Chapter 6: Life Insurance Policy Provisions

Assignment Provision

- Change of ownership - Collateral Assignment = Temporarily Change - Absolute Assignment = Permanent Change

Entire Contract Provision

- Identifies exactly what represents the entire contract between the two parties. - Entire contract = Policy + Application + (Riders) - This also outlines that statements made in the application are representations not warranties. - Agents do not have the authority to change a policy, only authorized officers are.

Policyowners Rights or Ownership Clause (provision)

- The policyowner has all the rights regarding the policy. - Policyowner can name and change the beneficiaries, - He can select how they will get paid. - He can assign the policy to someone else. - He can cancel the policy and select a nonforfeiture option. - Decide on the premium mode - Receive a policy dividend.

Insuring Clause (provision)

- This is the companies promise to pay following a loss.

Consideration Clause (Provision)

- This is the policyowners promise to pay premiums.

Automatic Premium Loan Provision

- whole life provision - The company takes a loan from your cash value and pays your premium, it is a loan, so there is interest.

Reinstatement Provision

-permits the owner to reinstate a lapsed policy if the cash value is still enforced. Policyowner must do the following: - pay all back premiums with interest - Show proof of insurability - Repay any outstanding policy loans - Act within a 3 to 5 year period as determined by state laws

Time Limit on Lawsuits Clause

After submitting the claim, the Insured must wait 60 days prior to filing any lawsuit. And any lawsuit must be filed within 3 years - this time limit is also referred to as a Statute of Limitations

Grace Period (provision)

Coverage remains in effect for 31 days past premium due date; benefits paid during grace period would be deducted from sum.

Primary Beneficiary

Is the first person to receive death benefits.

Misstatement of Age or Gender

Just correct the statements and adjust the premium accordingly

Class Designations (Beneficiaries)

Per Capita: The benefits will be paid to the surviving persons of the insured. Per Stirpes: The death benefit would go to the next in bloodline.

Common Disaster Provision

Sometimes added to a policy and designed to provide an alternative beneficiary in the event that the insured as well as the original beneficiary dies as the result of a common accident. The Beneficiary must outlive the insured by 30 days and if he or she does that family will get the death benefit.

Section 1035 Exchange

Tax Free exchange - Life insurance to annuity contracts - Life insurance to life insurance - Annuity contracts to annuity contracts Subject to tax if exchange is - Annuity contract to Life insurance

Uniform Simultaneous Death Act (USDA)

The USDA provides for disposition of property in cases where persons who would otherwise take from each other die "simultaneously" (within 5 days). The effect is that the property of each person passes as if the other had predeceased him. The last to die, that family will get the estate.

Suicide Clause

The insurance company will pay a loss of suicide if the insured dies or kills himself after 2 years of having the policy.

Policy Provisions

These are conditions or clauses that identify the rights and obligations of both parties to the contract. (Rules of the Road)

Revocable Beneficiaries

These means the policyowner can change the beneficiaries.

Free Look Provision

This gives the policyowner an unconditional right to refund within 10 days of the policy receipt. This time period does not start until the policy is delivered to the client.

Irrevocable Beneficiaries

This means the policyowner can not change the beneficiaries.

Accelerated Death Benefits

early receipt of life insurance proceeds that are not taxable under certain circumstances, such as the taxpayer is medically certified with an illness that is expected to cause death within 24 months.

Contingent Beneficiary

is the second person to receive death benefits.

Incontestable Clause

the insurer cannot contest the policy after it has been in force two years during the insured's lifetime

Viatical Settlement

the sale of a life insurance policy by a terminally ill insured to another party, typically to investors or investor groups, who hope to profit by the insured's early death - The money comes from another company