Life Insurance Policy Provisions, Options & Riders

Payable death benefit =

= Face amount - amount withdrawn-earnings lost by insurere in interest

Dividend options

A higher premium is charged as a safety margin. If extra amt is not needed by the insurer, then a divident will be returned to the policyowner. they are not taxable to the policyowner. Cash payment Reduction of premium payments Accumulation of interest Paid up additions Paid up insurance One year term option

Waiver of cost of insurance (Disability Rider)

found in UL. It waives the cost of the insurance and other expenses, but not the premiums necessary for cash value.

Cash payment (dividend options)

insurer send the check to the policyowner

LTC coverage

often purchased as a separate policy, can also be marked as a rider to a life insur policy. These riders provide for the payment of part of the death benefit (called accelerated benefit) in order to take care of the insued's health care expenses, which are incurred ina nursing or convalescent home.

one year term option

use the dividend as a single premium on as much one year term insur as it will buy or to purchase term insur equal to the policcy's cash value for as long as it will last???

Cost of living rider

addresses the inflaction factor by automatically increasing the amount of insurance without evidence of insurability from the insured.

Family term rider

incorporates the spouse term rider along with the children's term rider in a single rider. Family term = spouse term + children's term

Revocable vs Irrevocable

the policyowner, without consent or knowledge of the beneficiary, may change a revocable designation at any time. An irrevocable designation may not be changed without written consent of the beneficiary.

Riders

modify provisions that already exist and are used to increase or decrease policy benefits and premiums

Spendthrift law

protects beneficiaies from the claims of their creditors. the beneficiary does not have the right to seect a different settlement option and is not allowed to assign or borrow any of the proceeds.

Suicide provision

protects insured against individuals using suicide as a defense to payment of life insurance benefits.

Beneficiaries and characteristics

the person or interest to which the policy proceeds will be paid upon the death of the insured. 1. Designation options 2. Succession 3. Revocable vs Irrevocable 4. Common Disaster Clause 5. Spendthrift Clause

Paid up insurance

use the dividends to pay the policy up early

Options

offer insurers and insureds ways to invest or distribute a sum of money available in a life policy

Other insured rider

provides coverage for one or more family members other than the insured. usually level insurance, attached to the base policy covering the insured. aka family rider. also spouse term rider; expires when spouse is 65

Beneficiaries - divorced spouse

If a spouse is a beneficiary, then marriage ends, the forme spouse is considered to have predeceased the insured. The former spouse beneficiary is revoked.

Succession

Levels of priority or choice. In teh event that the primary beneficiary predeceases the insured, the contigent (second or teriary) level will get the death benefits.

Modifications

At the request of the policyowner, a life insurance policy may be altered or modified after the effective date of the policy

Waiver of premium (Disability Rider)

waives the premium for the policy if the insured becomes totally disabled. Coverage remains in force until the insured returns to work. Most have a 6 month waiting period from the time of disability until the first disability is waived. Usually expires when insured turns 65

Rider Classifications

written modifications attached to a policy that provide benefits not found in the original policy. Sometimes require an additional premium. 1. Disability Riders 2. Riders covering additional insureds 3. Riders affecting the death benefit amount

Beneficiaries - minors

Benefits designated to a minor will be paid to the minor's guardian, or paid to the trustee of the minor if the trust is the named beneficiary, or paid as directed by a court.

Prohibited provisions

Life insure can't be delivered in Ohio, if they contain: 1. Forfeiture of the policy for failure to pay any policy loan or interest while total debt is less than cash value. 2. Limiting the time within which any legal action may begin to less than 5 years after the cause of action occcurs. 3. For any settlement at policy m....

Primary vs contingent beneficiary

Primary has first claim to the policy proceeds follwoing the death of the insured. Contingent hs has clam on death benefit if primary dies before the insured

Payor benefit life/disability (juvenile insurance - Disability Rider)

The payor benefit rider is used primaritly with juvenile policies; otherwise, it functions like the waiver of premium rider. If payor becomes disabiled fo at least 6 mo or dies, the insurer will waive the premiums until the minor reaches a certain age.

Payment of Claims

Upon receipt of a written proof of loss, the insurere must pay death claims immediately. Most states within 30 days. If no beneficiary, then death proceeds are paid to the estate. In ohio, must be paid within 2 months after proof of death.

Common Disaster Clause

Used for if the insured and primary beneficiary die at approximately the same time. If insured died first, proceeds will be paid to the estate of the primary beneficiary if no contingent is named. If the beneficiary died first, then the proceeds will be paid to the contingent beneficiary or the the estate of the insured if no contingent exists.

Children's term ride

allows children of the insured to be added to coverage for a limited period of time for a specified amount. Coverage is term and usually expires when the minor reaches a certain age. Provide temporary cov on all children of the family for one premium.

Paid up additions

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 willincease the death benefit of the orginal policy.

entire contract provision

states that the policy and a copy of the application, along with any riders or amendments, constitute he contract. Neither the insurer nor the insured may change policy provisions once the policy is in effect without both parties agreeing to it and the change being affixed to the contract

Incontestability

this clause prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years, even if there has been a material misstatement of facts or concealment of a a material fact.

Statements of the Insured

All statements from the insured are considered representations - to the best of his/her knowledge. A warranty is a statement that is guaranteed to be true. If a representation is untrue, the insurer has teh right to cancel the contract only if the representation was material to the creation of the contract.

Right to examine

Free look period from the time the insured receives the policy, not when it's issued.

Estates

If none of the beneficiaries are are alive at the time of insured's death (or named), the insured's estate will receive the proceeds.

Accumulation of interest

The insur company keeps the dividents in an account where it accumulates intest, the interest is taxable.

Automatic premium loans

special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium. requests for other loan request may be deferred for up to 6 months, but payment of due premiums must be honored immediately

Payment of premiums

The policy stipulates when the premiums are due, how often, and to whom. Premiums must be paid in advance.

Guaranteed insurability (rider)

allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (ex. birth) without evidence of insurability, for an additional premium.

Accidental death (rider)

pays some multipe of the face amount if death is the result of an accident as defined in the policy. Death must usually occur within 90 days of the accident. Benefit is normally two times - double indemnity the face amount Rider usually expires when insured turns 65,

Accelerated Benefit or living Needs rider

provides for an early payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result indeath within 2 years, or has other qualifying conditions. The purpose is to provide the insured with the funds necessary to take care of medical and nursing home expenses that incur from a terminal illness

Misstatement of age

If the applicant has misstated his or her age on the app, in the event of a claim, the insurer has the right to adjust the benefit to the correct age.

Three types of polocy loans and withdrawls

1. Cash loans 2. Automatic payment loans 3. Automatic premium loans

Reduced paid up insurance

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

Exclusions

types of risks the policy won't cover. 1. aviation 2. hazardous occupation 3. war and military service

Disability Income benefit (Disability Rider)

Insurer will waive the policy premiums and pay a monthly income to the insured. Amount paid based on the percentage of the face amt of the policy to which it is attached.

Withdrawls or partial surrenders

universal life allow partial withdrawl or cash surrender of the policy cash value. However, a fee may be charged, usually there are limits to how much and how often. Interest earned on the withdrawn cash value may be taxed.

Standard Provisions (11)

1. Entire Contract 2. Right to Examine 3. Payment of Premiums 4. Grace Period 5. Reinstatement 6. Incontestability 7. Misstatement of Age 8. Payment of Claims 9. Statements of the Insured 10. Modifications 11. Prohibited Provisions

Classes (2)

When naming beneficiaries, it is pudent to be specific by naming ea individual and designating exact amount to be paid. Per Capita - "by the head" - evenly distributes among living beneficiaries Per Stirpes - "by the bloodline" therefore decendants of the deceased beneficiary will receives the case benefit

Reinstatement

allows a lapsed policy to be put back in force, usually max is 3 years. Will need to provide proof of insurability, require to pay back all premiums missed, pluss interest (usually not more than 6%), and may have to pay back any outstanding loans. Will be restored to original status, retain all values

Trusts

commonly used for scholarships used for estate planning purposes when used properly, can keep life insur death proceeds out of the insurd's taxable estate.

Policy loans and withdrawls

The policy loan is only found in policies that contain cash value. Policyowner is entitled to borrow an amount equal to the available cash value. Any outstanding loans, acrued interest will be deducted from the policy proceeds upon insured's death. Policy will not lapse unless the amount of the loan and accrued interest exceeds the avail cash value. Insurer must proved 30 days written notice to the policyowner that the policy is going to lapse. Insu companies may defer a policy loan request up to 6 months, unless the reason for the loan is to pay the premium. Policy loans are not subject to taxation.

Return of premium rider

is implemented by using increasing term insurance. When added to a whole life policy, it provides that death prior to a given age, not only is the orginal face amount payable, but an amount equal to all premiums previously paid is also paymable to the beneficiary.

Settlement options

methods used to pay the death benefits to a beneficiary upon the insured death, or to pay the endowment benefit if the insured lives to the endowment age. cash payment life income interest only fixed period fixed amount

Living needs rider

provides fo 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

Provisions

stipulate the rights and obligations of an insurance contract and are fairly universal from one policy to the next

Grace period

the period of time after the premium due date that the policyowner has to pay the premium before the policy lapses (usually 30 or 31 days). The purpose is to protect the policyholder against unintentional lapse of the policy. If the insured dies during the GP, death benefit is payable, but any unpaid premium will be deducted.

Conditions for payment (early payment) of a portion of the death benefit

terminal illness extrodinary medical condition drastically limit insured's life time inability to perform ADLs perm institutionalization or LT care any other conditions approved by dept of insur typically a percentage of the face amount of insurance (usually 50% buy is legal for up to 100%)

Cash loans

whenever a policy has cash value, it has loan value. Amount equals the cash value minus any outstanding and unpaid policy loans including interest loan value = cash value - (unpaid loans + interest)

Cash payment (settlement options)

lump sum; payments of the principal face amount after the insurd's death are not taxable as income

Status vs results clause

status - excludes all causes of death while insured is on active duty in military results clause - only excludes the death benefit if the insured is killed as a resulf of an act of war

Reduction of premium payments (divident options)

the insurer uses the dividends to reduce the following year's premium

Uniform Simultaneous Death Law

the law will assume that the primary beneficiary died first.