NY Life Insurance Exam-Chapter 4

Classes

a class of beneficiary is using a designation such as "my children"

activities of daily living (ADLs)

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

Revocable Designation

can be changed any time by the policy owner with consent from the beneficiary

Succession

the beneficiary designation provides for levels or priority or choice.

Accumulation of Interest

the insurance company keeps the dividend in an account where it accumulates interest, the interest on dividends are taxable.

One Year Term

the insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall policy death benefit.

Estates

if no beneficiary is alive at the time of death of the insured, the proceeds will be paid to the insured's estate.

Reduction of Premium

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

assignment

transfer of rights of policyownership

Annuity Certain

An annuity that provides a specified monthly income for a stated number of years without consideration of any life contingency.

Long Term Care

LTC coverage which is often purchased as a separate policy, can be marketed as a rider to a life insurance policy.

Difference between pure life and life with guaranteed minimum settlement options:

Life with guaranteed minimum will pay the remaining principal to the beneficiary

Cash Payment

Upon the death of the insured, or at the point of endowment, the contract is designated to pay the proceeds in cash, called a lump sum.

Dividend Options

dividends are paid only on participating policies (mutual companies). In other words, dividends are a return of excess premiums and for that reason they are not taxable to the policy owner. Insurance companies cannot guarantee dividends.

Options

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

Contingent Beneficiary

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

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.

Statements of the Applicant

a representation is a written response to questions or statements on an application which the applicant indicates are correct to the best of his/her knowledge. A warranty is a statement that is guaranteed to be true, if untrue the insurer has the right to void the contract.

Accelerated Benefit

accelerated death benefits allow the early payment of a portion of the death benefit for specific reasons. Insurance companies usually allow up to 50%, but it's legal to pay up to 100%.

Which nonforfeiture option has the highest amount of insurance protection?

extended term

Primary Beneficiary

has first claim to the policy proceeds following the death of the insured.

Straight Life/Pure Life/Life Income

provides the recipient with an income that he or she cannot outlive. The amount of each installment is based on the recipients life expectancy and the amount of principal. Generally provides highest monthly income

Settlement Options

settlement options are the 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.

Term Rider

term rider allows for an additional amount of temporary insurance to be provided on the insured without the need to issue another policy.

Ownership

the parties to the insurance contract are the insurer, the policy owner, the insured and the beneficiary. Policy owner is responsible for paying the policy premiums, and must have an insurable interest in the insured at the time of application.

Policy Loan

the policy loan option is found in policies that contain cash value. Insurance companies may defer a loan request for up to 6 months, policy loans are not subject to income taxation.

Assignment

the policy owner of a life insurance policy has the right to transfer partial or complete ownership of the policy to another person with the consent of the insured; transfer of the life insurance policy does not change the insured or the amount of coverage, it only changes who has policy ownership rights

Cash Surrender Value

the policy owner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. A surrender charge is a fee.

Payment of Premiums

the policy stipulates when the premiums are due, how often to be paid 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.

Irrevocable Designation

may not be changed without the written consent of the beneficiary.

Reinstatement

the reinstatement provision allows a lapsed policy to be put back in force. The maximum time limit for reinstatement is 3 years after the policy lapsed. The policy owner will have to show proof of insurability, pay all back premiums plus interest, and any outstanding loans plus interest.

Cost of Living

the cost of living rider addresses the inflation factor by automatically increasing the amount of insurance with evidence of insurability from the insured. Usually tied to the Consumer Price Index.

Entire Contract

the entire contract provision stipulates that the policy and a copy of the application along with any riders or amendments, constitute the entire contract.

principal amount

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

Family Term

the family term rider incorporates the spouse term along with the children's term in a single rider.

Grace Period

the grace period is the period of time after the premium due date that the policy owner has to pay the premium before the policy lapses (usually 30 to 31 days), purpose is to protect the policyholder against an unintentional lapse of the policy; death benefit is payable if insured dies during this period; however, any unpaid premium will be deducted from the death benefit

Guaranteed Insurability

the guaranteed insurability rider allows the insured to purchase additional coverage at specified future dates (usually every 3 years) without evidence of insurability for an additional premium.

Spouse/Other Insured Term

the other insured rider provides coverage for one or more family members, the rider is usually level term insurance. The spouse term rider allows the spouse to be added to coverage for a limited period of time.

Individuals

the owner of a life insurance policy may name any individual as a beneficiary for the policy proceeds. Benefit split by percentage when there is more than one beneficiary. Benefits designated to a minor will either be paid to the minor's guardian or paid to the trustee of the minor.

Single Life

the single life option can provide a single beneficiary income for the rest of his/her life, payments stop at death of beneficiary

Spend Thrift Clause

the spendthrift clause when included in a life insurance policy, protects the beneficiaries from the claims of creditors.

Automatic Premium Loans

this is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Right to Examine (Free Look)

this provision allows the policy owner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. In NY it's a minimum of 10 days, mail order is 30 days.

Life With Period Certain

under life income with period certain option, the recipient is provided with the "best of both worlds" in terms of a lifetime income and a guaranteed installment period.

Extended Term

under the extended-term option, the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy.

Fixed Period Installments

under the fixed period installments option a specified period of years is selected and equal installments are paid to the recipient.

Reduced Paid Up Insurance

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

Withdrawal of Partial Surrenders

universal life policies allow for the partial withdrawal of the policy cash value.

Paid-Up Insurance

usually, the insurer first accumulates the dividends at interest and then uses the accumulated dividends, plus interest, and the policy cash value to pay the policy up early.

Interest Only

with the interest only option the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals.

Conditions for Payment

one trigger for activating the accelerated payment of the death benefit in policies issued in the state of NY is the diagnosis of a medical condition which will require extraordinary care.

Exclusion

are types of risk the policy will not cover. Aviation, Hazardous Occupations or Hobbies, War or Military Service (status cause excludes all causes of death when insured is on active duty, results cause only excludes death benefit if the insured is killed as a result of a declared or undeclared act of war), Suicide in the first 2 years, premiums will be refunded and the claim disallowed. Suicide after 2 year period- death proceeds paid to designated beneficiary as if insured died of natural causes

Nonforfeiture Option

because permanent life insurance policies have cash values, certain guarantees are built into the policy that cannot be forfeited by the policy owner.

Payor Benefit

is primarily used with juvenile policies, otherwise it functions like the waiver of premium rider. If the insured becomes disabled or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Per Stripe

meaning by the bloodline, distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs.

Per Capita

meaning by the head, evenly distributes benefits among the living named beneficiaries.

Riders

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

Accidental Death

the accidental death rider pays some multiple of the face amount if death is result of an accident as defined in the policy. Death must usually occur within 90 days and the benefit can be double or triple indemnity.

Designation Option

the beneficiary is the person or interest to which the policy proceeds will be paid upon the death of the insured.

Children's Term

the children's term rider allows children of the insured to be added to coverage for a limited period of time for a specified amount.

Incontestability

the 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.

Trusts

are commonly established for minors, or to create a scholarship fund.

Return of Premium

the return of premium rider is implemented by using increasing insurance.

Waiver of Premium

the waiver of cost of insurance rider is found in Universal Life Insurance, waives the cost of insurance but not premiums necessary to accumulate cash values; waiting period - 6 months

Joint & Suvivor

the life income joint and survivor option guarantees an income for two or more recipients for as long as they live.

Disability Income

in the event of disability the insurer will waive the policy premium and pay a monthly income to the insured.

Collateral Assignment

involves a transfer of partial rights to another person.

Absolute Assignment

involves transferring all rights of ownership to another person or entity.

Life Refund

the life refund income option comes in either a cash refund or an installment refund form. Cash refund would generate a lump sum settlement upon death, the installment refund option the beneficiary would receive the funds in the form of continued annuity payments.

Cash Loans

amount available equals Loan Value - Cash Value - Unpaid loan & interest.

trust

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

Proof of Death

in many cases this will consist of a copy of the death certificate and a form provided by the insurer to be completed by the claimant. Upon receipt the insurer must pay the death claim immediately. If no beneficiary is named in the policy, the death proceeds are paid to the estate of the insured.

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.

Provisions

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

Misstatement of Age

the insurer has the right to adjust the benefit to an amount that the premium at the correct age would have otherwise purchased.

Cash Payment

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

Common Disaster Claim

the law will assume that the primary beneficiary dies first in a common disaster. This provides that the proceeds will be paid to either the contingent beneficiary or to the insured's estate.