Chapter 12

Question 1

What are the two methods for transferring life insurance policy ownership dyring the lifetime of the insured?

Answer 1

1. Absolute assignment

2. collateral assignment

Question 2

Define absolute assginment

Answer 2

the irrevocable transfer of all of a polocyowner’s ownership rights in a life insurance policy to another.

Question 3

Define a collateral assignment

Answer 3

the transfer of some of a polocyowner’s ownership rights in a life infurance policy, usually to provide security for a debt. - gives the assignee the right to share in the policy proceeds to the extent of the policyowners outstanding debt at the insured’s death.

Question 4

What rights are transferred to the assignee in a collateral assignment agreement?

Answer 4

1. obtain a policy loan
2. surrender the policy for its cash surrender value
3. exercise nonforfeiture options
4. receive policy dividends

Question 5

Are the rights of the collateral assignee superior to the beneficiary’s right of a policy? Even if its a revocable beneficiary didnt consent?

Answer 5

yes. The claims to the policy overrides the revocable beneficiary’s claims

Question 6

Can the vested interrest of an irrevocable beneficiary be revoked without the beneficiary’s consent?

Answer 6

no. The owner cannot transfer ownership of the policy in these cases without the beneficiary’s consent.

Question 7

What is an assignment provision?

Answer 7

it describes the roles of the insure and the policy owner when the policy is assigned.

Question 8

T or F: An assignment is not binding on the insurer unless the insurer is notified in writing of the assignment.

Answer 8

True

Question 9

An assignee cannot receive an amount greater than the amount of the net policy proceeds. What is this?

Answer 9

the proceeds remanning after any overdue premiums and any outstanding policy loans and interest have been deducted.

Question 10

There are two different rules to determine which assignee has superior claim to the proceeds when there are two assignees that have notified the insurer of their assignments. Name them

Answer 10

1. American Rule: the first assignment has priority over a later assignment.
2. English Rule: the first assignee to notify the insurer has priority.

Question 11

Define the Change of Ownership Provision

Answer 11

specifies a simple, direct method of transferring all the policy’s ownership rights.

• ownerships can be transfered without requiring policyowner to enter into a separate assignment agreement.
• Can be done in writing.

Question 12

Define a secured creditor

Answer 12

A creditor who obtains a security interest in the debtor’s property is protected if the debtor defaults the loan.

Question 13

Define an unsecured creditor

Answer 13

If the loan defaults, the creditor must sue the debtor and obtain a judgement to recover the unpaid amount.

Question 14

What do you call a creditor who has obtained a judgement against a debtor?

Answer 14

Judgement creditor

Question 15

What are some creditor judgment state exemption laws?

• colorado
• Florida

Answer 15

• excepted up to a max of 100K

- death benefits exempt from claims of the decedents creditors

Question 16

when proceeds are not exempt from claims by a beneficiary’s creditors, as soon as the beneficiary’s rights to the policy;s proceeds vests what happens?

Answer 16

then the beneficiary’s creditors may follow the applicable states procedures to obtain repayment while the insurer has the money.

Question 17

What is a trust?

Answer 17

an arragment in which one person, the trustee, holds title to property for the benefit of another, the trust beneficiary

Question 18

How is a trust created?

Answer 18

when one person, the settlor, transfers ownership of property to a trustee, who has a duty to manage the property for the trust beneficiary’s benefit.

Question 19

ownership of trust property is split between who?

Answer 19

the trustee (legal title) and the trust beneficiary (equitable title).

Question 20

What is equitable title?

Answer 20

ownership rights based on considerations of fairness and equity.

Question 21

What are a trustee’s fiduciary’ duties include?

Answer 21

1. duty to manage the trust property by exercising the degree of care that a reasonable prudent person would exercise in managing his own affairs
2. a duty of loyalty to the trust beneficiary.

Question 22

Is a trustee liable to a trust beneficiary for any losses caused by a breach of the trustee’s fiduciary duties?

Answer 22

yes

Question 23

What do you call a trust that takes effect during the settlor’s life time?

Answer 23

inter vivos trust (living trust)

Question 24

What is a trust agreement?

Answer 24

a writing doccument that spells out the terms of the trust including instructions as to how the trustee is to handle the trust property.

Question 25

What is a successor trustee

Answer 25

a person who will assume the position of trustee if the original trustee can no longer serve the function

Question 26

What is a testamentary trust?

Answer 26

a trust that takes effect at the settlor’s death. Will must comply with will statue to be valid.

Question 27

What is a revocable trust?

Answer 27

where the settlor retains the right to change the terms of the trust or to dissolve the trust

Question 28

what is an irrevocable trust?

Answer 28

where the settlor may not change or revoke the trust

Question 29

What is an insurance trust?

Answer 29

an irrevocable trust in which the trust property consists of insurance policies on the life of the settlor or the proceeds of such policies.

Question 30

What is a discretionary trust?

Answer 30

a trust in which the trustees have discretion as to how to invest trust assets and as to the timing and amount of distributions to make to the trust beneficiaries.

Question 31

What is a non-discretionary trust?

Answer 31

A trust in which the trustees are given no discretion as to the timing and amount of distributions to make to the trust beneficiaries. The trust agreement includes specific instructions as to such distributions.

Question 32

What is an Annuity trust?

Answer 32

a trust from which the trustee is required to pay a specified sum each yea to each trust benficiary for their lifetime or stated number of years

Question 33

what is a bond trust?

Answer 33

a trust in which the trust property consists of bonds

Question 34

what is an express trust

Answer 34

a trust created in express terms, (written usually)

Question 35

What is a constructive trust?

Answer 35

a trust that is created by operation of law as distinguished from an express trust.

Question 36

What is a spendthrift trust?

Answer 36

a trust that is designed to keep tryst property out of the hands of creditors of the trust beneficiary.
the beneficiary is prohibited from assigning or otherwise transferring her interest in the trust

Question 37

What is the purpose of a settlement option provision?

Answer 37

it grants the policyowner or beneficiary several choices as to how the insurer will pay the policy proceeds.

Question 38

What is a settlement agreement?

Answer 38

a contractual agreement between the policyowner and the insuere goverining the rights and obligations of the parties after the insured’s death.

Question 39

Can settlement options be irrevocable?

Answer 39

Yes, this means the beneficiary will not be able to change to another option when the policy proceeds become payable.

Question 40

Name 4 common settlement options

Answer 40

1. interrest option
2. fixed period option
3. fixed amount option
4. life income option

Question 41

What do you call a settlement agreement between an insurer and a policy beneficiary, when there is no settlement option yet, and the beneficiary and the insurer enter into a new contract governing how the policy proceeds will be paid?

Answer 41

Supplementary contract

Question 42

What term is given to the beneficiary who will receive policy proceeds under a settlement agreement?

Answer 42

payee.

Question 43

What is a contingent payee?

Answer 43

a person who will receive any proceeds still payable at the time of the payee’s death. They may or may not be the contigent beneficiary to the policy.

Question 44

What is a spendthrift clause?

Answer 44

is a provision that may be included in a life insurance policy or settlement agreement to protect the policy proceeds from being seized by the beneficiary’s crditors.