Policy Riders

Y's $200,000 life policy has an accidental death benefit equal to the face amount of the base policy. Y also has an outstanding policy loan balance of $40,000. In the event of Y's accidental death, the policy will pay - $200,000. - $400,000. - $160,000. - $360,000.

- $360,000. With the accidental death benefit, the policy will pay $400,000 (twice the face amount) less the $40,000 loan balance.

To qualify for a waiver of premium, the disability must be - total and temporary. - total and permanent. - partial and temporary. - partial and permanent.

- total and permanent. A waiver of premium rider provides that premiums are waived (need not be paid) while an insured is totally and permanently disabled. A "total disability" is a disability which may initially prevent an insured from engaging in his own occupation or later from engaging in any occupation. A "permanent disability" is one which lasts beyond a specified waiting period (generally 3-6 months).

Payor Benefit Rider

Juvenile insurance policies are sold that insure the life of a minor. They are owned by the payor of the policy (usually the parent or guardian of the insured child) until the insured reaches a specified age. If the policy has a payor benefit rider (or payor waiver of premium), premiums will be waived (and never have to be repaid) if the payor of the premiums becomes disabled or dies. The premiums are waived until the child reaches a specified age (usually 21 or 25) and begins paying the premiums himself, or until the payor recovers, whichever occurs first. To get the rider, the payor generally has to provide proof of insurability. For Example Caster also had a juvenile insurance policy on the life of his child, Margo. When Caster was disabled for 13 months, the payor benefit waived the premiums on the juvenile policy until Caster recovered.

Waiver of Cost of Insurance Rider

Universal life policies may offer a waiver of cost of insurance benefit in place of a waiver of premium benefit, since they do not have a required premium payment. This benefit will provide for the insurer to pay the cost of insurance instead of taking it from the cash value account. As a result, the cash value would continue to accumulate as if the policyowner had paid the cost of insurance.

The rider that allows the policyowner to buy additional insurance at certain times without proof of insurability is called ___________ insurability rider.

guaranteed

An accidental death benefit rider increases the amount the beneficiary will receive if the insured's death is accidental. This additional benefit is called the ____________ sum.

principal

W is able to buy additional insurance every 5 years without evidence of insurability because his policy includes a(n) - free look provision. - incontestability provision. - guaranteed insurability rider. - automatic premium loan provision.

- guaranteed insurability rider. The guaranteed insurability rider allows the policyholder to purchase more insurance at certain ages (generally up to age 40), without evidence of insurability. The premium for each purchase is based on the insured's age at the time of that purchase (attained age). If a purchase is not made at a time allowed, the policyholder does not lose the right to make purchases at other times specified, but he cannot exercise the right to make the purchase he could have made at a later date.

The premium for a waiver of premium or disability income rider - earns interest. - is imposed to cover the increased risk to the insurer. - must be paid monthly. - is added to the policy's cash value.

- is imposed to cover the increased risk to the insurer. Premiums for riders cover the cost of the riders' benefits. They do not add to cash values and do not earn interest for the insured. They may be paid in any mode of payment, generally the same as for the policy to which they are attached.

R's policy has an accidental death benefit. His agent warned him, though, that the benefit would not apply if R died - while rioting. - in an automobile accident. - in an occupational accident. - in a crash, while a passenger on a regularly scheduled airline.

- while rioting. The accidental death rider often excludes death resulting from riot or insurrection, certain aviation activities, self-inflicted injury, criminal activity and wartime military service.

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If the policy has a payor benefit rider (or payor waiver of premium), premiums will be waived (and never have to be repaid) if the payor of the premiums becomes disabled or dies. Riders are available which provide term insurance coverage on one or more persons other than the person insured under the basic insurance policy: A spouse rider may be used to add term insurance on a spouse. A children's rider may be used to add convertible term insurance on the children. Coverage would apply to all children automatically, with no change in premium, when they are added to the family, whether through birth (after 15 days) or through adoption. A family rider would add term insurance on the spouse and children. Another insured rider can add coverage for a nonfamily person, such as a key employee or partner in a business.

The payor benefit in the policy L bought for his son T will provide for payment of the premium if - T dies. - the policy is converted. - T becomes disabled. - L dies or becomes disabled.

- L dies or becomes disabled. A payor benefit provides that if the payor (the person paying the premiums) dies or is disabled, the premiums will be waived. This is found in juvenile policies where the policyholder (the payor) is the parent or guardian of an insured child. In the event the policyholder dies or is disabled before the child reaches a specified age, premiums will be waived until the child reaches that age and begins paying the premiums himself, or until the policyholder recovers, whichever occurs first. To get the rider, the payor generally has to provide proof of insurability. Note, the rider will stay in effect until the child reaches the specified age, generally 21 or 25.

An insured purchased an Accidental Death and Dismemberment policy and was killed in an automobile accident. The death benefit paid to the beneficiary is known as the - Capital sum. - Cash value accumulation account. - Principal sum. - Agreed-value sum.

- Principal sum. In an AD&D policy, the amount paid for death is known as the principal sum, or face amount. Amounts paid for dismemberment are known as "capital sum" payment. AD&D policies will normally pay ½ of the principal sum as a capital sum payment for a singular dismemberment and 100% of the principal sum as a capital sum payment for a multiple dismemberment occurring in the same accident. AD&D policies require that the limb be severed "at or above the wrist or ankle."

Disability Income Rider

The disability income rider is usually offered with the waiver of premium. It pays the insured a monthly income while totally and permanently disabled. The amount of the income is generally related to the amount of the face value of the policy (e.g., $10 per $1,000 of face value). For Example Pete Moss was injured at work and unable to work at his job for 19 months. During the first six months, he continued to pay the premiums on his $100,000 life insurance policy that had a disability income rider (offering a monthly benefit of $20 per $1,000 of insurance coverage) with a waiver of premium. After six months and during the remaining 13 months, Pete did not pay premiums and received $26,000 in disability income ($2,000 per month for 13 months); he was also reimbursed for the premiums he paid during the initial six months.

Guaranteed Insurability Rider

This rider allows the policyowner to buy additional insurance at certain times without proof of insurability. The amount of insurance that can be purchased is specified in the rider. The additional insurance can be purchased only at certain ages (e.g., at ages 25, 30, 35, and 40) or within a certain number of days after a certain occurrence (e.g., within 90 days after a birth or marriage), and only up to a specified maximum age, (e.g., 40). The premium for each purchase is based on the insured's attained (current) age at the time of purchase. If a purchase is not made at the time allowed, the policyholder will still be able to buy insurance at the other times specified, but he cannot buy extra insurance to make up for purchases he did not make at previous specified time slots. For Example Dell bought a $100,000 whole life policy that allowed him to buy $20,000 of additional insurance at ages 31, 34, 37, and 40. It also allowed him to move a purchase up to within 90 days of the birth of a child. He bought $20,000 insurance at age 31, paying the premium rate for a 31 year old. At age 34, he chose not to buy more insurance. At age 36, he had a child. He could not buy more insurance to make up for the insurance he did not buy at age 34, but he was able to take advantage of the "stork" provision in the rider that let him move his next purchase date up to 90 days after the birth. This meant he could not purchase more insurance at 37, but he would be able to make his next purchase when he reached age 40.

Long-Term Care Benefit Provisions and Riders

Some life insurance policies include long-term care benefits in the policy itself or as a rider. The benefits provided would be similar to those offered in a long-term care (LTC) insurance policy but are usually payable only after the entire accelerated death benefit has been paid out. The accelerated death benefit (discussed in policy provisions) in a life insurance policy and the annuity LTC insurance benefit will usually require a long elimination, or waiting, period before the benefits of the LTC rider are triggered. The premium charged for this benefit is generally payable as a single premium or over a specified period of time. For some persons, particularly younger consumers, combination policies containing life insurance, protecting a family in the event of a premature death, and LTC benefits are more attractive than a stand-alone LTC insurance policy, the benefits of which may never be paid, or if paid, would most likely be paid far in the future. Accelerated Death Benefits -Policy does not change ownership -Beneficiary of the policy receives the remaining portion of the death benefit -Policyowner pays the premium -Generally requires the policyowner have a life expectancy of less than two years

Riders That Cover Other Insureds

Riders are available which provide term insurance coverage on one or more persons other than the person insured under the basic insurance policy: - A spouse rider may be used to add term insurance on a spouse. - A children's rider may be used to add convertible term insurance on the children. Coverage would apply to all children automatically, with no change in premium, when they are added to the family, whether through birth (after 15 days) or through adoption. The rider may also allow coverage to be converted to an increased amount of permanent insurance at a specified age. - A family rider would add term insurance on the spouse and children. When added to a permanent policy insuring the principal insured, this would create the same coverage as a family policy (or family plan). - An other insured rider can add coverage for a nonfamily person, such as a key employee or partner in a business. The premium rate for such a rider is based on the age and sex of the person(s) insured by the rider. For Example John bought a $100,000 life insurance policy with a $50,000, 20-year term spouse rider insuring Mary.

A return of premium rider will do which of the following? - Return all premiums paid to the policyowner if the policy lapses due to non-payment of the premium. - Pay the beneficiary the full amount of premiums paid in addition to the face amount upon the death of the insured. - Requires the insurance company to subtract the amount of premiums paid from the death benefit upon the insured's death. - States that only the premiums will be paid upon the death of the insured and the face amount will not be paid.

- Pay the beneficiary the full amount of premiums paid in addition to the face amount upon the death of the insured. The return of premium rider states that upon the death of the insured, the insurer will pay both the face amount and an additional amount equal to the total of premiums paid prior to the insured's death. It is utilizing an increasing term insurance rider added to a permanent policy.

K has been disabled for two years. During this time the insurer has paid $720 in premiums under a waiver of premium rider in K's insurance policy. Upon recovery, K must - prove insurability. - repay all premiums or the face amount will be reduced. - repay all premiums or cash values will be reduced. - begin paying the premiums as they become due.

- begin paying the premiums as they become due. The waiver of premium rider provides for premiums to be waived, not deferred. Therefore, when the insured recovers, he does not have to repay the premiums. He just starts paying premiums again.

P's policy has a waiver of premium rider. P was disabled for 18 months. After he recovered, he - did not have to repay the premiums waived during the period of the disability. - was charged a higher premium. - had to drop all other riders. - started paying the premiums at a reduced rate.

- did not have to repay the premiums waived during the period of the disability. The waiver of premium rider provides for premiums to be waived, not deferred. Therefore, when the insured recovers, he does not have to repay the premiums. He just starts paying premiums again.

An accelerated benefit is payable after a certain event occurs; this event is called ____________ .

qualifying

An additional section made part of a life insurance contract is called a ___________ .

rider

Generally, the waiting period for disability income rider benefits is - 90 - 180 days. - 1 year. - 1 month. - 1 week.

- 90 - 180 days. A "total disability" is a disability which may initially prevent an insured from engaging in his own or another occupation. A "permanent disability" is one which lasts beyond a specified waiting period (generally 3-6 months).

If a business owner desired to attach coverage to his policy that would add term insurance on his business partner, what would he purchase? - A universal life policy - A payor benefit rider - A guaranteed insurability rider - A "non-family" term insurance rider

- A "non-family" term insurance rider A non-family term insurance rider adds term insurance coverage for other than family members. A payor benefit rider pays the premium on a policy for which the owner is not the insured and will pay the premium when the policyowner dies or becomes disabled under the terms of the rider. A guaranteed insurability rider allows the purchase of additional amounts of insurance on the life of the insured person at specific dates and events without evidence of insurability.

Increasing term riders may only be added to WHICH of the following policies? - Permanent insurance policies only - Both permanent and term insurance policies - Credit life policies - Group life policies only

- Permanent insurance policies only Increasing term insurance riders (return of premium and return of cash value) may only be added to permanent policies and not to term, credit life or group insurance policies.

If an insured wished to provide coverage for his spouse and children and couldn't afford separate policies for his family members, what should an agent suggest? - That he purchases the separate policies in any case as that is the only way to protect his family members. - That he buys term insurance riders for his spouse and children. - That he save his money and purchase policies for his family at a later date. - That he buys a universal life insurance policy, as this contract allows any number of persons to be insured under one policy.

- That he buys term insurance riders for his spouse and children. The return of premium rider states that upon the death of the insured, the insurer will pay both the face amount and an additional amount equal to the total of premiums paid prior to the insured's death. It is utilizing an increasing term insurance rider added to a permanent policy.

For an insured to access funds from his life insurance policy in order to pay for Long-Term Care (LTC) needs, all of the following statements would be true EXCEPT - The insured would simply need to request the funds from the insurance company assuming the policy is in-force. - There would have to be an accelerated death benefit provision in his policy that has been used and exhausted. - The policy's ownership would not change even though benefits are received. - The life expectancy of the insured is usually two years or less.

- The insured would simply need to request the funds from the insurance company assuming the policy is in-force. For the insured to access the funds from the accelerated death benefit to use for LTC needs, insurers normally require that any funds available to the policyowner through an accelerated death benefit provision be used up (insurers will normally accelerate only a portion of the death benefit and not the entire face amount). Ownership of the policy does not change and insurers will commonly state that the insured must have less than two years of life remaining. The insured cannot simply request the funds for any reason.

F's life policy has a guaranteed insurability rider. F can buy more insurance - at certain ages for a premium based on his original age. - at any time without proof of insurability. - as long as additional insurance is purchased at each specified age. - at certain ages without proof of insurability.

- at certain ages without proof of insurability.T The guaranteed insurability rider allows the policyholder to purchase more insurance at certain ages (generally up to age 40), without evidence of insurability. The premium for each purchase is based on the insured's age at the time of that purchase (attained age). If a purchase is not made at a time allowed, the policyholder does not lose the right to make purchases at other times specified, but he cannot exercise the right to make the purchase he could have made at a later date.

In determining a total and permanent disability, insurers - do not all use the same definition. - assume permanent disability until total disability is proven. - do not require a waiting period. - require the disability to last at least 12 months.

- do not all use the same definition. The definition of total and permanent disability is defined by each insurer in its policies. The definitions will vary from insurer to insurer based on the waiting period specified and the definition of total disability (e.g., "own occupation", "any occupation", etc.). The requirement that the disability last at least 12 months is a requirement of Social Security Disability Income (SSDI), not an individual disability insurance contract.

The amount of income paid under a disability income rider is directly based on the - policy face amount. - amount of the premium paid. - the length of time the policy has been in force. - the age of the insured.

- policy face amount. A disability income rider will pay the insured income while he is totally and permanently disabled. The income would be a certain number of dollars per $1,000 of coverage (e.g., $10 per month per $1,000 of coverage). For example, with a $50,000 policy and a benefit of $10 per month per $1,000 of coverage, the income would be $500 per month ($10 x 50 = $500). The amount of income is not based on the premium paid, which would be affected by the rider and the face amount, as well as the age at which the insured purchased the policy.

If Z does not exercise the option to increase his life insurance coverage under a guaranteed insurability rider - the rider is canceled. - the premiums are reduced. - the coverage automatically increases by the amount stated in the option. - the coverage will not change and the option for that date cannot later be exercised.

- the coverage will not change and the option for that date cannot later be exercised. The guaranteed insurability rider allows the policyholder to purchase more insurance at certain ages (generally up to age 40), without evidence of insurability. If a purchase is not made at a time allowed, the policyholder does not lose the right to make purchases at other times specified, but he cannot exercise the right to make the purchase he could have made at a later date.

If T is killed in an airplane accident, the accidental death benefit in his life policy - will pay triple indemnity. - will apply if it is a regularly scheduled airline. - will apply only if T flies the aircraft. - does not apply.

- will apply if it is a regularly scheduled airline. The accidental death rider generally will pay a double indemnity if the insured was a passenger in a regularly scheduled commercial flight, or was a passenger with no duties on a private flight. It would not pay for death resulting from an aviation accident otherwise.

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A rider is an additional section or page attached to and made part of a life insurance contract. Its purpose is to modify or add to the policy coverage, so the policy more closely suits the policyowner's needs. There are a number of term riders that can be added to whole life policies to provide term coverage at a lower cost than if it were purchased in a separate policy. They provide that if the insured dies while the rider is in effect, the beneficiary will receive the total of the amount of the underlying policy and the rider. A return of premium rider will increase the death benefit of a permanent policy to equal the policy face amount plus the amount of premiums paid for the insurance. A return of cash value rider will increase the death benefit of a permanent policy to equal the policy face amount plus the amount of the cash value in the policy. This rider increases the amount the beneficiary will receive if the insured's death is caused by an accident. It pays an additional benefit, called the principal sum, if the insured dies as the result of an accident occurring during the policy period within a specified period after the accident. The accidental death benefit can be any amount specified in the rider but is most often a multiple of the policy face amount. When the rider provides a benefit of twice the policy face amount, it is called a double indemnity rider. When it provides for payment of three times the face amount it is called a triple indemnity rider. Another rider that includes this benefit is the accidental death and dismemberment rider. It provides for payment of a benefit for accidental dismemberment (loss of an arm, leg, sight in both eyes) and/or accidental death. In this rider the amount paid for death is called the principal sum. The amount paid for dismemberment is called the capital sum. The capital sum is equal to the principal sum for a multiple dismemberment (loss of two limbs) and is usually half of that for loss of only one limb.

rider

A rider is an additional section or page attached to and made part of a life insurance contract. Its purpose is to modify or add to the policy coverage, so the policy more closely suits the policyowner's needs. The following are some of the most common riders used. There are a number of term riders that can be added to whole life policies to provide term coverage at a lower cost than if it were purchased in a separate policy. They provide that if the insured dies while the rider is in effect, the beneficiary will receive the total of the amount of the underlying policy and the rider. These riders may provide level, decreasing or increasing term coverage. Increasing term coverage is usually in the form of the return-of-cash-value rider or return-of-premium rider. A return of premium rider will increase the death benefit of a permanent policy to equal the policy face amount plus the amount of premiums paid for the insurance. A return-of-cash-value rider will increase the death benefit of a permanent policy to equal the policy face amount plus the amount of the cash value in the policy.

Return of Premium Rider

A term insurance policy primarily provides only a death benefit upon the death of the insured during the term period purchased. Term policies do not normally contain any cash value, which is a feature of permanent policies only. However, a return of premium rider may be added to a term insurance policy to provide the policyowner with the potential of receiving some or all of the premium paid at the end of the term insurance period. The rider will add to the premium cost and the insurer will require that the insured maintain the policy in force for the entire term period.

Features of these riders

Features of these riders include the following: - The term of the rider cannot be longer than the premium payment period for the permanent policy. - The death benefit is limited to a specified multiple of the whole life face amount. - The rider must be canceled if the permanent policy is canceled. For Example When Paul and Lisa were born, John realized his family needed additional insurance protection, so he purchased a $100,000 whole life policy with a $500,000 20-year level term rider. This gave him $600,000 coverage for the next 20 years until the kids were old enough to be on their own, and $100,000 for the rest of his life.

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The guaranteed insurability rider allows the policyowner to buy additional insurance at certain times without proof of insurability. The amount of insurance that can be purchased is specified in the rider. The premium for each purchase is based on the insured's attained (current) age at the time of purchase. If a purchase is not made at the time allowed, the policyholder will still be able to buy insurance at the other times specified, but he cannot buy extra insurance to make up for purchases he did not make at previous specified time slots. The waiver of premium rider provides that the insured need not pay any premiums while totally and permanently disabled, as defined in the rider. The disability income rider is usually offered with the waiver of premium. It pays the insured a monthly income while totally and permanently disabled and is normally tied to the face amount. Some life insurance policies include long-term care benefits in the policy itself or as a rider. The benefits provided would be similar to those offered in a long-term care (LTC) insurance policy but are usually payable only after the entire accelerated death benefit has been paid out. A return of premium rider may be added to a term insurance policy to provide the policyowner with the potential of receiving some or all of the premium paid at the end of the term insurance period. The rider will add to the premium cost and the insurer will require that the insured maintain the policy in-force for the entire term period.

Accidental Death Benefit Rider (Double or Triple Indemnity)

This rider increases the amount the beneficiary will receive if the insured's death is caused by an accident. It pays an additional benefit, called the principal sum, if the insured dies as the result of an accident occurring during the policy period or within a specified period after the accident. The accidental death benefit can be any amount specified in the rider but is most often a multiple of the policy face amount. When the rider provides a benefit of twice the policy face amount, it is called a double indemnity rider. When it provides for payment of three times the face amount it is called a triple indemnity rider. The rider generally will cover the death when the insured is a passenger on a regularly scheduled commercial flight or a passenger with no duties on a private flight. It would not pay for death resulting from riskier aviation activities. It might also exclude death resulting from riot or insurrection, intentional self-inflicted injury, criminal activity or wartime military service. Another rider that includes this benefit is the accidental death and dismemberment rider. It provides for payment of a benefit for accidental dismemberment (e.g., loss of an arm, leg, sight in both eyes) and/or accidental death. In this rider the amount paid for death is called the principal sum. The amount paid for dismemberment is called the capital sum. The capital sum is equal to the principal sum for a multiple dismemberment (e.g., loss of two limbs) and is usually half of that for loss of only one limb. For Example When Caster applied for a job at the sausage factory, Lani tried to explain that, with his attention deficit disorder, Caster may want to rethink that decision. However, he insisted that this was his calling. Lani said she would go along with his decision if he would buy a new life insurance policy with an accidental death rider. After she took a trip to the factory, she changed her mind and demanded he buy a $100,000 whole life policy with a $500,000 accidental death and dismemberment rider. If Caster dies from injuries, she will receive $600,000. If he loses two limbs, she'll receive $500,000 (the principal sum). If he loses one limb, she'll receive $250,000 (the capital sum).

Waiver of Premium Rider

This rider provides that the insured need not pay any premiums while totally and permanently disabled, as defined in the rider: - A disability is total if it requires a doctor's care and prevents the insured from engaging in either his own occupation or in any occupation, depending on the policy definition. - A disability is permanent if it lasts beyond a specified waiting period (generally three to six months). If the disability does last beyond the waiting period, premiums paid during the waiting period are refunded. With this benefit, the premiums are waived, not just deferred, so they do not have to be repaid. When the insured recovers, he just starts paying the current premiums due. It is normally sold with the disability income rider (see below). The result of the waiver on the policy would be the same as if the premiums had been paid. Any dividends due would be paid and cash value will grow on the same basis as if the policyowner had paid the premiums. The benefit generally expires at age 60 or 65 and usually excludes intentionally self-inflicted injury, injury received in wartime military service and injury received while engaged in criminal activity. A change of occupation while the policy and rider are in effect will not affect the policy or the rider. For Example Caster was injured at work and unable to work at his job, but he continued to pay the premiums on his life insurance policy that had a waiver-of-premium rider. When he recovered and returned to work after five months, in reply to his request for reimbursement of his premiums for the last five months, he received a card from the insurance company telling how happy they were to hear that he was able to recover before the end of the six-month waiting period. A year later, Caster was injured and unable to work again, but this time for 15 months. This time he was reimbursed for the premiums he paid the first six months and did not have to pay premiums on his policy until after he returned to work. This time, with the greeting card the insurance company sent a list of job training courses.