life insurance policy provisions, options, and riders CH 4

accelerated benefit=

early payment of part of death benefit to the insured from the insurer for qualifying medical expenses

Estates beneficiary

if NO beneficiary is named, policy proceeds go to the insured estate the death benefit may be included in the insured taxable estate if this occurs

spouse and other insured term

OTHER INSURED TERM= provides coverage for one or more family members other than the insured usually level term insurance, attached to the base policy covering the insured "family rider" SPOUSE TERM RIDER= if the riser covers just the spouse of the insured allows the spouse to be added to coverage for a limited period of time and for a specified amount (expires at age 65)

Effect on Death Benefit

Payable Death Benefit = Face Amount - Amount withdrawn - Earnings lost by insurer in interest

Right to Examine (Free Look)

Allows the insured, upon delivery of the policy, 10-30 days to look over the policy and if dissatisfied, return it for a full refund. A free look period of 30 days is required for Medicare Supplement and Long-Term Care policies

Accumulation at Interest Dividend Option

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

Single Life Option

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

Suicide Provision

- This is designed to protect the insurance carrier.(insurer) - A two-year period of time(follwing the policys issue date) in which the policy's death benefit will not be paid if the insured commits suicide.

living needs rider

Provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years.

absolute assignment

involves transferring all rights of ownership to another person or entity permanent and total transder of all policy rights... new owner doesnt need to have an insurable interest in insured

Cash Payment Settlement Option

is designed to pay the proceeds in cash, called a lumpsum, unless the recipient chooses a different mode of settlement payments of the principal face amount after the insureds death are not taxable as income

Irrevocable Beneficiary

may not be changed without the written consent of the beneficiary these beneficiaries have vested interest in the policy the owner cant borrow against the policys cash value or assign the policy to another person wtihout the beneficiarys agreement

Per Stirpes

meaning by the bloodline, distributes the benefits of a benefiiary who died before the insured to that beneficiarys heirs

per capita

meaning by the head, evenly distributes benefits among the living named benef

War or Military Service Exclusion

most dont exclude military STATUS CLAUSE: excludes all causes of death while the insured is on active duty in military RESULTS CLAUSE: only excludes the death benefit if the insured is killed as a result of an act of war, declaired or undeclared

aviation exclusion

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

NAIC

national association of insurance commissioners an organization composed of insurance commissioners from all 50 states, the district of columbia and the 4 U.s teritories, formed to resolve insurance regulatory issues

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

modificaitons

or changes in the policy must be edored on or attached to the policy in writting over the signature of an executive officer of the insurer. only an executive officer can make the changes to the contract once owner request them no agent has the right to waive polciy provisions, make alterations or agreements, or extend the time for payment or prem

accidental death rider

pays some multiple of the face amount if death is the result of an accident as defined in the policy death must occur within 90 days of such an accident benefit is normally 2 times the face amount some policies pay triple for accidntal death

Joint life with term certain

pays to 2 or more persons and stops paying at the death of the first if the 1st death occurs during the term, the payments will continue to the other persons until end of term

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 during first 2 years-insurer may contest a claim if the insurer feels that inaccurate or misleading info was provided in app doesnt apply in the event of non-payment of prems, or statements related to age, sex, or identity

principal amount

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

Reduced Paid-Up Insurance option

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.

exclusions

the types of risk the policy will not cover

Entire Contract

An agreement that is made up of two or more parts, in which each part is dependent upon the others. neither the insured or insurer may channge provisions without each other agreeing entire contract= policy+copy of application+ any riders or amendments

trust

An arrangement in which funds or property are held by one person or corporation for the benefits of another person (a trust beneficiary).

Children's Term Rider

Allows children of the insured to be added to coverage for a limited period of time for a specified amount. a term insurance and expires when the minor reaches a certain age most will give the option to make permanent withiout eidence of insurability all children of the family for one prem, prem doesnt change on teh inclusion of additional children, based on the average number of children

The Reduction of Premium Dividend Option

The insurer uses the dividend to reduce the next year's premium

Riders Affecting the Death Benefit Amount

riders affect the amoun tof the death benefit paid out the benefeicary and either increase it thoruhg militple indemnity or refunds of premiums, or decrease it if a portion of the death benefit was paid out to the insured while still living

waiver of premium rider

waives the premium for the policy if the insured becomes totally disabled coverage is in force until the insured is able to return to work if never able to return, prem will cont to be waived by the insurance co there is a 6-month waiting period from the time of diability until the first prem is wavied---if still diabled the insurer will refund the prem paid by the indured from the start of the disability expires when reach age 65

common disaster clause

when added to a policy, provides that if the insured and the priamry bene died in a common diaster(even if the benef outlived the insured by a specified number of days) it is presumed that the primary benef died first so that the proceeds will be paid to either the coningent bene or to the insred estate, if not contingent benef is designated primarys death must occur within 14-30 days for this to apply UNIFORM SIMULATANEOUS DEATH LAW: adpoted in most states to address this problem

One-Year Term Dividend Option

A dividend option under which the insured has the company purchase one-year Term insurance with the dividend. For example, your dividend is $100, which you could have taken as cash. Instead, you have the insurer use the money to buy you an additional 1 year term policy at your current age. If you die in the term, your beneficiary will receive the proceeds of your Life policy PLUS the face amount of the one year term policy. At the end of the year, the term policy expires

payor benefit

A rider found in juvenile policies (any life insurance written on the life of a minor) which waives the premiums if the person paying them (often the parent) is disabled or dies while the child is still a minor. diablied for atleast 6 months or dies insurer will waive the premiums until the minor reaches a certain age, such as 21

fixed period installments

A specified period of years is selected, and equal installments are paid to the recipient

policy loan option

Is found only in policies that contain cash value. The policyowner is entitled to borrow an amount equal to the available cash value(WHOLE LIFE). Any outstanding loans, and accrued interest, will be deducted from the policy proceeds upon the insured's death. The insurer must provide 30 days written notice to the policyowner that the policy is going to lapse. An insurance company may defer a policy loan for up to 6 months.

Cash Loans

Loan Value = Cash Value - (Unpaid Loans + Interest) if there are outstanding loans at the time of the insureds death, it ewill turn to debt and be reduced by the amount of indebtedness

Settlement Options

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. **triggered by the insureds death or age 100

Fixed-Amount Installments Option

Pays a fixed, specified amount in installments until the proceeds are exhausted

grace period

Period of time after the premium due date during which premiums may still be paid, and the policy and its riders remain in force. owner has to pay premium before the policy lapses (30-31 days or one month) if isnured dies during this, death benefit is payable however the unpaid prem will be deducted from the death benefit

Withdrawals or Partial Surrenders

Provision in universal life insurance policies that provides for withdrawals or partial surrenders of policy cash value. there may be a charge for each withdrawal and there are limits as to how much and how often a withdrawal may be made. the interest earned on the withdrawn cash value may be subject to taxation, depending on the plan death benefit will be reduced by the amount of any partial surrender

assignment provision

Specifies the policyowner's rights to assign (transfer rights of ownership) the policy. The policyowner must advise the insurer in writing of the assignment. There are two types of policy assignment: Absolute Assignment, and Collateral Assignment

Tertiary Beneficiary

The third in line to receive the benefits of a life insurance policy.

Third Party Ownership

When a person(s) other than the insured purchases the insurance policy.

contingent beneficiary

a beneficiary who has scond claim to the policy proceeds after the death of the insured (usually after the death of the primary beneficiary)

Primary Beneficiary

a beneficiary who has the first claim to the policy proceeds after the death of insured.

class beneficiary

a member of a group, e.g., children of the insured it is encouraged to name each person and what percentage or what they will be getting

accelerated living benefit

allow the early payment of a portion of the death benefit if the insured has any of the following conditions: -terminal illness -medical condition that requires an medical intervention to survive -medical condition that without treatment will limit the isureds lifetime -inability to perform ADLs -perm institutionalization or confinement to a long-term care facility there is a 100,000 dollar limit face amount reduced after the payments

reinstatement provision

allows a lapsed policy to be put back in force max time is usually 3 years after lapse will have to provide evidence of insurability owner= has to pay all prem back plus interest and may be requred to repay any outstanding loans and interest once restored, it still is based off age when established ***if surendered, the no reinstatemt

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 for an additional prem expires at age 40 prem are based on obtained age when additional coverage is added

misstatement of age or gender

allows the insurer to adjust the policy at any time due to a mistatemtn of age or gender is included insurer is allowed to adjust the benefits to an amount that the prem at the correct age/gender would have purchased

riders

are written modifications attached to a policy that provide benefits not found in the original policy. require an additional prem help tailor a policy to the specific needs of the insured, can be classified according to their priamry purpose

nonforteiture options

certain guarantees are built into the policy that CANNOT BE FORFEITED by the owner these are required by state law to be included in the policy a table showing nonforteiture values for a minimum period of 20 years must be included in the policy owner chooses one of the following nonfort options -cash surrender value -reduced paid-up insurance -extended term these are triggered by policy surrender or lapse

Life Refund Income Option

comes in either a cash refund form or an installment refund form both guarantee that the total annuity fund will be paid out to the beneficiary

long-term care (LTC)

coverage, which is often purchased as a seperate policy, can also be marketed as a rider to a life insurance policy. these riders provide for the payment of part of the death benefit in order to take care of the insured health expenses payment of LTC benefits will reduce the amount payable to the beneficiary upon the insureds death

hazardous occupations or hobby exclusions

death that results from these may be excluded from coverage. the underwritter also has the option of charging a higher premium for insuring these risk

Trust Beneficiary

established for minors, or to create a scholarship fund. can be used for estate planning purposes and when used property can keep life insurance death proceeds out of the insured taxable estate expensive

waiver of cost of insurance

found in universal life 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 premiums necessary to accumulate cash values

joint and survivor life income

guarantees income for two or more recipients for as long as they live. the surviving one will recieve a reduced payment after the other dies

Primary Beneficiary

has first claim to the policy proceeds following the death of the insured there can be more than one

Contingent Beneficiary

has second claim in the event that the primary beneficiary dies before the insured (secondary and tertiary)

policyowner

has the ownership rights under the policy and not the insured or beneficiary can name and change the bene, recieve policys living benefits, can select a benefit payment option, and assign the policy responsible to pay the prem must have insurable interest at the time of application

Options

how the cash value in the policy should be protected, how the retuen of excess premium should be invested, and how benefit payments will be made there are different options availbale

Interest on Insurance Proceeds

if no pay from the insurer within 30 days afer recept of acceptable prood of loss, insurer will be required to pay interest at the legal rate from the date the claim is recieved by the insurer they must pay interest from the insreds date of death up to the higher of the effective: -interest charged by the insurer on policy loans -rate of interest paid by the insurer on death proceeds left on deposit with the insurer

Cash Refund Option

if the annuitant died before the annuity fund is depleted, a lumpsum settlement of the remainder would be made to the beneficiary

disability income

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 face amount of the policy to which it is attached

Collateral Assignment

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 policyowner.

spendthrift clause

protects beneficiaries from the claims of their creditors applies to the benefits that are paid in fixed-period or fixed-amount installments designed to protect life insureance policy proceeds that have not yet been paid to a named beneficiary from the claims of the creditors of the benef or policyowner

Life Income Settlement Option

provides the recipient with an income that he or she cannot outlive. payments are guaranteed for as long as the recipient lives, irrespective of the date of death amount paid is dependant on the recipients life expectancy and the amount of principal

cost of living

rider addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured face value may be increase by a cost of living factor tied to an inflation index such as the consumer price index

riders covering additional insureds

riders that allow the policyowner to add additional insureds under the original policy, like childrens term or family term there is also nonfamily term

installment refund option

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

paid-up additions option

the dividends are used to perchase a single prem policy in addition to the face amount of the permanent policy no new seperate policies are issued; but each of these small single prems will increase the death benefit of the origianl policy each will accumulate cash value and pay dividends

Interest Only Option

the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals

Paid-Up Insurance (Dividend Option)

the insurer first accumulates the dividends at interest and then uses the accumulated dividents, plus interest, and the policy cash value to pay the policy up early. if the insured had cont' prem whole life policy, using the paid-up option the policyowner is able to pay up the policy early

dividend cash payment

the insurer sends the owner a check for the amount of the dividend as it is declared, usually annually

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.

premium mode

the manner or frequency that the policyowner pays the policy premium

Revocable Beneficiary

the owner without the consent or knowledge of the beneficiary may change the designation at any time

Life income with period certain option

the recipient is provided with the "best of both worlds" in terms of a lifetime income and guaranteed installment period payments will be recieved by a beneficiary if the priamry person recieving dies early or before the amount total is paid

assignment

transfer of rights of policy ownership

Dividend Options

when the policyowner purchases a policy from a participating insurer, they actually pay a "grossed-up" prem. the higher the prem is charges as a dafety margin in the event the insurers losses are higher than anticipated. if this extra amount isnt needed by the insurer to pay death claims and expenses, or if actual mortality experience imporves or interest earned by the co exceeds the assumptions, the dividend will be returned to the policyowner. not guarunteed. ***are a return of excess prems; therefore not taxable when paid to the policyowner

individual beneficiaries

will split the benefit by the percentage specified can be anyone named if minor- will either be paid to minors guardian or paid to the trustee of the minor if the trust is named beneficiarie, or is paud as directed by a court guardian and trustee can be same person