Life Policy Provisions, Riders and Options

Accidental Death Rider......................(Riders Affecting the Death Benefit Amount)

A policy rider that states that the cause of death will be analyzed to determine if it complies with the policy description of -accidental death-.

The Common Disaster Clause ................(Beneficial Designations) (Policy Provisions)

Adopted by most states in order to protect the policyowner's original intent, as well as to protect the contingent beneficiary.

Level Premium Mode....... (Provisions)

Most life insurance policies have a level premium, which means that the premium remains the same throughout the duration of the contract.

Flexible Premium Mode................ (Provisions)

Policies such as -Universal Life Insurance policies-, allow the policyowner to pay more or less than the planned premium,

Riders Covering Additional Insured..............(Policy Riders #2)

Riders that allow the policyowner to add additional insured under the original policy.

Disability Riders..............................(Policy Riders #1)

Some riders provide benefits in the event of the insured's disability, while other riders provide for partial payment of the death benefit prior to the insured's death, called accelerated or living benefits riders.

Double Indemnity ............................(Accidental Death Rider)...(Riders Affecting the Death Benefit Amount)

The benefit is normally two times the face amount.

Consideration................................. (Policy Provisions)

The binding force in a contract that requires something of value to be to be exchanged for the transfer of risk.

Children's Term Rider............................ (Riders Covering Additional Insured)

The children's term rider allows children of the insured (natural, adopted or stepchildren) to be -added- to coverage for a limited period of time for a specified amount. This coverage is also -Term Insurance-.

Paid-up Additions Option...................(DIVIDEND OPTIONS)

The dividends are used to purchase a single premium policy - in addition - to the face amount of the permanent policy.

Third Party Ownership................... (Policy Provisions)

The insurance arrangement when the policyowner and the insured are -not- the same person, the insurance arrangement

One-year Term Option.......................(DIVIDEND OPTIONS)

The insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that -increases- the overall policy death benefit. The beneficiary would receive both the (1) death benefit of the original policy and the (2) death benefit of the one-year term insurance.

Modes....... (Provisions)

The method of premium payment, whether annually, semiannually, quarterly or monthly.

Cash Surrender Value Option..............(NONFORFEITURE OPTIONS)

The policyowner simply surrenders the policy for the current cash value at a time when coverage is -no longer- needed or affordable.

Revokable designation ..........................(Beneficial Designations) (Policy Provisions)

The policyowner, -without- consent or knowledge of the beneficiary, may change at any time.

Reinstatement....... (Provisions)

The provision allows a lapsed policy to be put back in force. The maximum time limit for this provision is usually 3 years after the policy has lapsed.

Policy Options

Policyowners have decisions to make about (1) How the cash value in the policy should be protected (2) How the return of excess premium (dividends) should be invested,(3) How benefit payments will be made.

Riders Affecting the Death Benefit Amount........(Policy Riders #3)

Some riders affect the amount of the death benefit paid out to the beneficiary, and either-increase- it through multiple indemnity or refunds of premiums, or -decrease-it if a portion of the death benefit was paid out to the insured while still living.

Partial Withdrawals/Surrenders....... (Provisions)

-Universal Life Policies- allow the partial withdrawal/surrender of the policy Cash Value.

Collateral Assignment.....................(Policy Provisions)

Involves a transfer of - partial - rights to another person. • It is usually done in order to secure a loan/debt or some other transaction. (Assignment)

Absolute Assignment......................(Policy Provisions)

Involves transferring -all- rights of ownership to another person or entity.......(Assignments)

The Results Clause (War)............... (Provisions)

Only excludes the death benefit if the insured is killed as a -result- of an act of war (declared or undeclared).

Beneficial Designations...................(Policy Provisions)

The beneficiary may be a... 1. person, 2. class of persons (sometimes used with children of the insured), 3. insured's estate 4. institution 5. other entity such as a foundation, charity, corporation, or trustee of a trust.

Accumulation at Interest Option...........(DIVIDEND OPTIONS)

The insurance company keeps the dividend in an account where it accumulates interest.

Automatic Premium Loans............ (Provisions)

This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. ** The insurer will charge interest

Triple Indemnity ..............................(Accidental Death Rider)...(Riders Affecting the Death Benefit Amount)

Some policies pay triple the face amount for accidental death.

Interest Only Option..............................(SETTLEMENT OPTIONS)

With this option, the insurance company retains(holds) the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals (monthly, quarterly, semiannually, or annually). It is considered to be a temporary option.

Spouse Term Rider................................. (Riders Covering Additional Insured)

A rider that covers just the spouse of the insured and allows the spouse to be added to coverage for a limited period of time and for a specified amount. It usually expires when the spouse reaches age 65.

The Other Insured/ Family Rider................................. (Riders Covering Additional Insured)

A rider that provides coverage for ONE OR MORE family members other than the insured. The rider is usually level term insurance, attached to the base policy covering the insured. This is also known as a family rider.

Hazardous Occupations/Hobbies Exclusions....... (Provisions)

Death that results from the hazardous occupation or hobby may be excluded from coverage such as sky diving or auto-racing.

Life income Joint and Survivor Option.(SETTLEMENT OPTIONS)

Guarantees an income for 2 or more recipients for as long as they live but NO guarantee that all life insurance proceeds will be paid out if all beneficiaries die shortly after the installments begin. Commonly selected by the policyowner who wants to protect two beneficiaries (elderly parents.)

Primary beneficiary ...............................(Beneficial Designations) (Policy Provisions)

Has - first - claim to the proceeds following the death of the insured.

Common Disaster .........................................................(Beneficial Designations) (Policy Provisions)

If the beneficiary died first rather than the insured, the proceeds will be paid to the contingent beneficiary or the estate of the insured if there is no contingent beneficiary.

Guaranteed Insurability Rider............(Riders Affecting the Death Benefit Amount)

It allows the insured to purchase -additional- coverage at specified future dates, -usually every 3 years-, or events such as marriage or birth of a child, - without - evidence of insurability, for an additional premium. This rider usually expires at the insured's age 40.

Family Term Rider.......................... (Riders Covering Additional Insured)

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

Incontestability....... (Provisions)

It 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 a material fact.

Suicide....... (Provisions)

It protects the insurers against individuals using suicide as a defense to payment of life insurance benefits.

Irrevocable designation ...................................................................(Beneficial Designations) (Policy Provisions)

May not be changed -without- written consent of the beneficiary. As a result, the policyowner CANNOT borrow against the policy's cash value (as this would DECREASE the policy face value until repaid) or assign the policy to another person WITHOUT the beneficiary's agreement.

Effect on Death Benefit

Payable Death Benefit = (A) Face Amount -"MINUS"- (B) Amount withdrawn -"MINUS" (C) Earnings lost by insurer in interest.

The Living Needs Rider .....................(Disability 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. Provides necessary funds to take care of necessary medical and nursing home expenses that incur as a result of the -terminal illness-.

* Paid-up Options.................................(DIVIDEND OPTIONS)

The insurer first accumulates the dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to -pay- the policy up early. Basically, this option allows to policyowner to -pay up- early.

* Extended Term Option.........................(NONFORFEITURE OPTIONS)

The insurer uses the policy cash value to convert to - Term Insurance - for the - same - face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of CASH VALUE will purchase.

Uniform Simultaneous Death Law ................................(Beneficial Designations) (Policy Provisions)

The law will assume that the primary beneficiary died first in a common disaster.This provides that the proceeds will be paid to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated.

Premium mode....... (Provisions)

The manner or frequency that the policyowner pays the policy -premium -.

Owner's Rights................................. (Policy Provisions)

The policyowner has the responsibility of paying the policy premiums, and is also the person who must have an insurable interest in the insured at the time of the application for the insurance.

Assignments................................... (Policy Provisions)

The transfer of ownership rights of an insurance policy from one person to another.

Accelerated-Long-Term Care (LTC) ....(Disability Rider)

This rider provides for the payment of -part- of the death benefit in order to take care of the insured's health care expenses, which are incurred in a nursing or convalescent home.

Term Riders....................................(Riders Affecting the Death Benefit Amount)

This riders allow for an -additional- amount of temporary insurance to be provided on the insured,-without- the need to issue another policy. They are usually attached to a -Whole Life Policy- to provide -greater- protection at a -reduced- cost.

Waiver of Cost of Insurance ...........(Disability Rider)

A disability rider, found in -Universal Life Insurance- , that waives the -cost of the insurance- but does not waive the cost of premiums necessary to accumulate cash values.

Insuring Clause.............................. (Policy Provisions)

A general statement that identifies the basic agreement between the insurance company and the insured, usually located on the first page of the policy. It's the insurer's PROMISE to pay the death benefit upon the insured's death

Payor Benefit ..................................(Disability Rider)

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.

Aviation Exclusions....... (Provisions)

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.

Return of Premium Rider...................(Riders Affecting the Death Benefit Amount)

Expires at age 60 and uses - Whole & Increasing Term Insurance-. When added to a -Whole Life Policy-, it provides that at 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.

Riders

These are added to a policy to modify provisions that already exist.

Options

These offer insurers and insured ways to invest or distribute a sum of money available in a life policy.

Dividend Options.............................(Policy Options #2)

They are a return of excess premiums, and for that reason they are -not taxable- to the policyowner.

Settlement Options.........................(Policy Options #3)

They are the 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.

Provisions

This defines the characteristics of a insurance contract and are fairly universal from one policy to the next.

Fixed Amount Installment Option.........(SETTLEMENT OPTIONS)

This option pays a fixed,- specified amount- in installments until the proceeds (principal and interest) are exhausted. The recipient selects a specified fixed dollar amount to be paid until the proceeds are gone.

Non-family Term Rider..................... (Riders Covering Additional Insured)

This rider is common in -Key Person Insurance-. It is available to insure somebody who is -not- a member of the insured's family - non family insureds.

Accidental Death and Dismemberment Rider (AD&D)......................................................(Riders Affecting the Death Benefit Amount)

This rider pays the - principal (face amount)-for accidental death and also pays full principle or a percentage of that amount called a-capital sum-, for accidental dismemberment. Example, full principle for loss of 2 hands or half (capital sum) for 1 hand.

War or Military Service Exclusions....... (Provisions)

Two different types of exclusions that may be used to limit the death benefit if the insured dies as a result of war, or while serving in the military.

Waiver of premium .........................(Disability Rider)

It waives the premium and allows continuation of life insurance if the insured becomes - totally - disabled and is unable to pay the premium. The Insured must pay the first 6 months of premiums in order to get reimbursed and have future premiums waived. Nothing payable for partial disability.

Grace Period....... (Provisions)

The period of time -after- the premium due date that the policy owner has to pay the premium -before- the policy lapses (usually 30 or 31 days).

Entire contracts....... (Provisions)

This provision stipulates that the policy and the copy of the application, along with any riders or amendments, constitute the entire contract. (Provisions)

Reduced Paid-up Insurance Option......(NONFORFEITURE OPTIONS)

Under this option, the 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. This policy builds its own cash value and will remain in force until death or maturity.

Policy Loan....... (Provisions)

A nonforfeiture value in which an insurer loans a part or all of the cash value of the policy assigned as security for the loan to the policyowner. It is found only in policies that contain cash value. The policyowner is entitled to borrow an amount equal to the available cash value.

Free Look.............. (Policy Provisions)

A period of time (10 days), usually required by law, during which a policyowner may inspect a newly issued individual life or health insurance policy for a stated number of days and surrender it in exchange for a full refund of premium if not satisfied for any reason.

Fixed-Period Installments Option.........(SETTLEMENT OPTIONS)

Also called Period Certain Option, a -specified period of years - is selected, and equal installments are paid to the recipient. Payments will continue to the beneficiary for the specified period even if the recipient dies BEFORE the end of that period.

Life Income Option (Not Certain)............................(SETTLEMENT OPTIONS)

Also known as straight life, provides the recipient with an income that he or she -cannot- outlive. Installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death. -The longer the insured lives the more $$, but if they die soon the bank keeps the principle.

Policy Riders

Any supplemental agreement attached to and made a part of the policy indicating the policy expansion by additional coverage , or a waiver of a coverage or condition. They taylor the specific needs of the insured.

Nonforfeiture Options.....................(Policy Options #1)

Because permanent life insurance policies have cash values, certain guarantees are built into the policy that -cannot be forfeited- by the policyowner.

Minor Beneficiaries .........................................(Beneficial Designations) (Policy Provisions)

Benefits designated to a minor will either be paid to the minor's guardian, or paid to the trustee of the minor if the trust is the named beneficiary, or paid as directed by a court.

Exclusions....... (Provisions)

Causes for loss, exposures, conditions,... etc.- listed in the policy for which the benefits will not be paid.

The Status Clause (War)................ (Provisions)

Excludes all causes of death while the insured is on -active duty- in the military.

Life Income with Period Certain Option ..........(SETTLEMENT OPTIONS)

The recipient is provided with the "best of both worlds". A lifetime income and a guaranteed specified installment period. The payments guaranteed for the lifetime of the recipient, but in case of death, the payments continue to the beneficiary for the remainder of the specified certain period.

Cost of Living Rider............................(Riders Affecting the Death Benefit Amount)

This rider addresses the inflation factor by automatically -increasing- the amount of insurance -without- evidence of insurability from the insured.

Cash (Lump-Sum) Option......................(SETTLEMENT OPTIONS)

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

Policy Provisions

While there is -no- standard form in life insurance, the standard policy provisions adopted by the National Association of Insurance Commissioners (NAIC) create -uniformity- among life insurance policies.

Cash Options..........................................(DIVIDEND OPTIONS)

With this option, the insurer simply sends the policyowner a check for the amount of the dividend as it is declared, usually annually.

Reduction of Premium Option...............(DIVIDEND OPTIONS)

With this option, the insurer uses the dividend to reduce the next year's premium.

Waiver of Premium with Disability Income ...........(Disability Rider)

With this rider, in the event of disability the insurer will waive the policy premiums and pay a monthly income to the insured.

Contingent beneficiary ..........................(Beneficial Designations) (Policy Provisions)

⁃ Also referred to as (secondary or tertiary beneficiary ). It has the -second- claim in the event that the primary beneficiary dies before the insured.