AD Banker Chapter 4
Entire Contract Clause
-describes the parts of the life insurance contract -consists of the policy, riders (endorsements), amendments, and a copy of the application
Policy Loan Rate Provisions
-fixed rates can have a maximum fixed interest rate of 8% or less -adjustable (variable) interest rate, the maximum rate is based upon Moody's corporate bond yield average and is stated in the policy -loan amount cannot exceed the available cash surrender value
Misstatement of Age or Gender
An insurer can refund any overpaid premiums if the amount of premium paid was greater than should have been paid. The insurer can reduce the face amount in cases where the amount of premium paid was less than that which should have been paid
Premium Reduction Dividend Option
Dividends are applied toward the next premium due
Suicide Clause
If the insured commits suicide, while sane or insane, within typically 2 years from the issue date, the insurer's liability is limited to a refund of premium. If the insured commits expi suicide after the suicide clause has expired, the insurer must pay out the death benefit to the named beneficiary.
Premium
Mortality- interest= net premiums Net premiums+ Expenses= Gross premiums
Status Clause
No coverage for individuals with military status since these individuals are provided coverage through the government
Hazardous Hobbies or vocation
No coverage if death is related to a hazardous hobby as stated in the policy, such as sky diving or hot air ballooning.
Hazardous Occupation
No coverage if death is related to a hazardous occupation as stated in the policy, such as stunt drivers or auto racers
Results Clause (War Clause)
No coverage if death is the result of war declared or undeclared.
Fixed Amount Settlement Option
Payments are for a specified dollar amount paid monthly until the benefits are exhausted
Fixed Period Settlement Option
Payments are guaranteed for a specified period of time, such as 10 or 20 years, after which time payments will cease
Joint and Survivor Income Option
Payments are guaranteed for the lifetime of 2 or more recipients. Upon the death of the first recipient, payment continues to the survivor(s) until death of the survivor
Straight Life (Pure or Life Income Only)
Payments are guaranteed for the lifetime of the recipient
Life Income Period Certain
Payments are guaranteed for the lifetime of the recipient or a specified period of time, whichever is longer
Joint Life Income Option
Payments are guaranteed to 2 or more recipients until the first recipient dies, then all payments cease
Life Refund
Payments are made for the lifetime of the recipient
Paid-Up Dividend Option
Pays off the policy more quickly than scheduled
Reduced Paid-Up
Present cash value is used to buy a single premium, permanent paid-up policy of a reduced face amount
1-Year Term Dividend Option
Purchases a single premium, 1-year term benefit
Paid-Up Additions Dividend Option
Purchases single premium, additional permanent benefits at the insured's attained age
Accumulate at Interest Dividend Option
The dividends are retained by the insurer and the interest rate paid the policyowner is compounded annually
Revocable Beneficiaries
The policy owner may change a revocable beneficiary at any time.
Irrevocable Beneficiaries
The policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change. If an irrevocable beneficiary is named, the owner gives up the right to make changes to the policy that affect the coverage or benefits without consent of the beneficiary
Cash Dividend Option
The policyowner receives the declared dividends in the form of a check on or near each policy anniversary
Surrenders
This action will cancel the insurance coverage. The policy owner is entitled to receive the cash surrender value in the policy
Incontestability Clause
Within the first 2 years of a policy, the insurer may contest a claim and void the contract upon proof of a material misstatement or fraud
Suicide
Within the first 2 years, death due to suicide is excluded from coverage as stated in the suicide clause.
Life Income Settlement Option
allows the insurer to use the death benefit to purchase an annuity on behalf of the beneficiary
Aviation
applies most specifically to student pilots or those with a newly issued pilot's license with a limited number of hours of flying experience
Minors Beneficiary Designations
are named as beneficiaries, but no trust has been established, the funds are placed in a settlement option (held with interest), with the insurer acting as trustee. The guardian or legally responsible adult may receive payments for the benefit of the child, until the child is eligible to receive the lump sum at the age of majority
Dividend Options
available on participating policies issued by mutual insurers. They are paid annually if declared and cannot be guaranteed
Exclusions
conditions stipulated in the contract for which the insurer will not provide coverage
Interest Only Settlement Option
death benefit proceeds may be left with the insurer while interest payments are paid at least annually or more frequently
Reinstatement
designed to put a policy back in force as if the lapse never occurred
Collateral Assignment
does not cause a permanent change in ownership. However, the rights of the owner will be subject to the assignment (typically used when an insurance policy is used as collateral for a loan)
Automatic Premium Loans (APL)
enables the insurer to automatically borrow against the cash value to cover a premium payment to prevent the contract from lapsing unintentionally
Standard Provisions
explain what the contract consists of, what duties and responsibilities the parties to the contract have, how the policy works, and basically spells out the agreement between the policyowner and the insurance company
Mode of Premium
frequency of premium payments and to whom the premiums are payable
Common Disaster Clause
if an insured and primary beneficiary die as a result of the same event, the primary beneficiary must survive the insured by a specific period of time (usually 90 days) or the insurance company will assume the insured died last (the primary beneficiary died first)
Individual/Named Beneficiary Designations
individual is specified by name as the beneficiary
Cash Refund
lump sum, how life insurance benefits are paid unless another mode of settlement has been selected
policy loan
may be made in a cash value policy once there is sufficient cash value to borrow against, which must be made available no later than by the end of the third policy year.
Partial Withdrawals or Partial Surrenders
only permitted in a Universal or a Variable Universal Life policy paid directly from the cash value and reduces both the amount of the death benefit and the amount of cash value in the policy
Owner's Rights (Ownership Provision)
policy owner retains all rights in the policy
Accelerated Death Benefits
provide for early payment of a portion of the face amount prior to death. This provides tax-free access to policy benefits based on an insured qualifying as terminally ill or chronically ill
Tertiary Beneficiary
receives policy proceeds if both the primary and the contingent beneficiaries predecease the insured
Contingent or Secondary Beneficiary
receives the death benefit only if there is no primary beneficiary alive following the death of the insured
Non forfeiture Options (Guaranteed Values)
required in policies that accumulate cash values and protect the policy owner against total loss of benefits if the policy should lapse due to nonpayment of premium or is intentionally cancelled
Consideration Clause
specifies the amount and frequency of premium paid by the owner as something of value provided in exchange for the company's promise to pay
Primary Beneficiary
the first in line to receive the death benefit upon the death of the insured
Insuring Clause (Proof of Death)
the insurance company's promise to pay the policy's death benefit to the named beneficiary, after receiving due proof of death of the insured, as long as the insured died while the policy was in force
Extended Term
the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy
Absolute Assignment (permanent assignment)
the original owner will name a new owner of the policy
Cash Surrender
the policy owner will receive the cash surrender value stated in the policy less any outstanding loans and accrued interest
Grace Period
the time period provided after the premium due date before a policy lapses, a typical grace period is a month (30 or 31 days) unless state law specifies otherwise
Assignment
the transfer of ownership
Class or Classification Beneficiary Designations
used in instances where each beneficiary is not directly identified by name. The wording of the class designation must be specific and carefully worded to remove any doubt of the owner's intentions
Free Look (Right to Examine Period)
usually 10 days, unless state law specifies otherwise, to allow the policy owner following receipt of the policy to look it over. If dissatisfied for any reason, the owner has the right to return it for a full refund of any premiums paid