Life Policy Provisions, Rideers & Options
KNOW THIS! Common Diaster Clause
Common Disaster Clause protects the contingent beneficiary
KNOW THIS! Dividends
Dividends are a return of excess premiums; therefore, not taxable when paid to the policyowner (mutual policy)
What life insurance policy provision states that both the policy and a copy of the application form the contract between the policyowner and the insurer?
Entire Contract
KNOW THIS! Extended Charge
Extended term is the automatic nonfordeiture option: same face amount, shorter term of coverage
KNOW THIS! Grace Period
Grace periods protect policyholders from losing insurance coverage if they are late on a premium payment
Hazardous Occupation or Hobby Exclusion
If the insured dies or is injured as a result of a hazardous occupation or hobby, the insurer will not pay the claim, or option to charge higher premium
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 territories, formed to resolve insurance regulatory issues.
KNOW THIS! Nonforfeiture Options
Nonforfeiture options are triggered by policy surrender or lapse
Parial Surrentder or Withdrawal
ONLY on Universal Life Policies - may be a charge - limits on withdrawal amount - interest may be taxable
KNOW THIS! Policy Loans
Policy Loans are ONLY available in policies that have cash value (whole life)
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.
What are policy dividends?
Return of unused premiums
Waiver of Monthly Deductions
Rider pays all monthly deductions while the insured is disabled, after a 6-month waiting period. usually on universial & variable universal life
KNOW THIS! Settlement Options
Settlement Options are triggered by the insured's death or age 100
What does the term double indemnity mean?
The insurer will pay a benefit of twice the face amount
What happens to the proceeds of a life insurance policy if there is no named beneficiary?
The proceeds are paid to the insureds estate
Uniform Simultaneous Death Law
This law stipulates that if the insured and the primary beneficiary died in the same accident and there is no sufficient evidence to show who died first, the policy proceeds are to be distributed as if the primary beneficiary died first.
Long-Term Care (LTC) Rider
This life policy rider provides funds to help pay the costs of long-term medical and nursing care. Like the accelerated benefits provision, the LTC rider allows a portion of the life policy's face amount to be paid out should the insured require long-term care. With the LTC rider, benefits become payable if the insured requires long-term care and meets the conditions for payment.
What is the purpose of a free look period?
To allow the insured to return the policy with a full refund
KNOW THIS! Under Life-Income Settlement Option
Under life-income (straight life) settlement option, the recipient cannot outlive the benefit payments
To meet the requirement of the entire contract policy provision, an insurance policy must contain what?
a copy of the orginial insurance application
Minor
a person under legal age
activities of daily living (ADLs)
a person's essential activities that include bathing, dressing, eating, transferring, toileting, continence
Indemnity
a principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insureds or beneficiaries for the loss
Which of the 2 types of policy assignments requires transfer of all ownership rights in the policy to a third party?
absolute assignment
Absolute Assignment
all ownership rights in the policy are transferred to a new owner
Reinstatement
allows a lapsed policy to be put back in force. Max is typically 3 yrs. Policy that has been surrendered CANNOT be reinstated
What happens to a policy's cash value under an extended term nonforfeiture option?
cash value is converted to the same face amount as in the whole life policy
What type of assignement is used to secure the payment of a debt with an existing life insurance policy?
collateral assignment
What type of beneficiary is next in line after the primary beneficiary?
contingent beneficiary
KNOW THIS! Entire Contract
entire contract = policy + copy of application + any riders or amendments
What required provision protects against unintentional policy lapse?
grace period
Life Income Joint & Survivor Option
guarantees an income for two or more recipients for as long as they live
Primary Beneficiary
has first claim to the proceeds following the death of the insured
KNOW THIS! If NO Beneficiary
if NO Beneficiary is names, policy proceeds go to the insured's estate
Return of Premium Rider
implements using increasing term insurance; when added to a whole life policy, it provides that at death prior to a given age, an amount equal to all premiums previously paid is also payable to the beneficiary (such as age 60)
What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
incontestability
The sole beneficiary of a life insurance policy dies before the insured. If the policyowner does not amend the beneficiary designation, what will happen to the policy's death benefit?
it will be paid to the insured's estate
If a settlement option is not chosen by the policy owner or the beneficiary, what option will be used by the insurer?
lump sum payment
Per Capita
meaning by the head, evenly distributes benefits among the living named beneficiaries
KNOW THIS! Misstatement of Age
misstatement of age on the application will result in adjustment of premiums or benefits
KNOW THIS (Children's Term Rider)
one premium for all children
Irrevocable Beneficiary
one that cannot be changed without the beneficiary's consent
What is the name for a life insurance policy rider that provides coverage on the insured's family members?
other insured rider
What dividend option can increase the death benefit of the existing life policy?
paid up additions
What dividend option is automatically selected by the company if not chosen by the policyowner?
paid up additions
Aviation Exclusion
will cover fare-paying passenger or pilot but exclude noncommercial pilots or charge higher premium with a rider
Premium Mode
Annual, semi - annual, quarterly, monthly -annual is the lowest
Contingent Beneficiary
(Also referred to as secondary or tertiary beneficiary) has second claim in the event that the primary beneficiary dies before the insured.
Fixed Period Installment Option
(alos called period option), a specified period of years is selected, & equal installements are paid to the recipient (beneficiary)
Per Stirpes
(meaning by the bloodline) In the event that a beneficiary dies before the insured, benefits from that policy will be paid to that beneficiary's heirs.
Insuring Clause
(or insuring agreement) sets forth the basic agreement between the insurer & the insured - parties to the contract - length of coverage - premium to be paid - amount of death benefit
Riders Affecting the Death Benefit Amount
* Accidental Death Benefit (Double or Triple Indemnity) * Accidental Death and Dismemberment * Guaranteed Insurability * Return of Premium * Term Riders
KNOW THIS! Absolute & Collateral Assignment
- Absolute asssignment is the complete & permanent transfer of ownership rights - collateral assignment is the partial & temporary transfer of rights
Riders that Cover Additional Insureds
- Family term (spouse or children) - coverage for 1 or more family members other than the insured - level term attached to the base policy - usually expires at age 65 for the spouse or 10 or 21 for the children
Riders Covering Additional Insureds
- Spouse - children - family - nonfamily
What are the dividend options in life insurance policies?
- cash - reduced premium - accumulation at interest - paid up additions - paid up option - one year term - acceleration of endowment
Dividend Options (6)
- cash - reduction of premium - accumulation at interest - paid up additions (automatic) - paid up insurance - one year term
Settlement Options (5)
- cash (automatic) - life income - interest only - fixed period - fixed amount
What are the 3 nonforfeiture options in life insurance policies?
- cash surrender - reduced paid up - extended term
Beneficiaries
- individuals - classes (all children) - minors - estates - trusts
What settlement options are available in life insurance policies?
- lump sum / cash - fixed period - fixed amount - life income - interest only
Accidental Death Benefit Rider
- pays multiple of the face amount - death must occur w/i 90 days of an accident - principal sum (face amount) or accidental death - usually double or triple
Automatic Premium Loans (APL)
- prevents unintentional lapse - automatically taken from cash value due at the end of grace period - will be deducted from death benefit if not repaid - insurer honors immediately
Nonforeiture Options (3)
- reduces paid up - extended term (automatic) - cash
Assignment
- transfer of rights of policy ownership - 2 types Absolute & Collateral
Disability Riders (5 types)
- waiver of premium - waiver of monthly deduction - payor benefit - disability income - accelerated (living) benefit
Waiver of Premium (KNOW THIS!)
- waiver of premium rider waives the premium for a total disability after a waiting period (typically 6 mo) Continuation of life insurance coverage if the insured becomes totally disabled and is unable to pay the premiums.
Disability Income Rider
-Pays a monthly income benefit to the insured in the event he or she becomes disabled -Pays benefits for life or until a disability ends once a waiting period has passed from the date of the insured's disability - amount paid is based on a % of the face amount
War or Military Service Exclusion
-status type: death occurs while in the military regardless of the reason -results type: death occurs related to the military
Guaranteed Insurability Rider
Allows insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or birth of a child), without evidence of insurability, for an additional premium
An insurer has discovered a representation on a life insurance policy application regarding the insured's age. The insured is 10 years older than he stated on the application. What will the insurer do regarding the death benefit?
pay a reduced death benefit
Lump Sum
payment of the entire benefit in one sum
Fixed Amount Installements Option
pays a fixed, specified amount in installments until proceeds (principal & interest) are exhausted.
Accidental Death and Dismemberment Rider
pays the principal (face amount) for accidental death, and pays a percentage of that amount, or a capital sum, for accidental dismemberment
Accelerated (Living) Benefits Rider
permits the insured to use benefits before death if the insured is terminally ill. Qualified early payments are received tax-free by the insured (death w/i 2 yrs) reduces death benefit - KNOW THIS! early payment of part of the death benefit to the insured from the insurer for qualifying medical expenses
What is the advantage of reinstating a Life insurance policy as oppsoed to applying for a new one?
policy premium in a reinstatment policy will be set according to the insured's original age
With the interest only settlement option, what happens to the policy's death benefit?
policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary
Who controls changes in premium payments, face values, and loans in a life insurance policy?
policyowner
Who has the right to the cash value of a life insurance policy?
policyowner
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
Payor Benefit Rider
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 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21. This rider is also used when the owner and the insured are two different individuals.
What beneficiary designation has first claim to the death proceeds of a life insurance policy?
primary beneficary
Common Disaster Clause
provides that if the insured and the primary beneficiary died in a common disaster (even if the beneficiary outlived the insured by a specified number of days), it is presumed that the primary beneficiary died first, so the proceeds will be paid to either the contingent beneficiary or to the insured's estate, if no contingent beneficiary is designated. (usually 14-30 days)
Free Look Provision
provision allows policyowner a specific # of days (typically 10) & could recieve refund, starts when receives policy
What nonforfeiture option provides coverage for the longest period of time?
reduced paid up
What provision allows the policyowner to reactivate a lapsed life insurance policy within a specific period of time with proof of insurability?
reinstatement
What type of beneficiary can be changed at any point by the policyowner?
revocable
Consideration
something of value that each party gives to the other (binding force in any contract)
An applicant for life insurance misstated her age on the policy application. How will this affect the death benefit?
the death benefit will be adjusted to the amount that the insured could obtain for her correct age
With the reduction of premium dividend option, how is the dividend used?
the dividend is applied to the nexts years premium (it reduces the next years premium)
Principal
the face value of the policy; the original amount invested before the earnings
Interest Only Option
the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals
Revocable Beneficiary
the policyholder reserves the right to change the beneficiary designation without the beneficiary's consent
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
What is the purpose of settlement options in life insurance policies?
to determine how the death benefit will be paid to the beneficiary
What is the purpose of the Automatic Premium Loan Provision?
to prevent the unintentional lapse of a policy because of non payment of the premium
Collateral Assignment
transfer of partial rights to another person
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
waiver of premium
When can an insurance company use suicide as a defense against paying a death claim?
when a suicide is committed within a specific period of time after the policy is purchsaed (usually 2 yrs)