Life Insurance, Policy Provisions, Options, and Riders
Payor rider
may also be referred to as the payor benefit provision or payor clause and is only added to a policy an adult purchased to cover the life of a child.
Irrevocable beneficiary
means the beneficiary cannot be changed.
Absolute assignment
of an insurance policy involves a complete transfer of the policy to another.
Dependent Riders
(Other Insureds Rider): Dependents may be added to as additional (other) insureds through the use of a dependent rider. Other insured riders are typically used for spouses and children.
increasing term rider
A ___________ will allow for a greater amount of coverage each year. Increasing term riders provide an additional term insurance face amount at death, equal to either all premiums paid or the amount of cash value.
decreasing term rider
A _____________________ adds an additional decreasing death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy.
level term rider
A ______________________ adds an additional fixed, level death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy.
not guaranteed
A policy that provides a choice of dividend options must include a statement that dividends are __________________.
Eating Dressing Bathing Toileting/continence Walking/ambulation Transferring or Taking medication
Activities of daily living (ADLs) include:
insurance divident
An __________________ is not considered to be taxable income.
double indemnity
Policies that pay a multiple of two times the policy face amount are called _______________.
triple indemnity
Policies that pay a three times the death benefit for death due to accidents are called ______________.
suicide
Death caused by ________________ is excluded during the initial period of time after the policy becomes effective.
cash reduced, reduction, or suspension of premiums paid-up permanent additions one-year term insurance accumulate at interest
Dividend options include:
aviation activities
Most life insurance policies will exclude deaths that result from certain types of high-risk ______________.
riders
One of the unique features of a life insurance contract is the ability for the applicant (usually the policy owner) to customize the policy to meet their specific needs through policy add-ons known as ______________.
Accumulate Interest Option
The "accumulate interest" dividend option allows the policy owner to leave dividends with the insurer to accumulate interest. In turn, the policy owner will be required to pay taxes on any interest (profit) generated by the dividend.
Cash Surrender Option
The "cash surrender" nonforfeiture option allows the policy owner to receive the policy's cash value. The policy owner no longer has coverage at this point. Usually, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is six months (Delayed Payment provision).
Cash option
The "cash" dividend option allows the policy owner to cash out the dividends they receive.
status war clause
The ________ is a restrictive type of clause which states that the insured will not possess coverage under an individual life insurance policy while he or she is in the military even if killed while away on furlough.
entire contract
The ____________ clause or provision is found at the beginning of the policy.
reinstatement period
The _____________ allows an insured to reinstate a lapsed insurance policy. Typically, this must be done within three years of the policy lapse, but in some states, may be allowed as long as seven years. I the insurer does not accept or reject the reinstatement within 45 days, coverage will be automatically reinstated as if it had never lapsed.
grace period
The ______________ in a life insurance policy is meant to protect the policy owner against the unintentional lapse of the policy.
execution clause
The ______________ or provision specifies that after a certain period of time has elapsed (usually two years from the issue date), the insurer no longer has the right to contest the validity of the insurance policy so long as the contract continues in force.
long-term care rider
The ______________ will generally pay benefits when the insured cannot perform at least two activities of daily living (ADLs).
privilege of chance clause
The _______________ (or policy change provision) outlines the conditions under which the company will allow the policy owner to change the policy's coverage.
war exclusion
The _______________ prevents an insurer's financial catastrophe and typically applies to declared and undeclared wars.
incontestable clause; misstated
The ________________ allows an insurer to contest a claim during the contestable period. However, statements related to age and sex or gender can be contested at any time. The company reserves the right to the premium adjust if the age of the insured is _____________.
spendthrift clause
The _________________ stipulates that a settlement option may be selected by the policy owner at the time of application.
insuring clause or agreement
The __________________ sets forth the company's basic promise to pay benefits upon the insured's death and specifies the amount and frequency of premium payments.
results clause
The __________________ states that an individual policy does not provide coverage if the insured dies while participating in military activities or during military maneuvers of some sort.
disability income benefit rider
The ___________________ provides an income benefit if the insured is totally and permanently disabled as defined by the policy.
accelerated benefits provisions
The ___________________, also known as living benefits or terminal illness rider, allows an insured to "accelerate" the death benefit of a life insurance policy if certain conditions are met.
cost recovery rule; cost basis
The ____________________ states that when a life policy is surrendered for its cash value, the _______________ (total premiums paid) is exempt from taxation.
waiver of cost of insurance rider
The ____________________, also be referred to as the waiver of monthly deductions, is typically reserved for universal whole life policies.
exchange privilege rider; substitute
The ____________________, also known as the __________, insured rider, outlines the conditions and processes for changing the insured of an insurance policy.
extended term insurance option
The ________________________ provides the insured with the most life insurance protection in the event of a voluntary policy surrender or nonpayment of premium.
automatic premium loan provision
The __________________________ allows the insurance company to _________________ take a loan against the policy's cash value to pay the premium due if the required premium is not paid by the end of the grace period.
Automatic Premium Loan Provision (or rider)
The automatic policy loan provision allows the insurance company to deduct the overdue premium from an insured's cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM if they don't receive payment when due. This automatic premium loan can continue until the policy owner resumes making payments, or the policy runs out of cash value. Your policy will lapse if you don't resume payments before you run out of cash value.
principal sum
The death benefit paid under accidental death coverage is called the ______________.
Entire Contract Provision
The entire contract provisions (or clause) states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the entire contract between all parties.
policy loan
The primary advantage of a __________________ is that it provides ready cash for the policy owner without having to apply or qualify for the loan.
The right to assign and change the policy's beneficiaries. The right to determine how proceeds will be paid (settlement options). The right to terminate the policy and select a nonforfeiture option. The right to determine and change the premium payment schedule. (Not necessarily the amount of the premium but whether the premium is paid monthly, quarterly, annually, etc.) The right to assign ownership of the policy to someone else. The right to decide what happens with dividends paid out from a participating policy. The right to convert or renew a term policy if such option exists within the contract.
The primary rights of a policy owner include:
long-term care rider approaches; Generalized or independent approach or Integrated approach
There are two different ways a ____________________:
absolute and collateral
There are two types of assignments:
nonforfeiture options; Cash Surrender, Reduced Paid-Up Option, and Extended Term Option
______________________ prevent the policy owner from forfeiting a policy's cash value if they decide to terminate the policy. There are three ___________________.
Grace Period
a period after the due date of a premium during which the policy remains in force without penalty. If an insured dies during the Grace Period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy minus any required premiums. For life insurance, the grace period is typically one month.
Absolute Assignment
a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.
Guaranteed Insurability Option
allows a policy owner to purchase additional life insurance coverage at the specified dates without providing evidence of insurability.
Accelerated Benefits Rider
allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.
Misstatement of Age or Sex Provision
allows the insurer to adjust the policy benefits if the insured's age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefits payable if the age of the insured was misstated when the application for the policy was made. If the insured were older at the time of application than is shown in the policy, benefits would be reduced accordingly. The reverse would be true if the insured were younger than listed in the application.
Reduced Paid-Up Option
allows the policy owner to reduce the policy's benefit amount and, in turn, cease making premium payments.
Free-look Provision
allows the policy owner to return the policy for a full premium refund without giving a reason to the insurer.
Waiver of Premium Rider
allows the policy owner to waive premium payments during a disability and keeps the policy in force. The waiver of premium rider is not a loan and does not provide cash payments to the policy owner. The insurance company is "waiving" the premiums." It's just as if the insured made the premiums every month.
Assignment clause
allows the right to transfer policy rights to another person or entity.
Collateral Assignment
an assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. Any proceeds above the amount due at the insured's time of death will be paid to a beneficiary designated by the policy owner.
Beneficiaries
and assignees are entitled to the proceeds upon the death of the insured before any claims of the insured's creditors.
Policy Loan (Cash Withdrawal) Provisions
apply to policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is three years. These loans, with interest, cannot exceed the guaranteed cash value, or the policy is no longer in force. The policy owner has the right to the policy's cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured's policy proceeds.
Cost of Living Rider
automatically increases the face amount of the policy at specified intervals based upon increases in the Consumer Price Index (CPI).
Riders
can be added to a life insurance policy that provide term insurance coverage for the spouse, children, or entire family.
Catastrophic illness
coverage covers only identified or listed diseases in the policy, such as cancer, heart disease, renal failure, stroke, etc.
One-Year Term Option
dividend option allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy.
Paid-Up Additions Option
dividend option allows the policy owner to exchange the dividend for an additional single payment whole life policy.
Reduced Premiums Option
dividend option allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year's premium payments.
Exclusions
features of an insurance policy stating that the policy will not cover certain risks.
Reinstatement Provision
is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It Permits the policy owner to reinstate a policy that has lapsed as long as the policy owner can provide proof of insurability and pays all back premiums, outstanding loans, and interest.
Insuring Clause (or Insuring Agreement)
is the insurer's basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage, "We ensure to INSURE you for..."
Accidental Death Benefit (Multiple Indemnity) Rider
pays an additional sum to the beneficiary if the insured dies due to a covered accident. The amount paid is a multiple of the policy face amount, such as double or triple the original benefit. Accident death life insurance provides the cheapest way to add a lot of coverage for a limited period.
Return of Premium Rider
pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a specific period specified in the policy. It may also return premiums to the insured at the end of a specified period.
Guaranteed Insurability Rider (Future Increase Option)
permits the policy owner to buy additional permanent life insurance coverage at predetermined intervals without submitting proof of insurability. It also includes specific events like marriage and births, without requiring proof of insurability. Usually, the benefit is allowed every three years, up to the original face amount of the policy.
Consideration Clause
states a policy owner must pay a premium in exchange for the insurer's promise to pay benefits. A policy owner's consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. "Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, and how much, how often I agree to pay. Please consider me."
Mode of Premium
states that premiums must be paid to an insurer or its representative in order for coverage to be provided and allows the policy owner to select the mode of premium.
Incontestable Provision (Period)
states that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time, typically two years. Over the years, case law has established precedence that the Incontestable Clause applies to cases of fraud.
Owner's Provision or Rights of Policy Ownership
states that the policy owner possesses all rights contained in the policy.
Suicide Clause
states that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance. The primary purpose of a suicide provision is to protect the insurer from applicants contemplating suicide.
Free Look Period
states the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.
Extended Term Option
the "extended-term" nonforfeiture option permits the policy owner to use the policy's cash value to buy level, extended term insurance for a specified period. No further premium payments are made. The coverage provided with the extended-term nonforfeiture option is equal to the net death benefit of the lapsed policy.
Dividend Options
the options a policy owner has when receiving dividend payments from an insurance policy.
Nonforfeiture Options
the options you have for your cash value if you terminate a policy that has a cash value. You are closing your account (surrendering your policy); what do you want us to do with your cash (so you don't forfeit it)? When a policy owner decides he does not want his insurance policy anymore, he has the option to surrender his policy.
capital sum
the severance (dismemberment) benefit paid under accidental dismemberment is called the ___________ and is usually one-half the primcipal sum.
Payor Provision (Rider of Clause)
waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled.
Term insurance riders
were created to give insureds an inexpensive option to add additional temporary coverage to a permanent policy.
