to the beneficiary since the decreasing term insurance 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.

Modified Endowment Contract (MEC)

a policy that is overfunded, according to IRS tables.

Guaranteed Insurability Options Rider

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

Family Plan Policies

designed to insure all family members under one policy. Coverage is sold in units. Usually the insurance covering the family head is permanent and that covering the spouse and children is level or decreasing term. Children who are born later are covered automatically.

Adjustable Life Policy

distinguished by their flexibility that comes from combining term and whole life insurance into a single plan

Accidental Death Benefit Rider

doubles the face amount of life insurance if death occurs as a result of an accident

Physical Exam and Autopsy Provision

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.

Payment of Claims Provision

in 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 or ANY OTHER NAMED PARTY (medical professional, hospital, etc.).

Group Life Insurance

insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract.

term rider

is a type of life insurance product which covers children under their parent's policy.

Credit Life Insurance

is 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. It is normally issued in an amount not to exceed the outstanding loan balance and is usually paid entirely by the borrower. A decreasing term policy is most often used.

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.

whole life insurance

life insurance that pays a benefit on the death of the insured and also accumulates a cash value.

Ordinary Life Insurance

made up of several types of individual life insurance, such as temporary (term), permanent (whole)

Accidental Death Benefit Rider

pays a multiple of the death proceeds if the cause of death is a covered accidental event.

endowment policy

pays the face amount of policy if insured dies and also pays face if insured survivor

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.

Universal Life Insurance

permanent cash-value insurance that combines term insurance (death benefits) with a tax-sheltered savings/investment account that pays interest, usually at competitive money market rates

Level Term Insurance

provides a level amount of protection for a specified period, after which the policy expires. Level premium and level death benefit

Payor Provision (Rider or Clause)

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

illegal occupation provision

specifies that the insurer is not liable for losses attributed to the insureds being connected with a felony or participation in any illegal occupation

Entire Contract Provision

states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the entire contract between all parties

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. States the scope and limits of coverage, "We ensure to INSURE you for..."

Variable Universal Life

type of life insurance that builds cash value. it combines all the characteristics of a universal life and variable life. the cash value can be invested in a wide variety of separate accounts, similar to mutual funds, and the choice of which of the available separate accounts to use is entirely up to the contract owner. Evidence of insurability can be required for an individual covered by a variable universal life policy when the death benefits is increased.

credit policies

typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance

Variable Whole Life Insurance

was 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 policy values are invested in the insurer's separate accounts which house common stock, bond, money market, and other securities investment options. Values held in these separate accounts are invested in riskier, but potentially higher yielding, assets than those held in the general account.

claim forms provision

• It is the company's 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 claim forms within the time period 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