Life Insurance Policy Provisions, Options, & Riders

An insured owns a 50K whole life policy. At age 47, the insured decides to cancel his policy & exercise the extended term option for the policy's cash value, which is 20K. What would be the face amount of the new term policy?

50K

Payor Benefit

A rider found in juvenile policies which waives the premiums if the person paying them (often the parent) is disabled or dies while the child is still a minor.

Trust

An arrangement in which title to property is held by one person (a trustee) for the benefit of another (a beneficiary).

Family Term Rider

Combines the spouse and children's term rider in one rider.

What happens when a policy is surrendered for its cash value?

Coverage ends and the policy cannot be reinstated

Life Refund Income

Either cash refund form or an installment refund form

Which is TRUE about the cash surrender nonforfeiture option?

Funds exceeding the premium paid are taxable as ordinary income

If a life policy allows the policyowner to make periodic additions to the face amount at standard rates, without proving insurability, the policy includes a

Guaranteed Insurability Rider

Hazardous Occupations or Hobbies

If insured is engaged in hazardous occupation or hobbies, death that results from the event may be excluded from coverage and the underwriter has the option of charging a high premium

Which of the following is TRUE about the 10-day-free-look period in a Life Ins Policy

It begins when the policy is delivered

What would be an advantage to naming a contingent beneficiary in a life ins policy?

It determines who receives policy benefits if the primary beneficiary is deceased

Which of the following is true of a children's rider added to an insured's permanent life ins policy?

It is term coverage that is convertible to permanent insurance at or prior to the child reaching the maximum coverage age

Which of the following is true about the premium on the children's rider in a life ins policy?

It remains the same no matter how many children are added to the policy

Cash Loans

Loan Value = Cash Value - (Unpaid Loans + Interest)

Aviation

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 noncommercial pilots, or require an additional premium for the coverage.

Tertiary Beneficiary

Next in line behind the Contingent Beneficiary to receive policy proceeds if both the Primary and Contingent Beneficiaries are deceased. Also known as the Final Beneficiary, which is usually the estate of the insured. The word "Tertiary" means "third."

When calculating the amount a policyowner may borrow from a variable life policy, what must be subtracted from the policy's cash value?

Outstanding loans and interest

Partial Withdrawal

Partial surrender of the policy cash value

Effect on Death Benefit

Payable Death Benefit = Face Amount - Amount withdrawn - Earnings lost by insurer in interest

Fixed-Amount Installments Option

Pays a fixed, specified amount in installments until the proceeds are exhausted

Grace Period

Policies must offer a period of at least 30 days if a premium is not paid on time

Assignment

Policyowner of a life ins policy has the right to transfer partial or complete ownership of the policy to another person without the consent of the insurer

Misstatement of Age and Gender

Provision allows the insurer to adjust the policy at any time due to a misstatement of age or gender included in the policy

Suicide

Provision in life ins policies protects the insurers from individuals who purchase life ins with the intention of committing suicide

An insured will be allowed to reactivate her lapsed life insurance policy if action is taken within a certain period of time, and proof of insurability is provided. Which policy provision allows this?

Reinstatement Provision

All of the following are beneficiary designations EXCEPT

Specified

Children's riders attached to whole life policies are usually issued as what type of insurance?

Term

War or Military Service

The insurer will not pay the claim if the insured dies while in active military service or due to an act of war.

What is the advantage of reinstating a policy instead of applying for a new one?

The original age is used for premium determination

Primary Beneficiary

The person who is named as first to receive benefits from a policy.

Medical Examination

This provision states that the ins co can, at its own expense, examine the body of the insured, or have an autopsy performed on the deceased as often as the insurer reasonable requires pendency of a claim to determine the cause.

The paid-up addition option uses the dividend

To purchase a smaller amount of the same type of insurance as the original policy.

The waiver of cost of insurance rider is found in what type of insurance?

Universal Life

To be able to pay some medical bills, one withdraws a portion of the policy's cash value. There is a limit for a withdrawal and the insurer charges a fee. What type of policy does the insure most likely have?

Universal Life

the rider in a whole life policy allows the company to forgo collecting the premium if the insured is disabled is called

Waiver of Premium

Guaranteed Insurability

When an insured wants to buy additional insurance later on and doesnt want to worry about having to take physical exam; premiums will be adjusted

Common Disaster Clause

When insured and primary die at the same time, it is assumed that the primary died first

Absolute Assignment

all ownership rights in the policy are transferred to a new owner

Policy Loan

an advance, secured by the cash value of a whole life insurance policy, made by an insurer to the policyholder

activities of daily living (ADLs)

basic self-care tasks such as eating, bathing, toileting, walking, and dressing

Accidental Death Rider

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

Incontestability

prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years

Waiver of Premium Rider

should the owner be disabled and cant earn an income, after 6 months, all premiums will be paid by the insurer during the disability period; After 6 months, the premiums will be repaid

The interest earned of policy dividends is

taxable

Principal Amount

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

Interest Only Option

the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals

Exclusions

types of risks the policy will not cover

Contingent Beneficiary

A beneficiary who has second claim to the policy proceeds after the death of the insured

Children's Term Rider

Allows children of the insured to be added to coverage for a limited period of time for a specified amount.

Accelerated (Living) Benefits

Allows early payments of a portion of the death benefit if insured has any of the following: Terminal illness, medical condition that requires medical interventions, a medical condition that limits ones life, Inability to perform activities of daily living, permanent institutionalization, another other conditions approved by the Department of Insurance

NAIC - National Association of Ins Commissioners

An organization composed of ins commissioners from all 50 states

Primary Beneficiary

Beneficiary who has the first claim to the policy proceeds after the death of the insured

Modifications or changes

Changes to the policy must be endorsed on, or attached to, the policy in writing over the signature of an executive officer of the insurer

According to the entire contract provision, what document must be made part of the insurance policy?

Copy of the original application

What required provision protects against unintentional policy lapse?

Grace Period

Payment of Premiums

Policy stipulates when the premiums are due and how often they are to be paid and to whom

Single Life Option

Provides a single beneficiary income for the rest of his/her life

If an insured pays $1,200 annually for her life ins premium The insured applies this years $300 worth of accumulated dividends to the next year's premium, this reducing it to $900. What option does this describe?

Reduction of Premium

Assignment

Transfer of rights of policy ownership

Spendthrift Clause

A clause that prevents the debtors of a beneficiary from collecting the benefits before he/she receives them.

Which of the following names beneficiaries would NOT be able to receive the death benefit directly from the insurer in the event of the insureds' death?

A minor son of the insured

fixed period installments

A specified period of years is selected, and equal installments are paid to the recipient

Contingent Beneficiary

An alternate beneficiary designated to receive the policy proceeds in the event that the primary beneficiary dies before the insured.

Collateral Assignment

Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured's death.

Ownership

Parties of the ins contract are the insurer, the Policyowner, the insured, & the beneficiary

long-term care insurance

Provides payment for extended nursing care due to accidents, illness, or old age

Reinstatement

Provision allows a lapse in policy to be put back in force.

Right to Examine (Free Look)

Provision allows policyowner 10 days from receipt to look over the policy & if dissatisfied for any reason, return it for a full refund of premium

Entire Contract Provision

Provision stipulates that the policy and a copy of the application, along with any riders or amendments

life with certain period

Recipient if provided guaranteed payments for the lifetime of the recipient and a specific period is guaranteed

If an insured continually uses the automatic premium loan option to pay the policy premium,

The policy will terminate when the cash value is reduced to nothing

What is true about a spouse term rider?

The rider is usually level term insurance