Life Insurance Policy Provisions, Options and Riders - Chapter 4

Tertiary Beneficiary

A third in line for the death benefits in the events that both the primary and contingent beneficiaries predecease the insured

Cost of Living Rider

Addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured.

Reinstatement Provision

Allows a lapsed policy to be put back in force. The maximum time limit for reinstatement is usually 3 years. A surrendered policy cannot be reinstated.

Guaranteed Insurability Rider

Allows the insured to purchase additional coverage at specified future dates or events without evidence of insurability.

Right to Examine (Free Look)

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

Trust

An arrangement in which funds or property are held by a person or corporation for the benefits of another person. Commonly established for minors, or to create scholarship fund.

No Beneficiary

Benefits/proceeds go to the insured's estate

Automatic Premium Loans

Special type of loan that prevents the unintentional lapse of a policy.

Spendthrift Clause

When included in a life insurance policy, protects beneficiaries from the claims of their creditor, as well as prevents the beneficiary's reckless spending of benefits by requiring that the benefits be paid in a fixed period or fixed-amount installments.

Riders

Written modification attached to a policy that provide benefits not found in the original policy

Revocable vs. Irrevocable

without consent or knowledge of the beneficiary, may change a revocable designation at any time. An irrevocable designation may not be changed without written consent of the beneficiary.

Misstatement of Age and Gender

If made on an application, it will result in adjustments of premium or benefits.

Return of Premium Rider

Implemented by using increasing term insurance. When added to a whole life policy, it provides that a 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

Family Term Rider

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

Collateral Assignment

Involves a transfer or partial rights to another person. Partial and Temporary Transfer

Absolute Assignment

Involves transferring all right of ownership to another person or entity. Complete and Permanent Transfer

Modifications or Changes within a Policy

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

Children Term Rider

One Premium for ALL children

Policy Loans are available when:

Only available in policies that have cash value (whole life)

Accidental Death Rider

Pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must usually occur within 90 days of such an accident. The benefit is normally two times the face amount.

Grace Period

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)

Entire Contract

Policy + Copy of Application + Any Riders of Amendments

Incontestability Clause

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 of facts or concealment of material facts.

Payor Benefit Rider

Primarily used with juvenile polcies (any life insurance written on the life of a minor); otherwise, it functions like the waiver premium rider.

Suicide Exclusion

Protects the insurers from individuals who purchase life insurance with the intention of committing suicide. If the insured commits suicide within 2 years following the policy effective date (issue date), the insurer's liability is limited to a refund of premium.

Other Insured Rider

Provides coverage for one or more family members other than the insured. Usually level term insurance

Accelerated (Living) Benefits 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

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.

Outstanding Loans at the time of Death

The loan amount will be considered a debt to the policy and the death benefit will be reduced by the amount of indebtedness.

Waiver of Cost of Insurance

This rider is found in Universal Life. In the event of disability of the insured, this rider waives the cost of insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values.

Waiver of Premium

This rider waives the premium for the policy if the insured becomes totally disabled. Most insurers impose a 6-month waiting period from the time of disability until the first premium is waived.

Assignment

Transfer of rights of policy ownership

Exclusions

Types of risks the policy will not cover. Most common exclusions are aviation, hazardous occupation, and war and military services.

Partial Withdrawals

Universal Life policies allow the partial withdrawal of the policy cash value. However, there may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made.

Common Disaster Clause

When added to a policy, provides that if the insured and the primary beneficiary died in a common disaster (even if the beneficiary died first, so the proceeds will be paid to either the contingent beneficiary or to the insured's estate. Protects the contingent beneficiary