Insurance
Contingent beneficiary
"The person named in a life insurance policy to become the beneficiary if the original beneficiary dies before the insured; The designated person to whom property will go, upon the death of someone else if the beneficiary is not living." can be more than one individual and benefits divided
cost of living rider
(COLA) - Provides for an automatic increase in benefits (typically tied to the CPI), offsetting the effects of inflation.
Settlement Options
-Lump Sum Cash Payment -Interest Only -Fixed Time -Fixed Amount -Life Income
grace period
30 or 31 day period in which late premium may be paid without policy lapsing.
Tertiary beneficiary
3rd in line after Primary and Contingent Beneficiaries
One year term option
A dividend option under which the insured has the company purchase one-year Term insurance with the dividend. For example, your dividend is $100, which you could have taken as cash. Instead, you have the insurer use the money to buy you an additional 1 year term policy at your current age. If you die in the term, your beneficiary will receive the proceeds of your Life policy PLUS the face amount of the one year term policy. At the end of the year, the term policy expires.
Cash dividend option
A dividend option under which the policyholder receives the dividends in cash. Not subject to tax. Mutual insurers issue participating policies, which might pay dividends, but they are not guaranteed. Usually annually
Automatic Premium Loans
Allows the company to pay premium from the cash value so it dont lapse policy - no additional charge
Misstatement of age
Clause In a life policy, provides that if misstatement of age is discovered after policy issue, the insurer may, if the insured is living, adjust the amount of future premiums and request payment of the additional premium the policyowner should have paid; or if the insured has died, the insurer may adjust the face amount of the policy to coincide with the amount of insurance the premium would have purchased had the correct age been known, and pay the death benefit claim on that basis.
Aviation exclusion
Either attached by rider or included in standard policy language excepting from coverage certain deaths or disablities due to aviation, such as "other than a fare-paying passenger" 117
Waiver of Cost insurance Rider
Found in Universal Life policy If in the event of disability waives premium for cost of insurance but does not waive the cost of premiums necessary to accumulate cash values.
Paid up insurance
Paid Up Insurance: uses value to provide the largest possible policy that would be "paid up" with "no further payments required", this would be the same plan but with REDUCED coverage, provides coverage FOR LIFE The insurer accumulates the dividends at interest and then uses them + interest + policies cash valueto pay the policy up early
Effect on Accelerated Death benefit
Payable Death benefit = Face amount - amount withdrawn - earnings lost by insurer in interest.
Primary beneficiary
The beneficiary who is first entitled to receive the policy proceeds on the insured's death. may be more than 1 person and benefits divided
Cash value withdrawals or partial surrenders
Universal Life Policies allow the partial withdrawal or surrender of the policy cash value. However there may be a charge and usually limits of how often and how much
payment of claims
Upon receipt of a written proof of loss, the insurer must pay death claims immediately. (Most states interpret this to be within 30 days.) If there is no beneficiary named in the policy, the death proceeds are paid to the estate of the insured. (An insurer cannot delay the payment of a death claim until the settlement of the estate of the insured has been completed.)
guaranteed insurability
allows the insured to purchase additional coverage at specified future dates or events, such as marriage, birth of a newborn child, etc. without evidence of insurability; usually expires at age 40
Trusts
can be used for minors, create scholarship fund or support college, estate planning, keeps death proceeds out of the insured's taxable estate. Expensive to administer
irrevocable designation
designation may not be changed without the written consent of the beneficiary. policyowner may not borrow against the policy or assign the policy to another person without the beneficiary's agreement.
Family rider
family term= spouse term + childrens term in a single rider
Right to examine
free look allows the policy owner 10 days to look over policy and if for any reason, return it for a full refund replacements 20 days and 45 days for intercompany replacements
Total disabilty
inability to perform the duties of any occupation for payment as the result of injury or sickness
lump sum settlement
pays entire death benefit, tax-free, to beneficiary at one time there is no accumulated interest under this disrtibution choice
Nonforfeiture values
provide help when the insured no longer wants to pay premiums., Those benefits in a life insurance policy that by law, the policyowner does not forfeit even if he or she discontinues premium payments; usually cash value, loan value, paid-up insurance value and extended term insurance value
entire contract
provision simply stipulates that the policy and a copy of the application, along with any riders or amendments
exclusions
provisions written into the insurance contract denying coverage or limiting the scope of coverage, for certain conditions or services ex: aviation, hazardous occupation, war or military
Life income option
A life insurance policy settlement option under which the insurance company agrees to pay the policy proceeds in period installments over the payee's lifetime. The amount of payments is based upon the value of the contract and the life expectancy of the recipient. Does not guarantee that the entire death benefit will be distributed.
Reduced paid up insurance
A nonforfeiture option contained in most life insurance policies providing for the insured to elect to have the cash surrender cash value of the policy used to purchase a paid-up policy for amount of insurance
revocable designation
a policyowner without consent or knowledge of the beneficiary may change the beneficiary designation
return of premium
acheived by using increasing term insurance. death prior to a given age not only is face amount payable but also premiums previously paid are payable to the beneficiary. this rider usually expires at age 60
Reduction of premium payments
insurer uses dividend to reduce the next years premium
Beneficiary classes
per capita - by the head per stirpes - by the bloodline
Dividend options
1: Cash (tax-free); 2: Apply to future premiums; 3: Retained by Insurer @ interest; 4: Buy Paid-up WL policy add-ons; 5: Pay-up existing policy; 6: Buy 1-yr. Term policy.
Payor benefit rider
A rider or provision, usually found in Juvenile policies, under which premiums are waived if the Payor of the premium (usually a parent) becomes disabled or dies while the child is still a minor. until minor reaches age 21
children's rider
children to be added to coverage for a limited period of time for a specified amount; can include step children expires when minor reaches 18 and usually provides the minor with the option of converting to a permanent policy at this time.
Incontestability
clause stating that once a policy is in effect for two years, company cannot deny payment of a claim or cancel due to fraud
Accidental death rider
doubles or triples the face value payment if death results from an accident and other conditions are met. Death must usually occur withing 90 days of an accident Usually expires at age 65 no cash value accumulated
Minor Beneficiary
need to be given to a guardian or a trustee of the minor or placed in trust for the minor. The trustee is accountable for assets but the guardian may not be. Not a good practice.
Extended term option
nonforfeiture option providing for the insured to use the policies cash value to purchase in a single premium a term policy that is equal to the original policies face value using nonforfeiture table of guaranteed values.
Beneficiary
person or interest to who policy proceeds will be paid upon the death of the insured
Payment of premiums
policy stipulates when the premiums are due and how often they are paid
Spendthrift Clause
prevents the beneficiary's reckless spending of benefits by requiring that the benefits be paid in a fixed period or fixed amount installments. protects the benefits from claims of creditors of the beneficiary or policyowner.
Accidental death and dismemberment
principal sum is paid for accidental death, capital sum is paid for accidental dismemberment
Single life option
single beneficiary receives a specified amount of money periodically for life until death
spouse rider
spouse to be added to coverage for a limited per of time and for a specified amount;usually ends when spouse turns 65
Estate Beneficiary
if none of the beneficiaries are alive at the time of insureds death, or none has been named, the insured's estate (assets and liabilities left by the insured at death) will automatically receive the proceeds of a life insurance policy. Death benefit may be included in the insured's taxable estate.
Paid up additions
Additional single-premium Life insurance paid for by policy dividends and added to the face amount. For example, your mutual insurer declares a $100 dividend, which you could have taken as cash. Instead, you ask them to use the money to buy you an additional Whole life policy, which is paid up to age 100. Although this additional policy is small, no physical exam is required, so this option is very popular with clients who have health problems. Over a period of time, you can obtain substantial additional coverage.
Waiver of Premium Rider
In the event an insured becomes totally disabled, after 6 months this rider takes effect. The insurer pays the premiums for the duration of the disability. Cash values are not affected, and dividends are paid if the policy is participating. Usually expires when insured reaches age 65
Accumulation at Interest
insurance company keeps the dividend and it accumulates interest. The policyowner is allowed to withdrawal dividends at any time. interest on dividends are taxable to the ploicyowner as they are credited to the policy whether the policy owner actually receives them or not
Interest only settlement
insurer retains proceeds and paying periodic payments of the interest earned by the principal (the death benefit) usually a temporary use ex: SPOUSE receives interest and children receive principal when they reach legal age. interest is taxable
Exclusions to Accelerated Benefits rider
war, active duty as a memeber of armed forces, committing assault or felony, participating in a riot or insurrection, a fight in which the insured is a voluntary participant, suicide, intentionally self inflicted injury, engaging in an illegal occupation, travel in an aircraft or spacecraft, voluntarily taking drugs (non prescribed) and chronic alcholism.
dividend
higher premiums are charge by participating insurer "grossed up" i the extra amount charged is not needed because mortality experience improves or interest earned by the company exceeds assumptions the dividend will be be paid to the policyowner called return of excess premiums these ARE NOT TAXABLE and not guaranteed.
Conditions for payment of Accelerated benefit
if insured is faced with terminal illness or in some cases a nursing home and the policy includes this rider they may be able to immediately request payment of a portion of the death benefit for financial relief. THIS IS A NON TAXABLE BENEFIT there may be a probationary period 90-180 days
Reinstatement
this provision allows the policy an opportunity to put a lapsed ploicy back in force subject to proving insurability. The maximum time limit is usually 3 years after the policy has lapsed The policy owner must pay all premiums plus interest not to exceed 6% and may be required to pay outstanding loans and interest
Life income Joint and survivor
guarantees an income for two or more recipients forong as they live most contracts provide that the surviving recipient will recieve a reduced payment after the 1st recipient dies. Most commonly joint and 1/2 survivor or joint and 2/3 survivor This option guarantees payment for life but does not guarantee entire death benefit distributed.
common disaster
A provision in a Life contract that provides that the Primary Beneficiary must outlive the insured by a specified period of time in order to receive the proceeds. If not, then the Contingent Beneficiary receives the proceeds. The provision is designed to protect the rights of the Contingent Beneficiary in the event of simultaneous (or nearly simultaneous) death of the insured and the Primary Beneficiary. The time limit is usually 10, 15, or 30 days, depending on state law. Also known as the Uniform Simultaneous Death law.
Accelerated benefit
A supplemental benefit that gives a policyowner-insured the right to receive all or part of the policy's death benefit before her death if certain conditions are met. Also known as a living benefit in the US.
prohibited provisions including backdating
Life insurance policies cannot be delivered in Pennsylvania if they contain a provision for any of the following: forfeiture of the policy for failure to pay any policy loan or interest while the total indebtedness on the policy is less than the cash value, limiting the time within which any legal action may begin to less than 2 years after the cause of any action occurs, backdating for more than 6 months, for any settlement at policy maturity of less value than the amount insured on the face of the policy + any dividend additions - any indebtedness to the insurer - any premium deducted under the terms of the policy
backdating
Making the effective date of a policy earlier than 6 months before the application date.
Fixed period option
The proceeds (both interest and principal) of a life insurance policy are paid over a specified period or term also called period certain. size of installment is determined by amount of principal, guaranteed interest and the length of period selected. longer period smaller installment. excess interest will not affect time period only amount of installment. Does not guarantee income for life of beneficiary but does guarantee the entire principal wil be distributed.
Policy Loan
it is when the policyholder can obtain a large portion of the cash value of the policy without surrendering the policy by borrowing against the cause value in the form a loan. Loan value = cash value - (unpaid loans and interest) Any outstanding loans at the time of the insureds death will be considered a debt to the policy and the death benefit will be reduced by the amt of the loan+accrued interest
Disability Income Rider
provides a specified benefit includes waive the policy premiums and pay a monthly income to the insured if disabled. amount is based on percentage of face amount of the policy to which the rider is attached
Modification clause
requires that any changes made to must be endorsed and attached to the ploicy over the signature of an authorized officer of the insurer
Fixed amount Option
selection of a smaller payment will increase the payment periods. Interest rates do not affect the payment amount on a fixed-amount option. Instead, they affect the length of the payment period. If there is excess interest to be paid, it will lengthen the payment period rather than the amount of the payment. The larger the installment is the shorter the income period will be.
Cash Surrender Value
the amount that the insurance company will pay on a given life insurance policy if the policy is cancelled prior to the death of the insured If the cash value exceeds the premiums paid the excess is taxable as ordinary income. Insured no longer covered.
