Life Insurance Policy Provisions, Options and Riders, 24 Questions

total disability refers to the insured's inability to perform the duties of his/her own occupation for the first .....years; then any gainful employment for which the insured is reasonably suited by education, training and experience.

2

Replacing insurers must provide free-look periods extending .....days beyond the delivery of their policies.

20

.........also known as straight life, provides the recipient with an income that he or she cannot outlive. Installment payments are......for as long as the recipient lives, irrespective of the date of death.

Life Income Option, guaranteed

........option comes in either a cash refund form or an installment refund form. Both options guarantee that the total annuity fund will be paid out to the annuitant or to the beneficiary.

Life Refund Option

· which generally allows the insured to use part of the policy's face amount to pay nursing home or at home care;

Long Term Care

the recipient is provided with the "best of both worlds" in terms of a 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.

life income with period certain option

A class of beneficiary is using a designation such as "my children." This can be a vague term if the insured has been:

married more than once, has adopted children, or has illegitimate children.

The policyowner of a life insurance policy has the right to transfer...... or...... ownership of the policy to another person without the consent of the insurer. However, the owner must notify the insurer in writing of the assignment. Without a written notice, the insurer may not recognize the assignment and would not assume responsibility for its validity. The company's major concern is paying..... the claim .

partial or complete, twice

The.......... provision is not required, but is commonly added to contracts with a cash value at...... additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

automatic premium loan, no

The policy will not lapse with an outstanding policy loan unless the amount of the loan and accrued interest exceeds the available.....

cash value.

The...... waiver of (or waiver of monthly deductions) rider is found in .........Insurance. In the event of disability of the insured, this rider waives the cost of the insurance and other expenses, but does not waive the cost of........ necessary to accumulate cash values.

cost of insurance, Universal Life, premiums

The purpose of the..... period is to protect the policyholder against an unintentional lapse of the policy. If the insured dies during this period, the death benefit is payable; however, any unpaid premium will be deducted from the death benefit.

grace

The....... rider allows the insured to purchase additional coverage at specified future dates (usually every..... years) or events (such as marriage or birth of a child), without evidence of insurability, for an additional...... . When this option is exercised, the insured purchases the additional coverage at his or her attained age. This rider usually expires at the insured's age..... .

guaranteed insurability, 3 years, premium, age 40

Activities of daily living (ADLs)

include bathing, dressing, eating, transferring, toileting, continence

The..... clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for... years, even if there has been a material misstatement of facts or concealment of a material fact

incontestability, 2

The beneficiary does not have to have an..... in the insured. In addition, the policyowner does not have to name a beneficiary in order for the policy to be valid.

insurable interest

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

insurable interest

Trusts are commonly established for minors, or to create a scholarship fund. Trusts can be used for estate planning purposes, and when used properly, can keep life insurance death proceeds out of the.... .

insured's taxable estate

Because permanent life insurance policies have cash values, certain guarantees are built into the policy that cannot be forfeited by the policyowner. These guarantees (known as......... ) are required by state law to be included in the policy. A table showing the nonforfeiture values for a minimum period of ......years must be included in the policy.

nonforfeiture values, 20 years

The incontestability period does not apply in the event of nonpayment of....... ; it also does not usually apply to statements relating to ....., ..... or.......

nonpayment of premiums; age, sex or identity.

The policyowner is required to pay all back premiums plus interest, and may be required to repay any outstanding loans and interest. The advantage to reinstating a lapsed policy as opposed to purchasing a new one is that the policy will be restored to its...... status, and retain all the values that were established at the insured's issue......

original, age

When added to a whole life policy, the family term rider provides....... term life insurance benefits covering the spouse and all of the children in the family.

level

The maximum benefit for the Accelerated Benefit or Living Needs Rider is typically a percentage of the face amount of insurance, usually ..%, but it is legal for the insurer to pay up to 100% of the death benefits before the insured dies. There may also be a dollar limit, such as $...... . The......... of insurance is reduced after the payments. The accelerated death benefit payout will not necessarily result in a reduction of the premium; however, premium may be waived

50%, $100,000, face amount

Most insurers impose a ....month waiting period from the time of disability until the first premium is waived. If the insured is still disabled after this waiting period, the insurer will refund the..... paid by the insured from the start of the disability. This rider usually expires when the insured reaches age....

6 month, premium, age 65

While the insurer may defer requests for other loans for a period of up to ....months, loan requests for payment of due premiums must be honored ......

6 months, immediately

the size of each installment will determine how long benefits will be received. The...... the installment, the........ the income period will be.

larger, shorter

· - involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all the policy rights. The new policyowner does not need to have an insurable interest in the insured.

Absolute Assignment

The.......... provides for an early payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within .......years, or has other qualifying conditions. It does not cover.......

Accelerated Benefit or Living Needs Rider, 2 years, disability

The insurance company keeps the dividend in an account where it accumulates interest. The policyowner is allowed to withdraw 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 is....... to the policyowner when credited to the policy, whether or not the policyowner receives the interest.

Accumulation at Interest, taxable

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

Cash Payment, Lump Sum

if the annuitant dies before the annuity fund is depleted, a lump-sum settlement of the remainder would be made to the beneficiary

Cash Refund Option

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

Cash Surrender Value

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

Cash payment

Loan value =

Cash value - (unpaid loans + interest)

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

Disability Income, face amount

Insurance companies cannot guarantee

Dividends

which pays (usually limited to..... to..... the death benefit) to cover the cost of heart attack, organ transplant, cancer treatment, or other

Dread disease , 1/4, 1/2

are the types of risks the policy will not cover.

Exclusions

the insurer uses the....... policy cash value to convert to term insurance for the ........ face amount as the former permanent policy.

Extended Term, same

Payable Death Benefit =

Face Amount - Amount withdrawn - Earnings lost by insurer in interest

If the beneficiary dies before the .........proceeds are exhausted, the chosen installments will continue to be paid to a...... beneficiary until all proceeds have been paid out.

Fixed Amount, Contingent

these options do not guarantee payments for the life of the beneficiary, but does guarantee that all proceeds will be paid out.

Fixed Amount, Fixed Period

The payments will continue for the specified period even if the recipient dies before the end of that period. In the event of the recipient's death, the payments would continue to a ....... The size of each installment is determined by the amount of principal, guaranteed interest, and the length of period selected.

Fixed Period Installments, beneficiary

the beneficiary would receive the remaining funds in the form of continued annuity payments.

Installment Refund Option

the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals. The insurer usually guarantees a certain rate of........ and will often pay interest in excess of the guaranteed rate.

Interest Only Option, interest

.....in the policy must be endorsed on, or attached to, the policy in writing over the signature of an....... of the insurer. While the policyowner may request changes, only an executive officer can make the changes to the contract.

Modifications, Executive Officer

.......benefits are payable for partial disability in waiver of premium

No

meaning by the head, evenly distributes benefits among the living named beneficiaries.

Per Capita

The........ option can provide a single beneficiary income for the rest of his/her life. Upon the death of the........, the payments stop.

Single Life, beneficiary

If the policyowner does not select a settlement option, the....... will be allowed to choose one at the time of the insured's death.

beneficiary

The duration of the new term coverage lasts for as long a period as the amount of...... will purchase.

cash value

The new reduced paid up policy builds its own...... and will remain in force until death or maturity.

cash value

Because there is a chance that the beneficiary may not live long enough to receive all the life income insurance proceeds, insurers make options available which provide at least a partial guarantee that some or all of the proceeds will be paid out. With each of the guarantees, the size of the installment is..........

decreased

Note that a policy that has been surrendered cannot be.....

reinstated

the installments for the life income with period certain option will be...... than the life income only option.

smaller

The longer the period selected, the...... each installment will be. This option does not guarantee income for the life of the beneficiary; however, it does guarantee that.......

smaller, the entire principal will be distributed.

The interest option is considered to be a.......... option since the proceeds are retained by the insurer until some later point when the proceeds are paid out in a lump sum or paid under one of the other settlement options.

temporary

When the beneficiary is allowed to select a settlement option, the interest option is sometimes used as a..........option if the beneficiary needs some time to decide which settlement option to select.

temporary

is in the policy, it allows the insurer to pay a portion of the proceeds to any relative or person who has possession of the policy and appears equitably entitled to the payment. This provision is designed to facilitate payment when some doubt may exist as to who the beneficiary is and save legal expenses. It is mostly commonly found in group life, industrial, or fraternal insurance contracts.

the facility of payment provision

Transfer of the life insurance policy does not change the......or........ ; it only changes who has the policy ownership rights.

the insured or amount of coverage

the reduced option is written as "joint and ½ survivor" or "joint and 2/3 survivor," in which the surviving beneficiary receives ....or.... of what was received when both beneficiaries were alive. This option is commonly selected by the policyowner who wants to protect two beneficiaries, such as.......

½ or 2/3, elderly Parents

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

A surrender charge

· involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. A collateral assignment is a partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assigned rights are returned to the......

Collateral Assignment, policyowner

........ rider addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured. The......of the policy may be increased by a cost of living factor tied to an inflation index such as the Consumer Price Index (CPI).

Cost of Living Rider, face value

The first dividend could be paid as early as the..... policy anniversary, but must occur no later than the end of the..... policy year. From then on dividends are usually paid on an...... basis.

First, Third, Annual

If the policyowner did not chose the dividend option, the insurer will automatically use........ to increase the death benefit of the original policy by the amount the dividend will buy.

Paid Up Additions

In the........dividend option, The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy. No new separate policies are issued; however, each of these small single premium payments will...... the death benefit of the original policy by whatever amount the dividend will buy.

Paid up Additions, increase

Usually, 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. In other words, if the insured had a continuous premium whole life policy (in which premiums are paid to age 100), using the paid-up option the policyowner is able to pay up the policy early.

Paid up Insurance

meaning by the bloodline, distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs.

Per Stripes

Under...... option, the policy cash value is used by the insurer as a..... premium to purchase a completely paid-up permanent policy that has a....... face amount from that of the former policy.

Reduced Paid up, single, reduced

Family Term =

Spouse Term + Children's Term

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

Status Clause

which pays most of the death benefit.

Terminal Illness

Because the age of an insured affects the premium that will be charged for a life insurance policy, if the applicant has misstated his or her age on the application, in the event of a claim, the insurer has the right to adjust the benefit to an amount that the premium would have purchased at the correct..... of the insured.

age

This rider often expires at the insured's age.... . No additional..... is accumulated as a result of this rider. The accidental death benefits apply only to the policy's base ......... and not to any additional benefits that may be purchased from policy dividends.

age 65, cash value, face amount

each of these paid-up addition policies will accumulate.......and pay....... The amount of additional coverage that can be purchased with the dividend is based on the insured's attained..... at the time the dividend is declared.

cash value, dividends, age

The....... option is found only in policies that contain (Whole life). The policyowner is entitled to borrow an amount equal to the available.......

policy loan, Cash Value

The situations in which the facility of payment provision might be used include the following:

· The named beneficiary is a minor; · The named beneficiary is deceased; · The insurer did not receive death benefits claims within a specified period of time; · Costs for the deceased insured's final medical or funeral expenses were incurred by another party, and not the beneficiary.

Inthe.......the insurer uses the dividend to reduce the next year's premium. For example, if the policyowner usually pays an annual premium of $1,000 and the insurer declares a $100 dividend, the policyowner would only pay a $....... premium that year.

Reduction of Premium, $900

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

Results Clause

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 (age 100).

Settlement Option

, when included in a life insurance policy, protects beneficiaries from the claims of their creditors, as well as prevents the beneficiary's reckless spending of benefits by requiring that the benefits be paid in a fixed period or fixed-amount installments. The beneficiary does not have the right to select a different settlement option and is not allowed to assign or borrow any of the proceeds.

Spendthrift Clause

Most Children's Term riders provide the minor with the option of converting to a permanent policy without.....

evidence of insurability

Policy loans are not subject to...

income taxation.

If no selection is made, the proceeds are automatically paid to the beneficiary in a.................. As a rule, payments of the principal face amount after the insured's death are not...... as income.

single cash payment, Not Taxable

The policyowner's choice is to either use the dividend as a........ on as much one-year term insurance as it will buy, or to purchase...... insurance equal to the policy's cash value for as long as it will last.

single premium, term

The owner of a life insurance policy may name any individual as a beneficiary for the policy proceeds. The owner may name more than one individual, in which case the individual beneficiaries will split the benefit by.............. in the policy.

the percentage specified

In order for an insured to qualify for this benefit, the insured must meet the policy's definition of ....

total disability

In Massachusetts, all individual life insurance policy issued with the face amount of less than $........ must contain a statement explaining that the policyowner has the right to cancel the policy within .....days of delivery and receive a refund of premium.

$25,000, 10

Most insurers specify a certain period of time, usually..... to..... days, in which the primary beneficiary's death must occur in order for the Common Disaster Clause to apply. As long as the beneficiary dies within this specified period of time following the death of the insured, it will still be interpreted that the beneficiary died first.

14 to 30

However, the insurer must provide ....days' written notice to the policyowner that the policy is going to lapse. Insurance companies may defer a policy loan request for up to .....months, unless the reason for the loan is to pay the policy premium.

30 , 6

Upon the death of an insured, proceeds from an individual life insurance policy must include payment of interest at the rate for proceeds left on deposit with the insurer, beginning..... days after the death of the insured. This will not be payable until the insurer receives....... of the insureds death.

30, proof

In the event the insurer does not pay interest on proceeds left on deposit with the insurer, the rate of interest will be ...%.

6%

In the........dividend option, The insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that...... the overall policy death benefit.

One Year term, Increases

the face value of the policy; the original amount invested before the earnings

Principal amount

Many insurance companies do not..... for the Accelerated Benefit or Living Needs Rider since it is simply an advance payment of the death benefit. The remainder of the policy proceeds are payable to the beneficiary at the time of the insured's.......

charge, death

Any outstanding loans, and accrued interest, will be....... from the policy proceeds upon the insured's death.

deducted

In other words,....... are a return of excess premiums, and for that reason they are not....... to the policyowner. Insurance companies cannot guarantee dividends.

dividends, taxable

The....... provision stipulates that the policy and a copy of the application, along with any riders or amendments constitute the entire contract

entire contract

If none of the beneficiaries is alive at the time of the insured's death, or if no beneficiary has been named, the insured's....... will automatically receive the proceeds of a life insurance policy. The death benefit of the policy may be included in the insured's taxable estate if this occurs.

estate

Upon receipt of the cash surrender value, if the cash value...... premiums paid, the excess is as ordinary........ income. Once this option is selected, the insured is no longer....... A policy that has been surrendered for its cash value cannot be reinstated.

exceeds, taxable, covered

If the policyowner has neglected to select one of these nonforfeiture options, the insurer will implement the ........automatically in the event of termination of the original policy.

extended term

The...... rider pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must usually occur within ........days of such an accident. The benefit is normally two times (double indemnity) the face amount. Some policies pay triple the face amount (triple indemnity) for accidental death.

accidental death, 90

The..... rider is primarily used with juvenile policies (any life insurance written on the life of a minor); otherwise, it functions like the waiver of premium rider. If the payor (usually a parent or guardian) becomes disabled for at least ....months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as ...... This rider is also used when the owner and the insured are two different individuals.

payor benefit, 6 months, 21

The....... may select a settlement option at the time of policy application, and may also change that option at any time during the life of the insured. Once selected by the........ , the settlement option cannot be changed by the...... .

policyowner, policyowner, Beneficiary

If the insured dies during a period of time for which the premium has been paid, the insurer must refund any unearned...... along with the policy proceeds.

premium

Riders sometimes require an additional...... , but they also help tailor a policy to the specific needs of the insured, and can be classified according to their primary purpose.

premium

If the beneficiary lives for a very long time, Life Income payments may exceed the total..... . However, if the beneficiary dies shortly after he or she begins receiving installments, the balance of the principal is forfeited to the........

principal, insurer

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. The free-look period starts when the policyowner......the policy, not when the insurer issues the policy. Certain types of policies may require a longer free-look period, or the period may be set by state statute.

receives

The amount of each installment paid in the Life Income Option is based on the........ and........

recipient's life expectancy and the amount of principal.

The...... provision allows a lapsed policy to be put back in force. The maximum time limit for reinstatement is usually .....years after the policy has lapsed. If the policyowner elects to reinstate the policy, he/she will have to provide evidence of.......

reinstatement, 3, insurability

The....... rider is implemented by using..... 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. This rider usually expires at a specified age such as age......

return of premium, increasing, age 60

a...... rider 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..... ).

spouse term, age 65

If the insured dies during the one-year term, the beneficiary receives both the death benefit of........ and the death benefit of.......

the original policy, the one-year term insurance.

The..........rider waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until the insured is able to return to work. If the insured is never able to return to work, the premiums will continue to be waived by the insurance company.

waiver of premium

Any policy of life insurance may pay the death benefit early under the following circumstances:

· Terminal illness; · Catastrophic illness; or · Eligibility for long-term care.