Life policy Provisions, Riders and Options

Most insurers specify a certain period of time in which the primary beneficiary's death must occur in order for the Common Disaster Clause to apply, what is that period of time?

14 to 30 days

What is usually the maximum time limit for reinstatement under the reinstatement provision?

3 years after the policy has lapsed

For the accidental death rider, death must usually occur within _______________ days of such an accident.

90 Days

What is activities of daily living (ADLs)?

A person's essential activities that include bathing, dressing, eating, transferring, toileting, continence

What are the 2 types of policy assignments?

Absolute assignment & Collateral assignment

What are the different types of riders affecting Death Benefit?

Accelerated Death Benefit, Accidental Death or AD&D, Guaranteed Insurability, Return of Premium, and Term Riders

What rider often expires at the insured's age 65 and has no additional cash value accumulated as a result of this rider?

Accidental death rider

What does it mean to be a irrevocable beneficiary designation?

An irrevocable designation may not be changed without the written consent of the beneficiary. Irrevocable beneficiaries also have vested interest in the policy.

What are the most common exclusions found in life insurance policies?

Aviation, Hazardous occupation, and war and military service

What are the different types of settlement options?

Cash, Life Income, Interest Only, Fixed Period, and Fixed Amount

In regards to the dividend options, what available options are included?

Cash, Reduction of Premium, Accumulation at Interest, Paid-up Additions (automatic), Paid-up Insurance, and One-Year Term

What does the children's term rider allow?

Children of the insured (natural, adopted or stepchildren) to be added to coverage for a limited period of time for a specified amount.

What happens to the coverage in the waiver of premium disability rider?

Coverage remains in force until the insured is able to return to work. If the insured is never able to return to work, the premiums will continue to be waived by the insurance company

In regards the the Life Income Joint and Survivor option under the settlement policy option, what happens?

Guarantees an income for two or more recipients for as long as they live

In regards to hazardous occupations and hobbies, what will be covered?

If the insured is engaged in a hazardous occupation or participates in hazardous hobbies (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

When does the free-look period start?

It starts when the policyowner receives the policy (policy delivery)

How will benefits be payed out to a beneficiary that is a minor?

It will either be paid to the minor's guardian, or paid to the trustee of the minor if the trust is named beneficiary, or paid as directed by a court

What happens if there is a misstatement of age or gender on the application, in the event of a claim?

It will result in adjustment of premiums or benefits at the correct age or gender would have been purchased

In regards the the Cash Payment option under the settlement policy option, what happens?

Lump-sum payment and is usually not taxable

What is the waiting period for the waiver of premium disability rider?

Most insurer impose a 6-month waiting period from the time of disability until the first premium is waived. If the insured is still disabled after this waiting period, the insurer will refund the premium paid by the insured from the start of the disability

In regards to war and military service, what will be covered?

Most life insurance policies do not exclude military service. However, there is two different type of exclusions that may limit the death benefit if an insured dies as a result of war, or while serving in the military

In regards to aviation, what will be covered?

Most life insurance will cover an insured as a fare-paying passenger or a pilot on a regularly scheduled airline, but will exclude coverage for noncommerical pilots, or require an additional premium for the coverage

What are among the ownership rights?

Naming and changing beneficiary, receiving the policy's living benefits, selecting a benefit payment options, and assigning the policy.

What does NAIC stand for and what is the definition?

National Association of Insurance Commissioners and is an organization composed of insurance Commissioners from all states and jurisdictions formed to resolve insurance regulatory issues

What are the 3 different choices of policy options?

Nonforfeiture Options, Dividend Options, and Settlement Options

In regards the the Life Income option under the settlement policy option, what happens?

Provides the recipient with an income that he or she cannot outlive (also known as straight life) Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death

The Nonforfeiture Option provides what 3 available options?

Reduced Paid-up, Extended Term (automatic), and Cash

If the insured dies during a period of time for which the premium has been paid, the insurer must do what?

Refund any unearned premium along with the policy proceeds

What are the 2 types of beneficiary designations?

Revocable & Irrevocable

If the other insured rider covers just the spouse of the insured, it can also be specified as _____________________________, and allows the spouse to be added to coverage for a limited period of time for a specified amount (it usually expires when the spouse reaches age 65)

Spouse term rider

What are the 2 different types of exclusions that pay limit the death of the benefit if an insured dies as a result of war, or while serving in the military?

Status clause - excludes all causes of death while the insured is on active duty in the military. Results clause - only excludes the death benefit if the insured is killed as a result of an act of war (declared or undeclared)

What is the effect on the death benefit if an insured withdraws a portion of the face amount by the use of the accelerated benefits rider?

The benefit payable at death will be reduced by that amount, plus the amount of earnings lost by the insurance company in interest income. Payable Death Benefit = Face Amount - Amount Withdrawn - Earnings lost by the insurer in interest

In regards the the Paid-Up Additions option under dividends policy option, what happens?

The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy

In regards the the Accumulation at Interest option under dividends policy option, what happens?

The insurance company keeps the dividend in an account where it accumulated interest

In regards the the Interest-Only option under the settlement policy option, what happens?

The insurance company retains the policy proceeds and pays the interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually)

In regards the the One-Year Term option under dividends policy option, what happens?

The insurance company used the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall policy benefit

If none of the beneficiaries is alive at the time of the insured's death, or if no beneficiary has been named, what happens?

The insured's estate will automatically receive the proceeds of a life insurance policy

In regards the the cash option under dividends policy option, what happens?

The insurer simply sends the policy owner a check for the amount of the dividend as it is declared, usually annually

In regards the the Reduction of Premium option under dividends policy option, what happens?

The insurer used the dividend to reduce the next year's premium.

In regards the the reduced paid-up option under nonforfeiture policy option, what happens?

The policy cash value as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy

In regards the the cash option under nonforfeiture policy option, what happens?

The policyowner simply surrenders the policy for the current cash value at the time when coverage is no longer needed or affordable.

What does it mean to be a revocable beneficiary designation?

The policyowner, without consent or knowledge of the beneficiary, may change a revocable designation at anytime.

In the Life Income Option, how is the amount of each installment paid determined?

The recipient's life expectancy and the amount of principal

If the insured selects a premium mode other than annual, what will happen?

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

What must the policyowner have and what are they responsible for?

They are the person who must have insurable interest in the insured at the time of the application of insurance and they are responsible for paying the policy premiums

What is the automatic premium loan provision?

This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of premium. It is not required but is commonly added to contracts with cash value at no additional charge.

True of False : Nonforfeiture options are triggered by policy surrender or lapse

True

True or False : A policy that has been surrendered cannot be reinstated

True

True or False : Accelerated benefit rider = early payment of part of death benefit to the insured form the insurer for qualifying medical expenses.

True

True or False : Children's term rider = one premium for ALL children

True

True or False : Dividends are a return of excess premiums: therefore, not taxable when paid to the policyowner

True

True or False : Extended term is the automatic nonforfeiture option: same face amount, shorter term coverage

True

True or False : Settlement options are triggered by the insured's death or age 100

True

True or False : The beneficiary does NOT have to have insurable interest in the insured.

True

True or False : The guaranteed insurability rider is not modified or defeated by the existence of other riders.

True

True or False : Under life-income (straight life) settlement option, the recipient cannot outlive the benefit payments

True

True or False : Under the entire contract provision, no 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.

True

Tue or False : Policy loans are NOT subject to taxation

True

Ture or False : Waiver of premium disability rider waives the premium for a total disability after a waiting period.

True

What 2 policies is the waiver of monthly deduction disability rider found in?

Universal Life and Variable Life policies

In regards the the Paid-Up option under dividends policy option, what happens?

Usually, the insurer first accumulates the dividends at interest and then used the accumulated dividends, plus interest, and the policy cash value to pay the policy up early. (Used to pay up the policy early)

What are dividend options?

Varying ways in which insureds may elect to receive dividends under and insurance policy

What are the different types of disability riders?

Waiver of Premium, Waiver of Monthly Deduction, Payor Benefit, Disability Income, and Accelerated (Living) Benefit

What is the return of premium rider?

When added to a whole life policy, it provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary

What does the insuring clause define?

Who the parties to the contract are, how long coverage is in force, and the type of loss insured against

What is an indemnity?

a principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss

What is a nonforfeiture option?

a provision included in certain life insurance policies stipulating that the policyholder will not forfeit the value of the policy if the policy lapses after a defined period due to missed premium payments

What is the payor benefit rider?

a rider primarily used with juvenile policies (any life insurance written on the life of a minor); 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 two different individuals

In regards the the Fixed-Amount Installments option under the settlement policy option, what happens?

a specified period of years is selected, and equal installments are paid to the recipient. (it is also called period certain)

What do term riders allow?

an additional amount of temporary insurance to be provided on the insured, without the need to issue another policy. They are usually attached to a whole life policy to provide greater protection at a reduced cost

What are riders?

an option added to a policy to modify provisions that already exist (written modifications)

In addition to not being able to change the irrevocable beneficiary designation, the policyowner cannot.....

borrow against the policy's cash value (as this would decrease the policy face value until repaid) or assign the policy to another person without the beneficiary's agreement

Policy loan option is found only in policies that contain ____________________

cash value (whole life policies)

What coverage does the other insured rider provide?

coverage for one or more family members other than the insured (it is also known as the family rider)

Accidental death does not include...

death that results from any health problem or disability. Also, deaths that result from self-inflicted injuries, war, or hazardous hobbies or avocations are usually not covered. They would be covered under the base policy unless specifically excluded.

If a policyowner elects to reinstate the policy, he/she will have to provide what?

evidence of insurability

What does Long-Term Care (LTC) rider provide?

for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home

What does the living needs rider provide?

for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in a death within 2 years

What is the reinstatement provision?

it allows a lapsed policy to be put back in force

What does the free look provision do?

it allows the policy owner 10 days from the receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.

What is a collateral assignment?

it 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 rights are returned to the policyowner

What is an absolute assignment?

it involves transferring ALL RIGHTS of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. Note: With this, the new policyowner does not need to have an insurable interest in the insured

In regards the the Fixed-Period Installments option under the settlement policy option, what happens?

it pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted

What is the waiver of month deductions disability rider?

it pays all the monthly deductions while the insured is disabled, after a 6-month waiting period

What is the incontestability clause?

it prevents an insurer 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 or facts or concealment of a material fact

What is the Insuring Clause (or insuring agreement) used for?

it sets forth the basic agreement between the insurer and the insured. It states the insurer's promise to pay the death benefit upon the insured's death.

If order to qualify for the waiver of premium disability rider, the inured must...

meet the policy's definition of total disability which refers to the insured's inability to perform the duties of his/her own occupation for the first 2 years

In regards to the accidental death rider, the benefit is......

normally two times (double indemnity) the face amount. Some polices pay triple the face amount (triple indemnity) for accidental death

What is the policyowner required to do if the policy is reinstated?

pay all back premiums plus interest, and may be required to repay any outstanding loans and interest

What does the accidental death rider pay?

pays some multiple of the face amount if death is the result of an accident as defined in the policy.

What is a flexible premium?

policies that allow the policyowner to increase or decrease the premium during the policy period

What does the suicide provision do?

protects the insurers from individuals who purchase life insurance with the intention of committing suicide.

What is the waiver of premium disability rider?

rider that waives the premium for the policy if the insured becomes totally disabled

What does the Common Disaster Clause provide when added to a policy?

that if the insured and the primary beneficiary died in a common disaster (even if the beneficiary outlived the insured by a specified number of days), it is presumed that the primary beneficiary died first, so the proceeds will be paid to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated

What does the entire contract provision stipulate?

that the policy and copy of the application, along with any riders or amendments, constitute the entire contract.

What do month deductions include?

the actual cost of the insurance charges, expense charges, and costs of charges for any benefits added to the policy rider, endorsement or amendment, and which are specified in the policy to be deducted from the account value

What is a contingent beneficiary?

the beneficiary that has second claim in the even that the primary beneficiary dies before the insured. (also referred to as secondary or tertiary beneficiary)

What is a primary beneficiary?

the beneficiary to have the first claim to the policy proceeds following the death of the insured

What do provisions define?

the characteristics of an insurance contract and are fairly universal from one policy to the next

Who does the common disaster clause protect?

the contingent beneficiary

What coverage is included in a children's term rider?

the coverage is also term insurance and usually expires when the minor reaches a certain age (18 or 21). Most riders provide the minor with the option of converting to a permanent policy without evidence of insurability

What do accelerated death benefits rider allow?

the early payment of a portion of the death benefit if the insured has any of the following conditions : A terminal illness, a medical condition that requires an extraordinary medical intervention (such as a organ transplant) for the insured to survive, a medical condition that without extensive treatment drastically limits the insured life time, inability to perform activities of daily living (ADL's), Permanent institutionalization or confinement to long-term care facility or Any other conditions approved by the Department of Insurance.

What does principal mean in life insurance?

the face value of the policy; the original amount invested before the earnings

Transfer of the life insurance policy does not change ___________________________________________; it only changed who has the policy ownership rights.

the insured or amount of coverage

What does the guaranteed insurability rider allow?

the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or birth of a child), without evidence of insurability, for an additional premium

In regards the the extended term option under nonforfeiture policy option, what happens?

the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy

What is the premium mode?

the manner or frequency that the policyowner pays the policy premium. (monthly, quarterly, semiannually, or annually)

What are settlement options?

the 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

What is a grace period?

the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days, or one month)

What does the assignment provision specify?

the policyowner's right to assign (transfer rights of ownership) to the policy. Note : The policyowner must advise the insurer in writing of the assignment

What is a level premium?

the premium remains the same throughout the duration of the contract

What does the accidental death and dismemberment rider (AD&D) pay?

the principal (face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment

In regards the the Life Income with Period Certain option under the settlement policy option, what happens?

the recipient is provided with the "best of both worlds" in terms of a lifetime income and a guaranteed installment period.

What does the family term rider incorporate?

the spouse term rider along with the children's term rider in a single rider

What are exclusions?

the types of risks the policy will not cover

How is the death benefit paid if an applicant commits suicide?

there is a stipulated period of time during which the death benefit will not be paid if the insurer commits suicide. The insureds beneficiary will be entitled to a refund a premiums if they commit suicide within that period of time. If the suicide is committed after the period of time stipulated in the suicide clause, the entire death benefit will be paid

What do options offer?

they offer insurers and insureds ways to invest or distribute a sum of money available in a life policy

What is the purpose of the grace period?

to protect the policyholder against an unintentional lapse of the policy. If the insured dies during this period, the death benefit is payable; however, any unpaid premium will be deducted from the death benefit

What was the Uniform Simultaneous Death Law created for?

to protect the policyowner's original intent, as well as to protect the contingent beneficiary if the insured and the primary beneficiary die at approximately the same time by a common accident with no clear evidence as to who died first

What are disability riders used for?

to provide benefits in the event of the insured's disability

What is the purpose of a living needs rider?

to provide the insured with the necessary funds to take care of necessary medical and nursing home expense that incur as a result of terminal illness

What is an assignment?

transfer of rights of policy ownership

When does the waiver of premium disability rider usually expire?

when the insured reaches age 65