policy riders, provisions, options, and exclusions.

surrender charge

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

insuring clause

sets forth the basic agreement between the insurer and the insured

settlement options- lump sum

the proceeds are paid in cash, as a rule, payments of the principal face amount after the insureds death are not taxable as income

suicide

the suicide provision in life insurance policies that protects the insurers against individuals using suicide as a defense to payment of life insurance benefits

spouse term rider

allows the spouse to be added to coverage for a limited period of time and for a specified amount.. the rider is usually term level insurance and usually expires when the spouse turns 65

status clause

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

ownership rights

explains the policyowners rights to change beneficiaries, choose options, and receive proceeds of the policy.

automatic premium loan

not required, but commonly added to contracts with a cash value at no additional charge. this is a special type of loan that prevents the unintentional lapse of a policy due to non payment of the premium

third party ownership

when the policyowner and the insured are not the same person.

reduced paid up

which nonforfeiture option provides coverage for the longest period of time

accelerated benefit provision

a provision in life insurance that allows for the early payment of some portion of the policy face amount should the insured suffer from a terminal illness or injury

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. they are usually attached to a whole life policy to provide greater protection at a reduced cost.

childrens term rider

allows children of the insured to be added to coverage for a limited period of time and for a specified amount. its term insurance and usually expires when child turns 18 or 21. most riders provide the option of converting to a permanent policy without evidence of insuribility. provides temp coverage on all children in the family for one premium

nonforfeiture options

because life insurance policies have cash values, certain guarantees are built in to the policy that cannot be forfeited by the policyowner. the guarantees are required by state law to be included in the policy

provisions

define the characteristics of an insurance contract, and are fairly universal from one policy to the next

settlement options- life income joint and survivor

guarantees an income for two or more recipients for as long as they live. most contracts provide that the surviving recipient will receive a reduced payment after the first recipient dies.

primary beneficiary

has first claim to policy proceeds following the insureds death

contingent beneficiary (secondary or tertiary beneficiary)

has second claim in the event that the primary beneficiary dies before the insured. contingent beneficiary's do not receive anything if the primary beneficiary is still alive at the time of the insureds death

extended term

has the highest amount of insurance protection

return of premium rider

is 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 the premiums paid is also payable to the beneficiary. this rider usually expires at a specified age such as age 60.

premium mode

is the manner and frequency that the policyowner pays the policy premium. most policys allow for annual, semi- annual, quarterly, or monthly payments.

aviation

most life insurance companies will cover an insured as a fare paying passenger or a pilot on a regularly scheduled airline. but will exclude coverage for non- commercial pilots, or require an additional premium for the coverage

accidental death rider

pays some multiple of the face amount if death is result of an accident as defined in the policy. death must usually occur within 90 days of an accident. the benefit is normally two times (double indemnity) of the face amount. some policy's may pay triple the face amount. rider usually expires when insured turns 65.

pay or benefit rider

primarily used for juvenile policies; otherwise, it functions like a waiver of premium rider. if the payor (usually a parent or gaurdian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21. the rider is also used when the owner and insured are two different individuals.

reduced paid up insurance

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

absolute assignment

transferring all rights of ownership to another person or entity

collateral assignment

transferring partial rights to another person or entity. usually done to secure a loan or some other transaction. a collateral assignment is a partial and temporary of some of the policy rights. once the debt or loan is repaid, the assigned rights are returned to the policy owner.

paid up option

uses the dividend to purchase a smaller amount of the same type of policy

universal life

allows flexible premium payments

settlement options- fixed amount

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

settlement options- life income

this option provides the recipient with income he or she cannot outlive. installment payments are guaranteed for as long as the recipient lives, irrespective of the date of death. the amount of each installment paid is based upon the recipients life expectancy and the amount of principal. if the beneficiary lives for a very long time payments may exceed the amount of principal. however if the beneficiary dies shortly after receiving installments, the balance of the principal is forfeited to the insurer

free look

this provision allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.

waiver of premium

waives the premium for the policy if the insured becomes totally disabled

settlement options- fixed period (also called period curtain)

a specified number of years is selected, and equal installments are paid to the recipient. in the event of the recipients death the payments would continue to a beneficiary. this option does not guarantee income for life

types of assignments

absolute and collateral

reinstatement

allows for a lapsed policy to be put back in force. the maximum time limit is usually 3 years after the policy has lapsed. the policyowner must provide proof of insuribilty. the policyowner is required to pay back all premiums plus interest( usually does not exceed 6%) and may be required to pay back any outstanding loans plus interest.

waiver of premium

allows the company to forgo collecting the premium if the insured is disabled

guaranteed insurability

allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or child birth) without evidence of insuribiltiy

guaranteed insuribility option

allows the insured to purchase specific amounts of additional insurance at specific times without proving insuribility

revocable or irrevocable beneficiary designations

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

trusts

commonly used in conjunction with beneficiary designations to manage life insurance proceeds for a minor or for estate tax purposes. (although naming a trust does not avoid estate taxes)

dividends and dividend options

dividends are paid only on participating policies. when the policyowner purchases a policy from a participating insurer, he or she actually pays a grossed up premium. the higher premium is charged as a saftey margin in the event the insurers losses are higher than anticipated. if this extra amount is not needed by the insurer to pay death claims and expences, or if actual mortality experience improves or interest earned by the company exceeds the assumptions, a dividend will be returned to the policyowner. in other words, DIVIDENDS ARE RETURNS OF EXCESS PREMIUMS, AND FOR THAT REASON THEY ARE NOT TAXABLE TO THE POLICYOWNER. INSURANCE COMPANIES CANNOT GUARANTEE DIVIDENDS. the first dividend can be paid as early as the 1st anniversary of the policy but no later than the 3rd year anniversary.

common disaster clause

if the insured and the primary beneficiary die at approximately the same time from a common accident with no clear evidence as to who died first, a problem may arise in identifying which person died first. if it is ruled that the insured died first, the policy proceeds are to be paid to the estate of the primary beneficiary, if no contingent beneficiary is named. if it is ruled that the beneficiary died first, the proceeds will be paid to the contingent beneficiary or the estate of the insured if there is no contingent beneficiary

options

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

long term care (LTC) coverage

often purchased as a seperate policy, can also be marked as a rider to a life insurance policy. these riders allow for payment of part of death benefit (called accelerated benefits) in order to take care of the insureds health care expences, which are incurred in a nursing or convalescent home. as with the living needs rider, payment of LTC benefits will reduce the amount payable to the beneficiary upon the insureds death.

results clause

only excludes the death benefit if the insured is killed as a result of an act of war

owners rights

parties to the insurance contract are: insured, insurer, policyowner, beneficiary. policyowner and insured may be same or diff persons. only policyowner has rights under the policy. ownership rights include: name changing, changing the beneficiary, receiving the policy's living benefits, selecting a payment benefit options, and assigning the policy. policyowner has responsibility of paying the policy premiums, and is also the person who must have an insurable interst in the insured at the time of application for insurance.

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.

accelerated beniefit or living needs rider

provides an early payment for part of the death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years. upon death the remainder of the policy proceeds are payable to the beneficiary.

beneficiary designations

the beneficiary does not have to have an insurable interest in the insured, the policyowner does not have to name a beneficiary in order for the policy to be valid

paid up additions

the dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy, no new seperate policies are issued; however, each of these small single premium payments will increase the death benefit of the original policy by whatever amount the dividend will buy. in addition, each of these paid up policies will accumulate cash value and pay dividends. the amount of additional coverage that can be purchased with the dividend is based on the insureds attained age at the time the dividend is declared.

total disability

the inability to engage in any work. refers to the insureds inability to perform work for the first two years. no benefits are payable for partial disability.

accumulation at interest

the insurance company keeps the dividend in an account where it accumulates interest. the policyowner is allowed to withdrawal the dividends at any time. the amount of interest is specified in the policy and compounds annually. although the dividends themselves are not taxable, the interest on the dividends are taxable to the policyowner when credited to the policy, whether or not the policyowner receives the interest.

one year term option

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 policyowner's choice is to either use the dividend as a single premium on as much one year term insurance it will buy or to purchase term insurance equal to the polic's cash value for as long as it will last. if the insured dies during the one year term, the beneficiary recieves both the death benefit of the original policy and the death benefit of the one year term policy

application to reduce premiums

the insurer uses the dividend to reduce the next years premiums. if the policyowner pays an annual premium of $1000 and the insurer declares a dividend of $100, the policyowner would only pay a $900 premium that year

extended term option

the insurer uses the policy cash value to convert to term insurance for the same face amount as the former policy. the duration of the new term coverage lasts for as long a period as the amount of cash value will purchase. if the policyowner has neglected to purchase one of these non-forfeiture options, the insurer will automatically implement the extended term option in the event of termination of the original policy.

paid up option

the insurer usually first accumulates the dividends at interest then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early. in other words, if the insured had a continuous premium whole life policy ( in which premiums are paid until age 100), using the paid up option the policyowner is able to pay up the policy early.

uniform simultaneous death law

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 the insureds estate

grace period

the period of time after the premium is due that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days)

entire contract

the policy, together with the attached application. this provision limits the use of evidence other than the contract and the attached application in a test of the contracts validility. this is a mandatory provision in life insurance.

assignments

the policyowner of a life insurance policy has the right to transfer partial or complete ownership of the policy to another person without the consent of the insurer.

cash

the policyowner surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. upon reciept of the cash surrender value, if cash value exceeds premiums paid, the excess is taxable as ordinary income. once this option is selected, the insured is no longer covered. a surrender charge is charged to the insured when a policy or annuity is surrendered for its cash value.

settlement options- life income with period certain option

the recipient is provided with the best of both worlds in terms of lifetime income and a guaranteed installment period. not only are the payments guaranteed for the lifetime of the recipient, but there is also a specified period that is guaranteed. for example a life income with a 10 year period certain option would provide the recipient with income for as long as he or she lives. if the recipient dies shortly after receiving payments, the payments will be continued to a beneficiary for the remainder of the ten year period.

settlement options joint 2/3 survivor

the surviving beneficiary receives 2/3 of what was received when both beneficiaries were alive

exclusions

the types of risks the policy will not cover. the most common exclusions found in life insurance policies are aviation, hazardous occupations, and war and military service.

irrevocable beneficiary

they have a vested interest in the policy; therefore, the policyowner may not excersize certain rights without the consent of the beneficiary. in addition to not being able to change the beneficiary designation, the policyowner cannot borrow against the policys cash value (as this would decrease the policy face value until repaid) or assign the policy to another person without the beneficiary agreement..

acceleration of endowment

this option also requires the insurer to first accumulate the dividends at interest and the the accumulated amount is used to either shorten the endowment period in the case of an endowment policy, or convert a whole life policy into an endowment.

waiver of premium with disability income

with this rider, in the event of disability the insurer will wave the policy premiums and pay a monthly income to the insured. the amount paid is normally based on a percentage of the face amount of the policy to which it is attached.