Life and Health: Life Insurance Policy Provisions, Options, and Riders Pt. 2

Fixed-period installments option

- also called period certain - specified period of years is selected, and equal installments are paid to the recipient - payments will continue for the specified period even if the recipient dies before the end of that period

Life-income option

- also known as straight life - provides recipient with an income that he or she cannot outlive

The policyowner chooses one of the following nonforfeiture options:

- cash surrender value - reduced paid-up insurance - extended term

Life refund income option

- comes in either a cash refund form or an installment refund form - both options guarantee that the total annuity fund will be paid out to the annuitant or to the beneficiary

Long-Term Care (LTC) coverage

- often purchased as a separate policy - can be marketed as a rider to a life insurance policy - 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

Reduced Paid-Up Insurance

- policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy - new reduced policy builds its own cash value and will remain in force until death or maturity

Single life option

- provide a single beneficiary income for the rest of his/her life - upon death of beneficiary, payments stop

Accelerated (Living) Benefit rider

- provides for an early payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years, or has other qualifying conditions - does not cover disability

Accelerated death benefits allow the early payment of a portion of the death benefit if the insured has any of the following conditions:

- terminal illness - medical condition that requires an extraordinary medical intervention (such as an organ transplant) for the insured to survive - medical condition that without extensive treatment drastically limits the insured's lifetime - inability to perform activities of daily living (ADLs) - permanent institutionalization or confinement to a long-term care facility - any other conditions approved by the Department of Insurance

__________ are paid only on participating policies.

Dividends

What is another name for Accelerated Benefit rider?

Living Needs Rider

__________ are required by state law to be included in the policy.

Nonforfeiture values

__________ options are triggered by policy surrender or lapse.

Nonforteiture

If the policyowner has neglected to select one of these nonforfeiture options, the insurer will __________ implement the extended-term option in the event of termination of the original policy.

automatically

Installment refund option

beneficiary would receive the remaining funds in the form of continued annuity payments

Because permanent life insurance policies have cash values, certain guarantees are built into the policy that __________ by the policyowner.

cannot be forfeited

Insurance companies __________ dividends.

cannot guarantee

Under life-income (straight life) settlement option, the recipient __________.

cannot outlive the benefit payments

In other words, __________ are a return of excess premiums, and for that reason they are not taxable to the policyowner.

dividends

Accelerated benefit =

early payment of part of death benefit to the insured from the insurer for qualifying medical expenses

Dividends are a return of __________; therefore, not taxable when paid to the policyowner.

excess premiums

Payable death benefit =

face amount - amount withdrawn - earnings lost by insurer in interest

Settlement options are triggered by the __________ or __________.

insured's death or age 100

Extended Term

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

Although the dividends themselves are not taxable, the __________ is taxable to the policyowner when credited to the policy, whether or not the policyowner receives the interest.

interest on the dividends

Upon the death of the insured, or at the point of endowment, the contract is designed to pay the proceeds in cash, called a __________, unless the recipient chooses a different mode of settlement.

lump sum

Settlement options

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

Joint life with term certain policy

pays to 2 or more persons and stops paying at the death of the first

Cash refund option

if the annuitant dies before the annuity fund is depleted, a lump-sum settlement of the remainder would be made to the beneficiary

No new separate policies are issued; however, each of these small single premium payments will __________ of the original policy by whatever amount the dividend will buy.

increase the death benefit

Interest-only option

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

The first dividend could be paid as early as the first policy anniversary, but must occur __________.

no later than the end of the third policy year

If the policyowner did not chose the dividend option, the insurer will automatically use __________ to increase the death benefit of the original policy by the amount the dividend will buy.

paid-up additions

Fixed-amount installments option

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

One-Year Term Insurance

policy owner's choice is to either use the dividend as a single premium on as mush 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

Purpose of Living Needs rider:

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

What is the purpose of the Accelerated (Living) Benefit rider?

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

Living Needs rider

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

Life income with period certain option

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

The amount of each installment paid is based on the __________ life expectancy and the amount of principal.

recipient's

Surrender charge

fee charged to the insured when a life policy or annuity is surrendered for its cash value

Life income joint and survivor option

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

Extended term is the automatic nonforfeiture option:

same face amount, shorter term of coverage