Ch.3 pt 2 Flashcards
Exclusions
Features of an insurance policy stating that the policy will not cover certain risks
Extended term option
Permits the policy owner to use the policy’s cash value to buy level, extended term insurance for a specified period
Free look period
States the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid
Grace period
A period after the due date of a premium during which the policy remains in force without penalty
Guaranteed insurability rider
Permits the policy owner to buy additional permanent life insurance coverage at predetermined intervals without submitting proof of insurability. It also includes specific events like marriage and births, without requiring proof of insurability
Incontestable provision
States that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time, typically two years
Insuring clause
The insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss
Misstatement of age or sex provision
Allows the insurer to adjust the policy benefits if the insured’s age or sex is misstated on the policy application
Nonforfeiture options
The options you have for your cash value if you terminate a policy that has a cash value
One year term option
Allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy
Paid up additions option
Allows the policy owner to exchange the dividend for an additional single payment whole life policy
Payor provision
Waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled
Policy loan
A policy loan in life insurance allows the policyholder to borrow money against the cash value of their life insurance policy. This loan does not require credit checks or a repayment schedule, but interest is charged. The borrowed amount, plus any unpaid interest, reduces the death benefit if not repaid. Policy loans are available only with policies that accumulate cash value, such as whole life or universal life insurance
Reduced paid-up option
Allows the policy owner to reduce the policy’s benefit amount and, in turn, cease making premium payments
Reduced premiums option
Allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year’s premium payments
Reinstatement provision
A reinstatement provision in life insurance allows a policyholder to restore a lapsed policy to active status after it has lapsed due to missed premium payments. To reinstate the policy, the policyholder typically must pay all overdue premiums with interest, provide proof of insurability, and meet any other conditions set by the insurer. Reinstatement is usually allowed within a specified period, often within three to five years from the lapse date
Return of premium rider
Pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a specific period specified in the policy. It may also return premiums to the insured at the end of a specified period
Suicide clause
States that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance
Waiver of premium rider
Allows the policy owner to waive premium payments during a disability and keeps the policy in force. The waiver of premium rider is not a loan and does not provide cash payments to the policy owner
Execution clause
States that the insurance contract will be executed when both parties (the insurer and the policy owner) have satisfied the conditions of the contract. In other words, when both parties have fulfilled their responsibilities, the contract will be executed
Modification Provision
States that any changes made to the contract must be in writing and endorsed or attached to the policy. It also states that only an officer of the insurer or authorized home office personnel possess the authority to make any changes or modifications or waive a policy provision
Privilege of change clause
Outlines the conditions under which the company will allow the policy owner to change the policy’s coverage
Owner’s provision
States that the policy owner possesses all rights contained in the policy. In any insurance policy or contract, the policy owner may name or change the beneficiary, borrow against the cash value (if applicable), and select the frequency with which premiums are paid
Mode of premium provision
States that premiums must be paid to an insurer or its representative in order for coverage to be provided and allows the policy owner to select the mode of premium
Excess interest provision
The excess interest provision in life insurance refers to a feature where the insurance company credits additional interest to the policy’s cash value beyond the guaranteed minimum rate. This typically occurs in permanent life insurance policies, like universal life, where the insurer’s investment performance has exceeded expectations. The excess interest can help the cash value grow faster, potentially reducing the amount of premium needed or increasing the death benefit. However, this interest is not guaranteed and can vary depending on market conditions and the insurer’s investment returns
Settlement options provision
Outlines the various ways the policy’s death benefit may be paid to the beneficiary as well as who has the authority to decide how to distribute the funds
Long-term care rider
optional add-on that provides coverage for long-term care expenses, such as nursing home care, in-home care, or assisted living, if the policyholder becomes unable to perform basic activities of daily living, like bathing or dressing. With this rider, a portion of the life insurance policy’s death benefit can be accessed early to pay for these costs. The amount used for long-term care reduces the death benefit available to beneficiaries when the policyholder passes away
Disability income benefit rider
Provides an income benefit if the insured is totally and permanently disabled as defined by the policy
Cost of living rider
This rider automatically increases the face amount of the policy at specified intervals based upon increases in the Consumer Price Index
Eexchange privilege rider
Outlines the conditions and processes for changing the insured of an insurance policy
Term insurance riders
Were created to give insureds an inexpensive option to add additional temporary coverage to a permanent policy. These riders allow for an additional death benefit (above the permanent face value) if the insured dies during a specified term
Level term rider
Adds an additional fixed, level death benefit for a predetermined amount of time at a predetermined cost to the existing face value a permanent policy
Decreasing term rider
Adds an additional decreasing death benefit for a predetermined amount of time at a predetermined cost to the existing face value of a permanent policy
Increasing term rider
Will allow for an increasing amount of coverage each year. Increasing term riders provide an additional term insurance face amount at death equal to either all premiums paid or the amount of cash value
Return of cash value rider
Another type of increasing term rider that provides an increasing amount of term insurance that equals the cash value as it accumulates in a whole life policy. This rider allows the cash value to be paid in addition to the face amount
Family rider
When added to an insured’s individual policy, covers the rest of the family but not the primary insured who is protected by the individual policy
Spousal rider
May be added to a primary policy to cover a spouse
Child or children’s rider
May be added to an insured’s policy to cover children or adopted children
Results clause
States that an individual policy does not provide coverage if the insured dies while participating in military activities or during military maneuvers of some sort. If the insured were on furlough and killed, he or she would be covered under an individual policy
3 Types of life insurance policies
Industrial life
Group life
Ordinary life
Advantage of whole life insurance
Covers the entire life of the insured
Living benefits - cash value and policy loans
Fixed premiums
Drawbacks of whole life insurance
Protection is more expensive because of living benefits
Premium paying period may extend beyond the income-earning years
Multiple protection policies
Pays a benefit of double or triple the face amount if death occurs during a specified period. If death occurs after the period has expired, only the policy face amount is paid. The period may be for a specified number of years - 10, 15, or 20 years or to a specified age such as 65. These policies are combinations of permanent insurance and level term insurance
Interest-sensitive whole life
A type of whole life insurance where the cash value can increase beyond the stated guarantee if economic conditions warrant
Variable whole life insurance
Was created to help offset the effects of inflation on death benefits
Beneficiaries
_____________ and assignees are entitled to the proceeds upon the death of the insured before any claims of the insured’s creditors
Irrvocable beneficiary
means the beneficiary cannot be changed
Absolute and collateral
two types of assignments
Cost recovery rule
states that when a life policy is surrendered for its cash value, the cost basis (total premiums paid) is exempt from taxation
Spendthrift clause
stipulates that a settlement option may be selected by the policy owner at the time of application. This clause often prevents beneficiaries from assigning or pledging the death benefit to others before they receive it, ensuring that the funds are used as intended and providing a layer of financial security
Catastrophic illness rider
coverage covers only identified or listed diseases in the policy, such as cancer, heart disease, renal failure, stroke, etc. insured will recieve a lump sum
Double indemnity
Policies that pay a multiple of two times the policy face amount are called
Triple indemnity
policies that pay three times the death benefit for death due to accidents are called
Principal sum
The death benefit paid under accidental death coverage
Capitol sum
The severance (dismemberment) benefit paid under accidental dismemberment
Riders
can be added to a life insurance policy that provide term insurance coverage for the spouse, children, or entire family
War exclusion
The exclusion typically applies to both declared and undeclared wars and can also include deaths caused by terrorism or civil unrest, depending on the policy’s specific terms. This clause is common in life insurance policies to limit the insurer’s risk exposure during times of conflict
Status war clause
a restrictive type of clause which states that the insured will not possess coverage under an individual life insurance policy while he or she is in the military even if killed while away on furlough
