Life - Policy Provisions, Options And Riders - Terms to know

2 types of policy assignment:

- Absolute Assignment and - Collateral Assignment Know This! Absolute assignment is the complete and permanent transfer of ownership rights; collateral assignment is the partial and temporary transfer of rights.

The 10-day free look regulation does not apply to

- Group policies; - Credit life insurance; - Replacement policies where the required free-look period is 30 days; and - Any other classes of policies as determined by the Commissioner.

Beneficiaries - Individuals

- The owner of a life insurance policy may name any individual as a beneficiary for the policy proceeds. - Benefits designated to a minor will either 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.

Assignment

- The policyowner of a life insurance policy has the right to transfer partial or complete ownership of the policy to another person without the consent of the insurer - the policy 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 - Transfer of the life insurance policy does not change the insured or amount of coverage; it only changes who has the policy ownership rights. - The company's major concern is paying the claim twice

Reinstatement

- The reinstatement provision allows a lapsed policy to be put back in force. - The maximum time limit for reinstatement is usually 3 years after the policy has lapsed.

Right to Examine (Free Look)

- This provision allows the policyowner 10 days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. - The freelook period starts when the policyowner receives the policy (policy delivery)

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.

Absolute Assignment

- 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.

Modifications or changes in the policy must be

- must be endorsed on, or attached to, the policy in writing over the signature of an executive officer of the insurer - While the policyowner may request changes, only an executive officer can make the changes to the contract. - . Most modification clauses specifically state that no agent has the right to waive policy provisions, make alterations or agreements, or extend the time for payment of premiums.

Contingency Beneficiary

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

trust

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

What is the clause that describes the method of paying the death benefit in the event that the insured and beneficiary are both killed in the same accident?

Common disaster clause The Common Disaster Clause provision states that when an insured and beneficiary die in a common accident, and the beneficiary dies before or within a specific period of time after the insured, the insurer will proceed as if the insured outlived the beneficiary.

Exclusions

Exclusions are the types of risks the policy will not cover. Certain exclusions are standard for all policies, while others are attached to the policy as an exclusion rider. - The most common exclusions found in life insurance policies are aviation, hazardous occupation, and war and military service.

Beneficiaries - Estates

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 estate 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. Know This! If NO beneficiary is named, policy proceeds go to the insured's estate.

Provisions

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

Beneficiaries Designation Options

Individuals Classes Estates Trusts

Partiers to the insurance contract

Insurer Policy owner The insured The beneficiary

Prohibited Provisions Including Backdating

Life insurance companies cannot issue or deliver policies that will - Forfeit the policy for failure to repay any loan on the policy or to pay interest on the loan while the total indebtedness on the policy is less than its loan value; or - Allow assessments or calls to be made upon policyholders. - The policy may not be backdated for more than 1 year before the date of the application or the medical examination, whichever is later. - All premiums must be paid from the effective date of the policy. - The only allowable reason that an application may be backdated is to affect a lower premium for the insured.

A policyowner who is also the insured wants to name her husband as the beneficiary of her life policy. She also wishes to retain all of the rights of ownership. The policyowner should have her husband named as the

Revocable beneficiary The policy owner may change designation at any time without beneficiary consent.

clause that protects the proceeds of a life insurance policy from creditors after the death of the insured is known as the

Spendthrift Clause

If a life insurance policy has an irrevocable beneficiary designation,

The beneficiary can only be changed with written permission of the beneficiary

Entire Contract

The entire contract provision stipulates that the policy and a copy of the application, along with any riders or amendments, Know This! Entire contract = policy + copy of application + any riders or amendments

Grace Period

The grace period is 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, or one month). -The purpose of the grace 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.

When a life insurance policy was issued, the policyowner designated a primary and a contingent beneficiary. Several years later, both the insured and the primary beneficiary died in the same car accident, and it was impossible to determine who died first. Which of the following would receive the death benefit?

The insured's contingent beneficiary. (Under the Uniform Simultaneous Death Law, the law will assume that the beneficiary dies first in a common disaster. This provides that the proceeds will be paid to the contingent beneficiary or to the insured's estate if none is designated)

The policyowner

The person who is entitled to exercise the rights and privileges in the policy. This person may or may not be the insured. - has the responsibility of paying the policy premiums, and - is also the person who must have an insurable interest in the insured at the time of application for the insurance

Payment of Premiums

The policy stipulates when the premiums are due, how often they are to be paid (monthly, quarterly, semiannually, or annually) and to whom. - If the insured dies during a period of time for which the premium has been paid, the insurer must refund any unearned premium along with the policy proceeds. - The payment of premium provision also stipulates that premiums must be paid in advance.

Beneficiaries - Trusts

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. They are, however, expensive to administer.

Beneficiaries - Classes

Two class designations are available for use when an insured chooses to "group" the beneficiaries: - per capita and - per stirpes

activities of daily living (ADLs)

a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence

Misstatement of Age and Gender

adjust the claim, never denies even after the incontestable period. Know This! Misstatement of age on the application will result in adjustment of premiums or benefits.

per capita

for each person; in relation to people taken individually. meaning by the head, evenly distributes benefits among the living named beneficiaries.

Physical Examination and Autopsy

gives the insurer the right to examine the insured as often as necessary while a claim is pending

The beneficiary

is the person or interest to which the policy proceeds will be paid upon the death of the insured. The beneficiary may be a person, class of persons (sometimes used with children of the insured), the insured's estate, or an institution or other entity such as a foundation, charity, corporation or trustee of a trust.

Per Stirpes

means per family line if 5 children and 1 dies, then 4 children and the kids of the 5th would get the $ meaning by the bloodline, distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs.

Riders

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

Options

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

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, even if there has been a material misstatement of facts or concealment of a material fact.

suicide provision in life insurance policies

protects the insurers from individuals who purchase life insurance with the intention of committing suicide If the insured commits suicide within 2 years following the policy effective date (issue date), the insurer's liability is limited to a refund of premium. If the insured commits suicide after the 2-year period, the policy will pay the death proceeds to the designated beneficiary the same as if the insured had died of natural causes.

principal amount

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

Hazardous Occupations or Hobbies

— If the insured is engaged in a hazardous occupation or participates in hazardous hobbies (such as skydiving or auto racing), death that results from the hazardous occupation or hobby may be excluded from coverage. The underwriter also has the option of charging a higher premium for insuring these risks

War or Military Service

— Most life insurance policies issued today do not exclude military service. However, there are actually two different types of exclusions that may be used to limit the death benefit if the insured dies as a result of war, or while serving in the military. The status clause excludes all causes of death while the insured is on active duty in the military. The results clause only excludes the death benefit if the insured is killed as a result of an act of war (declared or undeclared).

Aviation

— 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 premium for the coverage.