Life Insurance Policy (Chapter 4)
Family Term Rider
incorporates the spouse term rider along with the children's term rider in a single rider. When added to a whole life policy, the family term rider provides level term life insurance benefits covering the spouse and all of the children in the family. Family term = Spouse term + Children's term
During the first 2 years of the policy, an insurer may contest a claim if the _____
insurer feels that inaccurate or misleading information was provided in the application.
The proceed calculations should be based on the _____
insurer's rate at the date of policy issue
Per Capita
meaning by the head, evenly distributes benefits among the living named beneficiaries.
The Children's Term Rider
allows children of he insured (natural, adopted or stepchildren) to be aded to coverage for a limited period of time fora specified amount. This coverage is also term insurance and usually expires when the minor reaches a certain age (18 0r 21). Most riders pre vide the minor with the option of converting to a permanent policy without evidence of insurability.
Trusts
are commonly established for minors or to create a scholarship fund. Trusts can be used for estate planning purposed and when used properly can keep life insurance death proceeds out of the insured's taxable estate. They are expensive to administer
Riders
are written modifications attached to a policy that provide benefits not found in the original policy. Riders sometimes require an additional premium, but they also help tailor a policy to the specific needs of the insured and can be classified according to their primary purpose.
Disability Income Benefit
with this rider, in the event of disability the insurer will waive the policy premiums and pay a monthly income to the insured. The amount paid is normally based on a percentage of the face amount of the policy to which it is attached.
Nonforfeiture Options
Because permanent life insurance policies have cash values, certain guarantees are built into the policy that CANNOT BE FORFEITED by the policy owner. These guarantees (known as nonforfeiture values) are required by state law to be included in the policy,. A table showing the nonforfeiture values for a minimum period of 20 years must be included in the policy. The policy owner choses one of the following nonforfeiture options: cash surrender value, reduced paid up,insurance, or extended term
if the insured and the primary beneficiary die at approximately the same time from a common accident with no clear evidence as to who died first, a problem may arise in identifying which party is eligible for the death benefit. The _____ , which is provided under Uniform Simultaneous Death Law has been adopted by most states to address this problem, in order to protect the policy owners original intent as well as to protect the contingent beneficiary.
Common Disaster Clause
For example, Bryan purchased a $90,000 life insurance policy. He named his three sons Quentin, Steve, and Patrick as beneficiaries for equal shares. Quentin has 2 children of his own, Bob and Lou. Steve and Patrick are both married but have NO children. Quentin predeceases Bryan
If Bryan selected the PER CAPITA designation which means "by the head" with Quentin gone, only 2 named beneficiaries remain. Steve & patrick will receive $45,000 ($90,000 divided by 2). Quentin's children would not receive any benefits since e they were not named as beneficiaries. If bryan selected the PER STIRPES designation, which means "by the bloodline," Steve and patrick would receive $30,000 each and Quentin sons would share his allotment equally at $15,000 each.
Hazardous occupation or hobbies:
If the insured is engaged in a hazardous occupation or participated in hazardous hobies (such as skydiving or auto racing), death that results from the hazardous occupation or hobby may be excluded from coverage. The underwriter also has the option of charging a higher premium for insuring these risks.
War or Act of War Declared or Undeclared
Life insurance policies delivered or issued in this state may contain provisions that exclude or restrict coverage in the event the death death of the insured occurs as a result of war, declared or undeclared, under the conditions pacified in the policy, or while the insured is in the military, navy, or wire forces in any country at war, declared or undeclared.
Reduction of premium payments
The insurer uses the dividend to reduce the next years premium. For example, tho if the policy owner usually pays an annual premium of $1,000 and the insurer declares a $100 dividend, the policy owner would only pay a $900 premium that year.
Individuals
The owner of a life insurance policy may name any individual as a beneficiary for the pTqolicy proceeds. The owner may name more than one individual, in which case the individual beneficiaries will split the benefit by the percentage specified in the policy.
Cash surrender value
The policy owner simply surrenders the policy for the current cash value at a time when coverage is no loner needed or affordable. Upon receipt of the cash cur render value, if the cash value exceeds premiums paid, the excess is taxable as ordinary income. Once this options is selected, the insured is no longer covered. A surrender charge is a fee charged to the insured when a life policy or annuity is surrendered for its cash value.
What is the purple of this rider?
To provide the insured with the necessary funds to take care of necessary medical and nursing home expenses that incur as a result of the terminal illness. Many insurance companies do not charge for this rider since it is simply an advance payment of the death benefit. The remainder of the policy proceeds are payable to the beneficiary at the time of the insured's death.
Extended Term
Under the extended-term option, the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long period as the amount of cash value will purchase.If the policy owner has neglected to select one of these nonforfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy.
Reduced paid-up insurance
Under this option, the policy cash value is used by the insurer as a single premium purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy. The new reduced policy builds its own cash value and will remain in force until death or maturity
If there are outstanding loans at the time of the insured's death, the loan amount will be considered a debt to the policy and the death benefit will be reduced by the amount of indebtedness Example:
Vera has whole life policy with a $150,000 face amount. Three years ago she took out a $50,000 policy loan, which has accused $3,500 in interest. If vera dies, the policy's death benefit will be $150,00 - $50,00 - $3,500 or $96,500.
Tax Consequences
accelerated benefits may be taxable and assistance should be sought from a personal tax advisor
Each policy specifies what will be considered _____. Accidental death DOES NOT include death hat results from any health problem or disability. Deaths that result from self inflicted injuries, war, hazardous hobbies or avocations are usually not covered. They would be covered under the base policy unless specifically excluded.
accidental death **This rider often expires at the insured age 65. No additional cash value is accumulated as a result of this rider. The accidental deaf benefits apply only to the policy's base face amount, and not to any additional benefits that may be purchased from the policy dividends.
Dividen Options The 1st dividend could be paid as early as the 1st policy anniversary, but must occur no later than the end of the 3rd policy year. From then on dividends are usually paid on an annual basis. Policy owner's have the option of taking their dividend in one of several different ways.
are paid only on participating policies. When the policy owner purchases a policy from a participating insurer, he/she actually pays a "grossed-up" premium. The higher premium is charged as a safety margin in the event the insurer's losses are higher than anticipated. I this extra amount is not needed by the insurer to pay death claims and expenses or if it actual mortality experience improves or interest earned by the company exceeds the assumptions, a dividend will be returned to the policy owner. Dividends are a return of excess premiums and for that reason they are NOT TAXABLE to the policy owner. Insurance companies CANNOT GUARANTEE dividends.
Exclusions
are the types of risks the policy will not cover. Certain exclusions are standard for all policies, while others are attached to the policy as an exclusion rider. T
The _____ is the person or interest to which the policy proceeds will be unpaid upon the death of the insured.
beneficiary
Single life option
can provide a single beneficiary income for the rest of his/her life. Upon the death of the beneficiary, the payment stop.
The difference between 2 options is that under the ____, if the annuitant dies before the annuity end is depleted, a lump sum settlement of the remained would be made to the beneficiary, while under the _____, the beneficiary would receive the remaining funds un the form of continued annuity payments.
cash refund option installment refund option
Incontestability
clause prevents an isureer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a a material fact.
The life refund income option
comes in either cash refund form or an installment refund form. Both options guarantee that the tool annuity dud will be paid out to the annuitant or to the beneficiary.
Long-Term Care
coverage which is often purchased as a separate policy, can also me marketed as a rider to a life insurance policy. These riders provide for the payment of the part of death benefit (called accelerated benefit) in order to take care of the insured's health care expenses, which have incurred in a nursing or convalescent home. As with living needs rider, payment of LTC benefits will reduce the amount payable to the beneficiary upon the insured's death.
The owner must advise the insurer in writing of the assignment. Transfer of the life insurance policy _____; it only changes who has the policy ownership rights.
does not change the insured of amount coverage
If none of the beneficiaries is alive at the time of the insured's death or if no beneficiary has been named, the insured's _____ will automatically receive the proceeds of a life insurance policy. The death benefit of the policy may b included in the insured's taxable estate if this occurs
estate
Collateral Assignment
involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. A collateral assignment is a partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assigned right are returned to the policy owner.
Fixed-amount installments option
pays a fixed, specified amount in installments until the process (principal and interest) are exhausted. tThe recipient selects a specified fixed dollar amount to be paid until the proceeds are gone. If the beneficiary dies before the proceeds are exhausted, installments will continue to be paid to a contingent beneficiary until all proceeds have been paid out. The size of each installment will determine how long benefits will be received. There larger the installment, the shorter the income period will be. As with fixed-period option, this option DOES NOT guarantee payments for the life of the beneficiary, but does guarantee that all proceeds will be paid out.
Options
policy owners have decisions to make about how the cash value in the policy should be protected, how the return of excess premium (dividend) should be invested and how benefit payments will be made. The different choices available to them are categorized as nonforfeiture options, dividend options and settlement options.
Joint Life with term certain
policy pays to 2 or more persons and stops paying at the death o the first. If the first death occurs during the specified term, the payments will continue to the other persons until the end to he the specified term.
The life income option (also known as straight life)
provides the recipient with an income that he/she cannot outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death.
The amount of each installment paid is based on the ____ life expectancy and the amount of principal. If the beneficiary lives for a very long times, payments may exceed the total principal. IF the beneficiary dies shortly after he/she begins receiving installments, the balance of the principal is forfeited to the insurer. With each of the guarantees, the size of installments is decreased.
recipient's
Loans and loan interest
the accelerated benefit will be paid minus any outstanding loans, plus interest
Cash Payment (Lump Sum)
the contract is deigned to pay the proceeds in cash, called a lump sum, unless the recipient chooses a different mode of settlement. As a rule, payments of the principal face amount after the insured''s death are not taxable as income.
Accumulation at Interest
the insurance company keep the dividend in an account where it accumulates interest. The policy owner is allowed to withdraw the dividends at any time. The amount of interest is specified in the policy owner and compounds annually. Although the dividends themselves are not taxable, the interest on the dividends is taxable to the policy owner when credited to the policy, whether or not the policy owner receives the interest.
Cash Payment
the insurer simply send the policy owner a check for the amount of the dividend as it is declared, usually annually.
Spendthrift clause
when included in a life insurance policy, protects beneficiaries from the claims of their creditors, This clause applies to the benefits that are paid in a fixed period or fixed amount installments. The benenficiary does not have the right to select a different settlement option and is not allowed to assign or borrow any of the proceeds. The clause is designed to protect life insurance policy proceeds that have not et been paid to a named beneficiary from the claims of the creditors of the beneficiary or policy owner.
Premium
will be reduced to reflect the remaining amount of life insurance
Beneficiary
receives benefit upon insured's death
Insurance Company
*issues policy to policy owner *pays benefit to beneficiary
The assignment provision specifies the policy owner's right to assign (transfer rights of ownership) the policy. The policy owner must advise the insurer in writing of the assignment. There are 2 types of policy assignment:
1. Absolute Assignment 2. Collateral Assignment
Two class designation are available for use when an insured chooses to "group" the beneficiaries:
1. Per Capita 2. Per Stirpes
What are the most common exclusions found in life insurance policies?
1. aviation 2. hazardous occupation 3. war and military service
Effect on Death Benefit EX: The policy's face amount is $100,000; however due to a terminal illness, the insured had to withdraw $30,000 from the policy 3 years before his death. SInce this amount was withdrawn, the insurance company lost $300 worth of inters. Upon the insured's death, the beneficiary received $69,700 in death benefit. $100,000 (face amount) - $30,000 (accelerated benefit) - $300 (lost interest) = $69,700
If insured withdraws a portion of the face amount by the use of the accelerated benefits rider, the benefit payable at death will e reduced by that amount, plus the a mint of earnings lost by the insurance company in interest income. payable death benefit =face amount - amount withdrawn- earnings lost by insurer in interest
What is the purpose of the grace period?
is to protect the policyholder against an unintentional lapse of the policy.
Automatic Premium Loan provision is NOT required but is commonly added to contracts with a cash value at no additional charge. This is a special type of _____ due to nonpayment of the premium. EX: A loan against the policy cash value for the amount of premium die is automatically generated by the insurer when the policy owner has not paid the premium by the end of the premium-paying grace period. It is a loan for which the insurer will charge interest. If the loan and interest are not repaid and the insured dies, then it will be subtracted from the death benefit. While the insurer may defer request for other loans for a period of up to ____, loan requests for payment of due premiums must be honored immediately.
loan that prevent the unintentional lapse of a policy 6 months
Aviation
most life insurance will cover an insured as fare-paying passenger or a pilot on a regularly scheduled airline, but will exclude coverage for noncommercial pilots, or require an additional premium for the coverage.
Only policy owners have _____
ownership rights
Beneficiary designations may be either revocable or irrevocable. The policy owner without the consent or knowledge of the beneficiary may change a _____ designation at any time. An _____ designation may not be changed without the written consent of the beneficiary.
revocable irrevocable
Cash Loans
whenever a polci has cash value, it has loan value. The amount available to the policy owner for a ;pan equals the cash value minus any outstanding and unpaid policy loans including interest. Loan value = Cash value - (unpaid loans + interest)
Conditions for payment Accelerated death benefits allow the early payment of a portion of the death benefit if the insured has any of the following conditions:
1. a terminal illness 2. a medical condition that requires an extraordinary medical intervention (ugh as an organ transplant) for the insured to survive 3. a medical condition that without extensive treatment drastically limits the insured's life time 4. inability to perform activities of daily living 5. permanent institutionalization or confinement to a long-term care facility 6. any other conditions approved by the department of insurance
The parties to the insurance contract are the:
1. insurer 2. policy owner 3. insured 4. beneficiary
Succession
The beneficiary designation provides for levels of priority or choice. In the event that the primary beneficiary predeceases the insured, the contingent (secondary or tertiary) level in the succession of the beneficiaries will be entitled to the death proceeds. Each level in the succession of beneficiaries is o nay eligible for the death benefit if the beneficiary in the level above the has died before the insured.
Right to Examine (free look)
The provision allows the policy owns 10 days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The free-look period starts when the policy owner receives the policy (policy delivery), not when the insurer issues the policy. Certain life insurance transactions, such as a replacement, may require a longer free-look period.
What is the purpose of this rider?
To provide the insured with the necessary funds to take care of necessary medical and nursing home expenses that insure as a result of the terminal illness. Many Insurance companies do not charge for this rider since it is simply an advance payment of the death benefit. The remainder of the policy proceeds are payable to the beneficiary at the time of the insured's death.
_____ are commonly used in conjunction with beneficiary designations to manage life insurance proceeds for a minor or for estate tax purposed (although naming a trust as beneficiary does not avoid estate taxes).
Trusts **The beneficiary DOES NOT shave to have a n insurable interest in the insured. The policy owner DOES NOT have to name a beneficiary in order for the policy to be valid.
The cost of living rider
addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured. The face value of the policy may be increased by a cost of living factor tied to an inflation index such as the consumer price index.
The payor of benefit rider
is primarily used wit h juvenile policies (any life insurance written on the life of a minor); otherwise it functions like the waiver of premium rider. If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21. This rider is also used when the owner and the insured are 2 different individuals.
Per Stirpes
meaning by the bloodline, distributes the benefits of a beneficiary who died before the insured to that beneficiary heires.
The _____ option is found only in policies that contain cash value.
policy loan
Only the _____ has the ownership rights under the policy and not the insured or the beneficiary.
policy owner
The _____ and the _____ may be the same person or different persons.
policy owner insured
The _____ has the responsibility of paying the ____, and also the person who must have an insurable interest in the insured at the time of application for the insurance.
policy owner policy premiums
If the insured selects a ____ other than _____, there will be an additional charge to offset the loss of earnings since the company does not have the entire premium at once and there are additional administrative costs associated with more frequent billing.
premium mode annual
The Accelerated Benefit or Living Needs Rider
provides for an early payment of part of the poliy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years or has other qualifying conditions.
The Living Needs Rider
provides for the payment of part of the policy death benefit if the insured diagnosed with a terminal illness that will result in death within 2 year.
If the insured dies during a period of time for which the premium has been paid, the insurer must _____ along with the policy proceeds.
refund any unearned premium
Guaranteed Insurability
rider allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or event (such as marriage or birth of a child) without evidence of insurability for an additional premium. When this option is exercise, the insured purchases the additional coverage at his/her attained age. This rider usually expires at the insured's age 40.
The waiver of cost of insurance (or waiver of monthly deductions)
rider is found in universal life insurance. in the event of disability of the insured, this rider waives the cost of the insurance and other expenses, but DOES NOT waive the cost of premiums necessary to accumulate cash values.
Provisions
stipulate the rights and obligations of an insurance contract and are fairly universal from one policy benefit to the next
The policy owner is entitled to borrow an amount equal to the available cash value. Any outstanding loans and accused interest will be deducted from the policy loan unless the amount of the loan and a cured interest excess the available cash value. The insurer must provide _____ to the policy owner that the policy is going to lapse. Insurance companies may defer a policy loan request for up to _____, unless the reason for the loan is to pay the policy premium. Policy loans are not subject to income taxation.
30 days written notice up to 6 months
Disclosures
The department may adopt rules that may permit or include standards for full and fair disclosure of the manner, content, and required disclosures for the sale of insurance policies.
The _____ provision in life insurance policies protects the insurers against individuals using suicide as a defense to payment of life insurance benefits.
suicide
Children's term riders provide _____ life insurance on all children of the family for one premium. The premium DOES NOT change on the inclusion of additional children; it is based on an average number of children.
temporary
Cash Value
will be reduced to reflect the loss by the insurance company in interest income
The life income joint and survivor
option guarantees an income for two or more recipients for as long as they live. Most contracts prove theta the surviving recipient will receive a reduced payment after the first recipient dies.
Payment of Premiums
The policy stipulates when the premiums are due, how often they are to be paid (monthly, quarterly, semiannually, annually, etc) and to whom
Reinstatement
The reinstatement provision allows a placed policy to be put back in force.
Fixed period Installments option (also called period certain)
a specified period of years is selected and equal installments are paid to the recipient. The payments will continue for the specified period even if the recipient dies before the end that period. In the event of the recipients death, the payments would continue to a beneficiary. The size of each installment is determined by the amount of principal, guaranteed interest and the length of period selected. The longer the period selected, the smaller each installment will be. this option does not guarantee income for the life of the beneficiary, it does guarantee that the entire principal will be distributed.
Settlement Options
are them methods used to pay the death benefits to a beneficiary upon the insured's death or to pay the endowment benefit if the insured lives to the endowment date. The policy owner may select a settlement option at the time of policy application and may also change that option at any time during the life of the insured., Once selected by the policy owner, the settlement option cannot be changed by the beneficiary. if the police owner does not selected a settlement option, the beneficiary will be allowed to choose one at the time of the insured's.
How is the most commonly reduced option written?
as a joint and 1/2 surveyor, in which the surviving beneficiary receives 1/2 or 2/3 of what was received when both beneficiaries were alive.
The insurance company uses the dividend to purchase additional insurance in the form of _____ that increases the overall policy death benefit. The policy owner's choose is to either use the dividend as a single premium on as much 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 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.
one year term insurance
Policy owner
pays pretium to insurance company
Riders affecting the death benefit amount
some riders affect the amount of death benefit paid out to the beneficiary and either increase it through mule indemnity or refunds of premiums or decrease it if the portion of the death benefit was paid out to the insured while still living
Disability Riders
some riders provide benefits in the event of the insured's disability while other riders provide for partial payment of the death benefit prior to the insured's death, called accelerated or living benefits ridders.
Interest-only option
the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (months, quarterly, semi-annually or annually). The insurer usually guarantees a certain rate of interest and will often pay interest in excess of the guaranteed rate. EX: the policy owns may specify that interest only will be paid annually o the surviving spouse, with the principal to be paid to their children when they yeah a certain age or at the death of the surviving spouse
Paid-up Insurance
the insurer first accumulates the dividend at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early. If the insured had a continuous premium whole life policy (in which premiums are paid to age 100) using the paid-up option policy owner is able to pay up the policy early.
How is the options commonly selected by?
the policy owner who wants to protect two beneficiaries such as elderly parents. Unless a period certain option is also chosen, as with the life income options, h there is no guarantee that all the life insurance proceeds will be paid pout if all beneficiaries di shortly after the installments begin. This option guarantees an income of the live of all beneficiaries.
Life income with period certain option
the recipient is provided with the "best of both worlds" in terms of a lifetime income and a guaranteed installment period. Not only are he payments guaranteed for he lifetime of the recipient, but there is also a specified period that is guaranteed.
Riders covering additional insureds
there are riders that allow the policy owner to add additional insured under the original policy, such as children's term or family term. There is also a non family term rider the allows the policy owner to change the insured under the policy.
Paid-up Additions
there dividends are used to purchase a single premium policy in addition to the face amount of the permeant policy. No new separate policies are issued; however each of these small single premium payments will INCREASE THE DEATH BENEFIT of the original policy by whatever amount the dividend will buy. Each of these paid-up policies will accumulate cash value and pay dividends. tThe amount of additional coverage that can be purchased with the dividend is based on the ins red's attained age at the time the dividend is declared.
Among the ownership rights are :
1. naming and changing the beneficiary 2. receiving the policy's living benefits 3. selecting a benefit payment options 4. assigning the policy
The beneficiary may be a _____
1. person 2. class of persons (sometimes children of the insured) 3. the insured's estate 4. institution or other entity such as a condition, charity, corporation, or trustee of a trust
The maximum time limit for reinstatement is usually _____ after the policy has lapsed.
3 years
Classes
A class of beneficiary is using a designation such as "my children." This cane be a vague term ifs he insured has been married more than once, has adopted children, or had illegitimate children. An example of a class that is less vague is "children of the union of Lynn Smith Brock and James Edward Brock." Many insurers e courage the insured to name each child specifically and to state the percentage of benefit they are to receive.
The guaranteed insurability rider is not modified or defeated by the existence of other riders. EXAMPLE:
Alans life insurance policy contains both guaranteed insurability and waiver of premium rifer. 3 years after the policy was issued, Alan was totally and permanently disabled. Not only are Alan's life insurance premiums waived, but at the specified times or events stated in the policy, Alan may purchase additional amount of insurance with the premiums on those increases also waived.
Missstatement of the Age or Gender
Because the age and gender of an insured are important to the premium that will be charged or a life insurance policy, a provision which allows the insurer to adjust the policy at any time due to a misstatement of age or gender is included in the policy.
If the applicant has misstated his or her age or gender on the application, in the event of a claim, the insurer is allowed to _____
adjust the benefits to an amount that the premium at the correct age or gender would have purchased.
Standard Provisions
While there is no "standard" policy form life insurance, the standard policy provisions adopted by the National Association of Insurance Commissioners (NAIC) create uniformity among life insurance policies.
Insurance policies usually stipulate a period of time during which the death benefit will not be paid if the insured _____. If the insured commits suicide within _____ following the policy effective date (issued date), the insurer's liability is limited to a refund of premium. If the insured commits suicide after the 2-year period, the policy will pay the death proceeds to the designed beneficiary the same as if the insured had died of _____.
commits suicide 2 YEARS natural cause
Primary Beneficiary
has first to claim to the policy proceeds following the death of the insured. The policy owner may name more than one primary beneficiary, as well as how the proceeds are to be divided.
Contingent Beneficiary
has second claim in the event that the primary beneficiary dies before the insured. Contingent beneficiaries do not receive anything if the primary beneficiary is still living at the time of the insured's death.
Irrevocable beneficiaries
have a vested interest in the policy; the policy owner may not exercise certain rights with the consent of the beneficiary. The policy owner cannot borrow against the policy's cash value (as this would decrease the policy face value until repaid) or assign the policy to another without the beneficiary's agreement.
Effect on Death Benefit
if insured withdraws a portion of the death benefit by the use of this rider, the benefit payable at death will be reduced by that amount, plus the amount of earnings loss by the insurance company.
Absolute Assignment
involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policy owner DOES NOT need to have an insurable interest in the insured.
The return of premium rider
is implemented by using increasing term insurance. When added to a whole life ice 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. The return of premium rider usually expires at a specified age such as 60.
Written Disclosure
is required at the time of application for the policy rider. A brief description of the accelerated benefit and definitions of the conditions or occurrences triggering payment of benefits must be given to the applicant. The description must include an explanation of any effect of the payment of a benefit on the policy's cash value, death benefit, and policy loans.
The Premium Mode
is the manner or frequency that the policy owner pays the policy premium. Most polices allow for annual, semi-annual, quarterly, or monthly payments.
Grace period
is the period of time after the premium due date that the policy owner has to pay the premium before the policy lapses (usually 30 or 31 days).
Uniform Death Law
it will be assumed that the primary beneficiary died first in a common disaster. This provides that the proceeds will be pairs to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated. The intent is to fulfill the wishes of the policy owner. Most insurers specify a certain period of time, usually 14 to 30 days in which death must occur in order for the provision to apply. As long as the beneficiary dies within this specified period of time following the death of the insured. it will still be interpreted that the beneficiary died first.
The _____ is typically a percentage of the face amount of insurance, usually 50% but it is legal for the insurer to pay up to 100% of the death benefits before the insured dies. There may be a dollar limit, such as %100,000. The face amount of insurance is reduced after the payments. The accelerated death benefit payout will not necessarily result in a reduction of the premium; however premium may be waived.
maximum benefit
Benefits designated to a _____ will either be paid to the minor's guardian, or paid to the trustee of the minor if the trust is the named beneficiary, or paid as directed by a court. The guardian and trustee can be the same person. It is generally accepted not to be a god practice to have life insurance benefits payable to a minor
minor
Riders
modify provisions that already exist and are used to increase or decrease policy benefits and premiums
The incontestability period DOES NOT apply in the event of _____ ; it also DOES NOT usually apply to statements relating to _____.
nonpayment of premiums age, sex, or identity
Options
offer insurers can insureds ways to invest or distribute a sum of money available in a life policy. It is essential for you to have a good understanding of the different provisions, riders, and how they apply to life insurance transactions
The advantage to reinstating a lapsed policy as opposed to purchasing a new one is that the policy will be restored to its _____, and retain all the values that were **NOTE THAT A POLICY THAT HAS BEEN SURRENDERED CANNOT BE REINSTATED
original status established at the insured's issue age
The ____ provides coverage for 1 or more family members other than the insured, The rider is usually level term insurance, attached to the base policy covering the insured. This is also knob as a family rider, If the rider covers just the spouse of the insured, it can be specified as a _____, and allows the spouse to be added to coverage fora a limited period of time and for a specified amount (it usually expire when the spouse reaches age 65).
other insured rider spouse term rider
When the ___ and the ___ are not the same person, the insurance arrangement is referred to as the _____.
owner insured third-party ownership
The policy owner of a life insurance policy has the right to transfer _____ or _____ ownership of the policy to another person without the consent of the insurer.
partial complete
Universal life policies allow the _____ of the policy cash value. There may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During the withdrawal, interest earned on the withdrawn cash value may be subject to taxation, depending upon the plan. The death benefit will be reduced by the amount of any partial surrender, A partial surrender from a universal life policy is not the same as a policy loan.
partial withdrawal (partial surrender)
If the policy owner elects to reinstate the policy, he/she will have to provide evidence of insurability. The policy owner is required to _____, and may be required to ____.
pay all back premiums plus interest repay any outstanding loans and interest.
If the insured dies during this period, the death benefit is _____; however any unpaid premium will be _____ from the death benefit.
payable deducted
Accidental Death Rider
pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must usually occur within 90 days of such an accident. The benefit is normally two times (double indemnity) the face amount. Some policies pay triple the face amount (triple indemnity) for accidental death.
The ENTIRE CONTRACT provision stipulates that the _____, along with any riders or amendments, constitute the entire contract. Not statements made before the contract was written can be used to alter the contract. Neither the insurer nor the insured may change policy provisions once the policy is in effect without both parties agreeing to it and the change being affixed to the contract.
policy and a copy of the application