Chapter 3: Life Policy Provisions, Riders and Options

Grace period and Reinstatement Provision

30 or 31 days protection for grace period If insured dies during period, premium will be paid back to insurance company with death benefit being given to beneficiary Reinstatement can occur if all past premiums plus interest and outstanding loans are paid back 3 years

Term Rider

Additional amount of temporary coverage WITHOUT issuing a separate policy EX: term policy added to WHOLE life policy

Guaranteed insurability rider

Additional coverage can be added at specified future dates DO NOT NEED TO SHOW EVIDENCE OF INSURABILITY Usually every 3 years Expires at age 40

Cost of Living Rider

Address inflation Increase/decrease face value by cost of living Calculated each year Takes consumer product index in effect!!!

Accidental Death Rider

Applies to face amount, not cash value Normally double the face amount Applies when death is within 90 days

Consideration provision portion includes

First page of contract Both parties give something of value where Insured pays premium and insurer promises to pay

What helps create uniformity among life insurance policies?

National Association of Insurance Commissioners (NAIC)

Common disaster clause provision

Operates under Uniform Simultaneous Death Law assuming primary beneficiary died first from common cause

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

Options

_______________________ allows the insurer to relieve a minor insured from premium payments if the minor's parents have died or become disabled.

Payor Benefit

Assignment provision portion includes

Policy owner can transfer rights under policy Policy stays the same HAS to notify the insurer, but permission is NOT required ABSOLUTE assignment-permanent, total transfer of all rights; Insurable interest not required COLLATERAL assignment- Temporary/partial assignment of rights; Transferred until debt is paid (EX: USED TO OBTAIN LOANS FROM LOAN COMPANY as Collateral)

Ownership rights portion includes

Policy owner has the OWNERship rights Responsibility to pay premiums Owner has insurable interest in insured at time of application

Entire contract portion includes

Requirements Signed application Endorsements Changes need written permission (EXECUTIVE OFFICER ONLY)

What is added to a policy to modify provisions that already exist?

Riders

Nonforfeiture option in regards to extended term means

The insurer uses the policy cash value of the old policy forfeited to purchase term insurance The amount is equal to the original policies face value Coverage will last until cash value RUNS out

Return of Premium Rider

USED FOR INCREASING TERM INSURANCE If insured dies before specific age, beneficiary will receive benefits AND premiums paid in EXPIRES AT AGE 60

Misstatement of Age or gender

Allows insurer to adjust policy at ANY TIME CAN ADJUST premium due to the incorrect age or gender to appropriate premium for that age or gender

Insuring clause portion includes

General Statement of basic agreement Insurer's promise to pay death benefit if insured dies Identifies the: Insured, Insurance company, and types of loss covered

Beneficiary designation provision includes:

Gives insured certain rights to: Change to beneficiary How proceeds will be paid Beneficiary can be a person, class of people (multiple children), insured's estate, entity (charity, foundation, trustee, corporation)

What two terms are associated directly with the premium?

Level or flexible

Beneficiary designation provision can be assigned through

Per Capita = BY the head Divided among named survivors Per Stirpes = BY the bloodline Distributed to beneficiary's heirs (If beneficiary dies before insured)

4 Disability basic riders

1) Waiver of premium- waives premium if insured becomes disabled; 6 month waiting period to get approved and then the person is refunded premiums. Expires when person is 65 and over! 2)Waiver of cost of insurance- found in UNIVERSAL LIFE POLICIES; cost of insurance is waived in event of insured's disability. POLICY DOES NOT ACCUMULATE CASH VALUE DURING THIS TIME. IN ORDER TO GROW YOU MUST PAY CASH VALUE PORTION! 3) Disability Income Benefit- Waives policy premiums; pays monthly income to insured. Based on percentage of face amount of policy WAIVER OF PREMIUM + Additional Income = Disability Income benefit 4) Payor Benefit - applies to juvenile policies; Waived premium until child is 21

Free look period

Also known as "right to examine" Has 10 days to look over and gets full refund if they don't like 10 days begin when policy is delivered

Incontestability clause operates to

prevent insurer from denying a claim based on an application statement that is a material misstatement or concealment of facts from insured Kicks in AFTER 2 years of in force policy DOES NOT APPLY TO NON PAYMENT OF PREMIUMS OR AGE SEX AND IDENTITY

Family term Rider

Spouse and children are covered under one rider

Nonforfeiture option in regards to reduced paid up means

the cash value of the original policy upon surrender is used to purchase a new fully paid up policy with a REDUCED face amount. PAID in a net SINGLE premium The new policy must be the SAME KIND as original (ex participating paid up policy to participating paid up policy)

Policy provisions include:

1) Entire Contract 2) Insuring Clause 3) Free Look 4) Consideration 5) Owner's rights 6) Assignments 7) Beneficiary Designations 8) Premium Payment 9) Reinstatement 10) Incontestability 11) Misstatement of Age & Gender 12) Policy Loan and Withdrawal options 13) Exclusions 14) Suicide

Irrevocable designation:

Policy owner needs written consent to change (from beneficiary) Cannot borrow from policy cash value Cannot assign policy to another person

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

provisions

Provisions explain

rights and characteristics of insurance contract

AN insured has a life insurance policy from a participating company and receives quarterly dividends. He has instructed the company to apply the policy dividends to increase the death benefit. The dividend option that the insured has chosen is called what?

Paid-up additions

Revocable designations:

Policy owner can change beneficiary at any time