Life policy riders, provision, options, and exclusions
dividend options
-Cash -Reduction of premium -Accumulation at interest -Paid-up additions (automatic) -one year term
types of assignment
-absolute -collateral
family term rider
incorporates the spouse term rider along with the children's term rider in a single rider
irrevocable beneficiary designation
may not be changed without the written consent of the beneficiary -Policyowner can also not borrow against the policy's cash value or assign the policy to another person without the beneficiary's agreement
settlement options
methods used to pay the death benefits to a beneficiary upon the insured's death or age 100 -cash (automatic) - Life income - interest only - fixed period - fixed amount
options
offer insurers and insureds ways to invest or distribute a sum of money available in a life policy
life income with period certain
payments are guaranteed for a lifetime of the recipient, but there is also a specified period that this is guaranteed
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 occur 90 days of such accident -Benefit is normally two times (double indemnity) the face amount
common disaster
provides that the insured and the primary beneficiary died in a common disaster, it is presumed that the primary beneficiary died first, so the proceeds will be paid to either the contingent beneficiary or to the insured's estate -Primary beneficiary death must occur within 14 to 30 days of the insured -Protects the contingent beneficiary
life income (straight life)
provides the recipient with an income that he or she cannot outlive
dividends
return of excess premiums, not taxable when paid to the policyowner -Insurer uses dividend to reduce the next year's premium -Interest on dividends is taxable
insuring clause
sets forth the basic agreement between the insurer and the insured -States insurer's promise to pay the death benefit -Located on the policy's face page -Defines who the parties to the contract are, the premium to be paid, how long coverage is on force, and amount of death benefit
automatic premium loan
special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium
assignments
specifies the policyowner's right to assign (transfer rights of ownership_ the policy -must advise the insurer in writing -Transfer of life insurance policy does not change the insured or amount of coverage, it only changes who has the policy ownership rights
entire contract provision
stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract -No statements made before the contract was written can be used to alter the contract -Neither the insurer nor the insured may change policy provisions once in effect without both parties agreeing to do so -Entire contract= policy + copy of application + any riders or amendments
waiver of premium rider
waives the premium for the policy if the insured becomes totally disabled -Coverage remains until the insured is able to return to work -If never able to return, premiums will be waived -6 month waiting period from time of disability until first premium is waived
return of premium
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 -Implemented by using increasing term insurance
incontestability
prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years
payor benefit rider
primarily used with juvenile policies, if the payor becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age
suicide
protects the insurers from individuals who purchase life insurance with the intention of committing suicide -Policies stipulate a period of time during which death benefit will not be paid if insured commits suicide -Beneficiary will be entitled to a refund of premiums
long term care rider
provide 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 home
reduction of premium dividend option
The insurer uses the dividend to reduce the next year's premium
life policy provisions and options
-entire contract -insuring clause -free look -consideration -owner's rights -beneficiary designations -premium payment -reinstatement -policy loans, withdrawals, partial surrenders -nonforfeiture options -dividends and dividend options -incontestability -assignments -suicide -misstatement of age and gender -settlement options -accelerated death benefits
paid up dividend option
accumulates the dividends and then uses them, plus interest, and the policy cash value to pay the policy up early -If insured did not choose dividend option, insurer automatically uses paid up to increase death benefit
riders
added to a policy to modify provisions that already exist
term riders
allow for an additional amount of temporary insurance to be provided on the insured without the need to issue another policy · Usually attached to a whole life policy to provide greater protection at a reduced cost
flexible premium
allow the policyowner to increase or decrease the premium during the policy period
children's term rider
allows children of the insured to be added to coverage for a limited period of time for a specified amount -Provide temporary life insurance coverage on all children of the family for one premium
waiver of monthly deduction rider
pays all monthly deductions while the insured is disabled, after a 6 month waiting period -Include the actual cost of insurance charges, expense charges, and costs or charges for any benefits added to the policy by rider, endorsement or amendment, and which are specified in the policy to be deducted from the account value
accidental death and dismemberment rider
pays the principal (face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment
policy loans
policyowner is entitled to borrow an amount equal to the available cash value -Found only in policies than contain cash value (whole life)
owner's rights
-Policyowner- only one to have ownership rights -Can change beneficiary, receives the policy's living benefits, selects benefit payment options, and assigns the policy -Pays policy premium and has insurable interest
war or military service exclusion
-Status clause- excludes all causes of death while the insured is on active duty in the military -Results clause- only excludes the death benefit if the insured is killed as a result of an act of war
life policy exclusions
-aviation -hazardous occupations or hobbies -war or military service
nonforfeiture options
-cash surrender value -reduced paid-up insurance -extended term insurance
beneficiary designations
-primary and contingent -revocable and irrevocable -common disaster -minor beneficiaries
life policy riders
-waver of premium -waiver of monthly deduction -guaranteed insurability -payor benefit -accidental death and dismemberment -term riders -other insureds -long term care -return of premium
accumulation at interest dividend option
A policy dividend option under which the policy dividends are left on deposit with the insurer to accumulate at interest
fixed period installment option
A specified period of years is selected, and equal installments are paid to the recipient -also called period certain
fixed amount installment options
pays a fixed, specified amount in installments until the proceeds are exhausted -Recipient selects a specified fixed dollar amount to be paid until the proceeds are gone
accelerated death benefits
allow the early payment of a portion of the death benefit if the insured has any following conditions: -Terminal illness -Medical condition that requires extraordinary medical intervention to survive -Medical condition that without extensive treatment drastically limits the insured's lifetime -Inability to perform activities of daily living -Permanent institutionalization or confinement to a long term care facility -Any other conditions approved by the department of insurance
reinstatement
allows a lapsed policy to be put back in force -Maximum time limit is 3 years after the policy has lapsed -Have to provide evidence of insurability -Required to pay back all premiums plus interest -A policy that has been surrendered cannot be reinstated
guaranteed insurability rider
allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events without evidence of insurability, for an additional premium
misstatement of age and gender
allows the insurer to adjust the policy at any time due to a misstatement of age or gender on the application · Will result in adjustment of premiums or benefits
free look
allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied, return it for full refund of premium -Started when the policyowner receives the policy, not when insurer issues it -10 day period, 100% refund of premium
minor beneficiaries
benefits will be paid to their guardian, put into a trust, or paid as directed by the court
consideration
both parties to a contract must provide value in order for the contract to be valid -Value offered by the insured is the premium and statements made in application -Value given by insurer is the promise to pay in accordance with the terms of the contract
hazardous occupation exclusion
death that results from a hazardous occupation or hobby may be excluded coverage, underwriter also has option of charging a higher premium for insuring these risks
provisions
define the characteristics of an insurance contract and are fairly universal from one policy to the next
aviation exclusion
exclude coverage for noncommercial pilots, or require an additional premium for the coverage
primary beneficiary
has first claim to the policy proceeds following the death of the insured -Policyowner may name more than one, as well as how the proceeds are to be divided
contingent beneficiary
has second claim in the event that the primary beneficiary dies before the insured
estate
if none of the beneficiaries are alive at the time of the insured's death, or if no beneficiary is named, all of the proceeds of a life insurance policy will go in the insured's estate
spouse term rider
if the rider covers just the spouse and allows the spouse to be added to coverage for a limited period of time for a specified amount
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, annually) -Temporary
extended term insurance
insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy -Duration lasts for as long a period as the amount of cash value will purchase -Automatic nonforfeiture option: same face amount, shorter term of coverage
collateral assignment
involves a transfer of partial rights to another person -Usually done in order to secure a loan or some other transaction -Partial and temporary -Once the debt of the loan is repaid, the assigned rights are returned to the policyowner
absolute assignment
involves transferring all rights of ownership to another person or entity -Permanent and total transfer of policy rights -New policyowner does not need to have insurable interest
one year term insurance dividend option
policyowner has choice to either use the dividend as a single premium on as much 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
cash surrender value
policyowner surrenders the policy for the current value at a time when coverage is no longer needed or affordable -Cannot be reinstated once surrendered
other insureds rider
provides coverage for one or more family members other than the insured -spouse -children -family
premium mode
the manner or frequency that the policyowner pays the policy premium -Annual, semi-annual, quarterly, or monthly payments -If select mode other than annual, additional charge to offset the loss of earnings for insurance company
grace period
the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses -Usually 30 to 31 days -Purpose is to protect policyholder against an unintentional lapse of the policy -If insured dies during this period, death benefit is payable, but any unpaid premium will be deducted from death benefit
beneficiary
the person or interest to which the policy proceeds will be paid upon the death of the insured -Does not have to have insurable interest -Policyowner does not have to name one -Can be an individual, class, minor, estates, or trusts
reduced paid up insurance
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 -Remains in effect until death or maturity
revocable beneficiary designation
the policyowner, without the consent or knowledge of the beneficiary, may change a decision at any time
level premium
the premium remains the same throughout the duration of the contract
lump sum
upon the death of the insured, or at endowment, the proceeds are paid in cash unless the recipient chooses a different method -If no selection made, proceeds automatically paid to beneficiary in single cash payment -Not taxable as income