IL Life - Provisions, Riders and Options combined sets
Automatic Premium Loan (APL)
Protects insured from unintentional lapse Automatically takes from cash value due at end of grace period - if missed payment Just check box when filling out app Will be deducted from death benefit if not repaid Insurer honors immediately - doesn't wait 6 mo.
Other Insured Rider (Family Rider) -Who is the coverage for and what type of insurance
Provides coverage for one or more family members other than the insured Usually level term insurance
Misstatement of age or gender after death
Provision adjusts amount of insurance to match amount premium would have been purchased had real age been known. It's the *death benefit that changes*, not the premium. They will match the benefit to match what premium was and what they would have gotten with that premium. Can change this even outside of 2 years or after person dies.
What types of policies have a longer Free Look Provision?
Replacements and seniors
Reinstatement
Restores lapsed policy The main benefit is that you can retain values established at issue age *A policy that has been surrendered can not be reinstated*
War or Military Service Exclusion (war)
Results clause
Standard policy provisions (Created what?) (Built to protect who?)
Since there is not standard policy in life insurance, NAIC created these provisions to create uniformity among insurance policies. Built to protect insurance co. and insured
War or Military Service Exclusion (2 clauses)
Status clause - Exclude all causes of death while on active duty Results clause - Only excludes death benefit if insured is killed as result of an act of war (declared or undeclared) Most policies today do not exclude military service.
Principle sum
The amount under an AD&D policy that is payable as a death benefit if death is due to an accident, not to any additional benefits that may be purchased from policy dividends. (Opposite of Capital Sum)
Principle amount
The face value of the policy; the original amount invested before the earnings.
What law provides common disaster clause
Uniform simultaneous death law
Rider
Written modifications attached to policy that provide benefits not found in original policy. Sometimes require additional premium
Length of grace period
*Usually* 30 days on individual policies 31 days on group policies
Accelerated (Living) Benefit Provision Rider - conditions for payment (6 things)
- Inability to perform activities of daily living - Permanent institutionalization or confinement to LTC facility -Any other conditions approved by dept. of insurance -Terminal illness, will live less than 2 years -Medical condition requiring extraordinary intervention (organ transplant, etc) -Condition drastically limits life expectancy (2 yrs or less)
Return of Premium Rider Age expires also
- increasing term insurance rider - amount of rider equal to all premiums paid - death must occur while rider is in force - usually expires at specified age, like 60
Term rider Definition & what type of policy can have it
-Additional amount of temp insurance to be provided on insured w/o need to issue another policy -Usually attached to whole life policy to add greater production at reduced cost.
Accelerated Benefit Provision Rider/ Living Benefit Provision Rider Not including conditions for payment
-Allows early payment of partial death benefit while still alive -Usually added on at no cost -Reduces death benefit by amount paid out, spending down death benefit
Monthly deductions (from cash amount)
-Everything except what money goes toward the cash value of original insurance -include the actual cost of insurance charges, expense charges, and costs or charges for any benefits added to the policy by rider, endorsement or amendment, and which are specified in the policy to be deducted from the account value.
Common Disaster Clause
-If insured and primary die in same incident, assumed that primary died first. -Intent is to fulfill the wishes of the policy holder. -Usually if primary dies 14 - 30 days after policy holder (when in same incident) the $ goes to the contingent.
Indemnity
-In the event of a loss, an insurer *reimburses* the insured's beneficiaries for the loss -A principle of *reimbursement* on which insurance is based
Capital sum definition and what is it limited too
-Is the amount payable for the accidental loss of eyesight or for an accidental dismemberment. -Can be a percentage of principle sum (face value) -*Usually limited to half the face value/50% of death benefit*
What is the maximum benefit for Accelerated (living) benefit provision
-Might not lower premium, however, premium could be waived -usually % of face amount -Usually 50% -Legal for insurer to pay up to 100% -Might be $ limit of $100,000
Benefits to a minor (& who will get the benefit)
-Minor can't accept because they are a minor -Will be paid to guardian or trustee of minor if the trust is the named beneficiary or paid as directed by a court -The guardian and trustee can be same person -Generally accepted not to have benefits paid out to minor
NAIC Abbreviation, what is it, why formed
-National Association of Insurance Commissioners -An organization composed of insurance commissioners from all 50 states, the District of Columbia and the 4 U.S territories -Formed to resolve insurance regulatory issues.
What type of insurance would you purchase to cover key employees?
-Non family insureds -Substitute insured -Change of insured
Guaranteed insurability -Offered every ___ years -Goes until what age?
-Offered every 3 years (sometimes 5 years) -Goes until age 40 usually
Other names for Free look provision
-Refund provision -Unconditional refund provision -Return provision -Exchange provision -Right to examine
Spouse term rider
-Spouse to be added to coverage for a *limited period of time* and for a *specified amount* -*Usually ends when spouse turns 65*
Entire Contract Provision
-Stipulates that the policy and a copy of the application, along with any rider or amendments -If go to court have to present entire contract -Copy of app & policy have to be together and presented at one time
Insuring clause/agreement provision What, where located
-The basic agreement between insured and insurer -Located near front of policy, usually face page
Waiver of Cost of Insurance Waiver of monthly deduction
-Waves fees, expenses, other riders, cost of insurance, everything but what goes toward the cash value. -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.
Waiver of monthly deduction rider -how do you qualify -What does it pay for -What type of insurance qualifies -how long can you have it
1. Pays monthly deductions while disabled, after 6 mo. period 2. Only pays monthly deductions (fees, etc.), not premiums necessary to accumulate cash value 3. Only for Universal or Variable Universal life 4. Length of time this will pay depends on how old the person is when becomes disabled.
Absolute assignment
1.Transferring *all* rights to another person or entity. 2.Totally permanent 3.Parent giving contract to one of their kids once grown 4.New policy owner does *NOT* need to have insurable interest in insured
Double indemnity/tripple indemnity
2x face amount/3x face amount
Guaranteed insurability rider
5. Not modified or defeated by existence of other riders 6. If insured is disabled and has waived premiums, can still increase coverage and not have to pay premiums with this 7. Good if someone has a history of disease in family 1. Allows the insured to purchase additional coverage at specified future dates or events without evidence of insurability for an additional premium 2. Usually every *3*, sometimes 5 years, & w/ life changes (kids or married) 3. The premium will go up if they add more coverage, but at their attained age. 4. Usually expires at age *40*
Waiver of premium waiting period
6 month waiting period Insured still has to make payments for the 6 months. If still disabled insurance company will waive premium and back pay the last 6 months.
What happens if insured dies during grace period?
Beneficiary still receives death benefit, but any unpaid premium is deducted from the death benefit.
Collateral assignment
Can be partial and/or temporary Usually used to secure a loan When loan is paid off policy is transferred back to policy owner (They are using it as collateral)
Non family insureds/substitute insured/change of insured rider
Can change insured people, usually used on joint policies for *key employees*. The existing person does not have to prove insurability, only the new person
What does assignment provision not change How do you have to let insurance company know you are changing it
Does not change insured or amount of coverage - *only policy owner* In writing
Types of Standard policy provisions E
Entire contract
Contingent beneficiary
Entitled to the proceeds if the primary beneficiary dies before the insured, or they can't find the primary They do not receive anything if primary is alive at time of death (aka secondary beneficiary or tertiary beneficiary)
If someone has a history of disease in the family, which is a good insurance to have?
Guaranteed insurability rider
Misstatement of age or gender before death
If understated options are: backpay with interest or policy is reissued for reduced amount If overstated: refund made by paying difference in *reserves*
Types of Standard policy provisions O
Owner's rights
Types of Standard policy provisions R
Reinstatement of policy
Types of standard policy provisions (11)
Reinstatement of policy Entire contract Assignment of policy Misstatement of age or gender Consideration Owner's rights Payment of premiums Free look (right to examine) Incontestability period Grace period Insuring clause (IL may have more)
War or Military Service Exclusion (active duty)
Status clause
When do these riders expire 1. Return of premiums 2. Guaranteed insurabiliterm-28tyterm-28 3. Spouse term rider 4. Accidental death 5. Accelerated/living benefit 6. Capital sum 7. Disability income 8. Payor death benefit 9. Waiver of monthly deduction
What insurances go with each expiration 1. Usually a specified age, like 60 2. Usually 40 3. Usually 65 4. Usually age 65 5. 50% of face amount (but can go to 100%), might limit it to $100,000 6. 50% of face value 7. % of face value until it runs out 8. Until child reaches a certain age, like 21 9. Depends on how old the person is when it begins
Third Party Ownership
When a person(s) other than the insured purchases the insurance policy. *Must still have insurable interest in insured at time of application*
When are trusts used?
When naming a minor as a beneficiary
When does the free look provision begin
When the policy is delivered. If not delivered in person, starts the day it was mailed.
Ownership rights
Whoever owns - controls Only policy owner (person paying premium) controls the policy
Other names for free look provision
refund provision unconditional refund provision return provision exchange provision right to examine
Consideration
something of value that each party gives to the other (binding force in any contract)
Estate
the assets and liabilities left behind by a deceased person
Why was the NAIC formed
to resolve insurance regulatory issues
Assignment of policy
transfer of rights of policy ownership
What are the parties to an insurance contract
Insurer/insurance co. Insured Policy owner Beneficiary
Premium mode
Manner/frequency premiums are paid, anything other than annual requires additional charge to cover administrative fees and loss of interest
Types of Standard policy provisions M
Misstatement of age or gender
Primary beneficiary
The first to receive the benefits Policy owner can pick more than one primary and can choose how it's divided up.
What if loan is more than cash value
The insurance may lapse. Insurance company must give *30 days written notice* that policy is going to lapse.
What happens if the insured dies during a period where the premium has been paid, in a non-annual mode?
The insurer must refund any unearned premium along with the policy proceeds.
What do you find on an insuring clause/agreement provision
The parties (Always 2 parties, insurer & insured) Premium Length of coverage Amount of death benefit
Revocable Beneficiary
The policyholder reserves the right to change the beneficiary designation without the beneficiary's consent or knowledge Most common
Assignment provision
The right to transfer partial or complete ownership of policy to another person without consent of insurer (Transferring policy for kids over to them.)
Exclusions
Types of risks the policy will not cover Aviation - noncommercial Hazardous occupation or hobbies (sky diving, race car driving) War and military service
What law provides common disaster clause
Uniform Simultaneous Death Law
Children's Term Rider
1. Allows children (natural, adopted, step) of the insured to be added to coverage for a limited period of time for a specified amount. 2. Term insurance, usually until they are 18 or 21 3. Most policies let them convert to permanent insurance w/o proof of insurability 4. Can be for multiple children and the price doesn't go up.
Waiver of premium Rider
1. Continuation of life insurance coverage if the insured becomes totally disabled and is unable to pay the premiums. 2. 6 mo waiting period 3. Have to pay again if recover 4. Ends at age 65 usually 5. Usually a small cost to add
Accidental Death Benefit Rider
1. Doubles or sometimes triples the face amount of life insurance if death occurs as a result of an accident. 2. Death must usually occur within 90 days of accident. 3. Will pay the principal sum 4. Does not cover hazardous hobbies, suicides, war, etc. 5. Usually expires at 65
Disability income, definition and how much is paid out
1. Form of health insurance 2. Replaces lost income if can't work 3. Expensive 4. Waives premiums and pays monthly wage 5. Amount paid out based on % of face amount. Insurer pays a % of face amount until it runs out
Payor Benefit Rider
1. Found in juvenile polices which waivers the premiums if the person paying them (often the parent) is disabled or dies while the child is still a minor 2. Will pay until minor reaches a certain age, like 21 3. Can also be used when insured and owner are two different people.
Waiver of premium how to qualify
1. Must meet policy's definition of *total disability* 2. Differs between policies but is usually the inability to work. 3. More specifically it refers to inability to perform duties of occupation for 1st 2 years, then any gainful employment for which the insured is reasonably suited by education, training, or experience. 4. No benefits paid for partial disability
Free look provision
A policy provision required by state law that establishes a set number of days (*usually 10*) for the policyowner to review a newly issued policy. The policy owner may return the policy to the insurer during this time for any reason and receive a *100% refund*.
Type of assignment provision (100% of rights)
Absolute assignment
2 types of assignment provisions
Absolute assignment - Transfers all rights (100%) of policy to another person or entity Collateral assignment - Transfer partial rights to another party, usually to secure a loan
Incontestability Clause
Always first *2 years*, if co. finds out app/insured made material misrepresentation on app, would void contract. After *2 years* claim can't be denied even do to misstatement or facts of concealment *Does not apply to nonpayment of premiums or misstatement of age, gender, or identity*
Types of modes
Annual, semi annual, quarterly, monthly
Requirements for reinstatement
Apply w/in time limit *3 years* usually Provide proof of insurability Payback premiums plus interest Repay outstanding loans plus interest
Types of Standard policy provisions A
Assignment of policy
Suicide clause
Before 2 years - only refund of premiums paid After 2 years - will pay full face amount
Examples of ownership rights
Beneficiaries Cash values, dividends, loans Settlement options Assign policy to someone else
Irrevocable Beneficiary
Can't be changed without *written* consent of beneficiary Beneficiary must have a vested interest Can't take out a loan or assign policy to another person without *written* consent
Policy loans
Can't be more than cash value Only for policies with cash value Reduces death benefit if not repaid Insurance co. can defer up to 6 months to give insured money. (unless to pay premium)
Consideration provision
Cash/money/value States that the consideration/value is the premiums and statements made in the application Insurance co. - obligation to pay claim Insurer - obligation to pay premiums & answers on application
Type of assignment provision (partial rights)
Collateral assignment
Types of Standard policy provisions C
Consideration
All contracts must contain this to be valid
Consideration/value
Who does the common disaster clause protect?
Contingent beneficiary and original intent of policy owner
What does the AD&D cover
Death and *usually* hand, arm, leg, eye, vision. Each co. different. Some are actual severance of limb and some are loss of use.
Family Term Rider what type of term insurance
Incorporates the spouse term rider along with the children's term rider in a single rider Provides level term benefits
What association creates uniformity in life insurance?
NAIC - National Association of Insurance Commissioners
Entire contract provision - changes
No statements made before the contract written can alter contract Neither insurer or insured may make policy provisions once the policy is in effect without both parties agreeing to it and the change being affixed to the contract
Types of Standard policy provisions P
Payment of premiums
Grace period
Period of time after premium due date that the policy owner has to pay the premium before it lapses Protects agains unintentional lapse
Examples of beneficiaries
Person(s) Class of people (a person's children) Estate (will still have to pay estate taxes) Foundation, charity, trust, etc. *Does not have to have insurable interest*
Who has ownership rights
Policy owners
What if no beneficiaries, or if none are alive
Policy still valid Goes to estate then probate court If goes to estate *may be included in insured's taxable estate (might have to pay taxes on it)
