Chapter 12 Flashcards
What are the two methods for transferring life insurance policy ownership dyring the lifetime of the insured?
- Absolute assignment
2. collateral assignment
Define absolute assginment
the irrevocable transfer of all of a polocyowner’s ownership rights in a life insurance policy to another.
Define a collateral assignment
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.
What rights are transferred to the assignee in a collateral assignment agreement?
- obtain a policy loan
- surrender the policy for its cash surrender value
- exercise nonforfeiture options
- receive policy dividends
Are the rights of the collateral assignee superior to the beneficiary’s right of a policy? Even if its a revocable beneficiary didnt consent?
yes. The claims to the policy overrides the revocable beneficiary’s claims
Can the vested interrest of an irrevocable beneficiary be revoked without the beneficiary’s consent?
no. The owner cannot transfer ownership of the policy in these cases without the beneficiary’s consent.
What is an assignment provision?
it describes the roles of the insure and the policy owner when the policy is assigned.
T or F: An assignment is not binding on the insurer unless the insurer is notified in writing of the assignment.
True
An assignee cannot receive an amount greater than the amount of the net policy proceeds. What is this?
the proceeds remanning after any overdue premiums and any outstanding policy loans and interest have been deducted.
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
- American Rule: the first assignment has priority over a later assignment.
- English Rule: the first assignee to notify the insurer has priority.
Define the Change of Ownership Provision
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.
Define a secured creditor
A creditor who obtains a security interest in the debtor’s property is protected if the debtor defaults the loan.
Define an unsecured creditor
If the loan defaults, the creditor must sue the debtor and obtain a judgement to recover the unpaid amount.
What do you call a creditor who has obtained a judgement against a debtor?
Judgement creditor
What are some creditor judgment state exemption laws?
- colorado
- Florida
- excepted up to a max of 100K
- death benefits exempt from claims of the decedents creditors
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?
then the beneficiary’s creditors may follow the applicable states procedures to obtain repayment while the insurer has the money.
What is a trust?
an arragment in which one person, the trustee, holds title to property for the benefit of another, the trust beneficiary
How is a trust created?
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.
ownership of trust property is split between who?
the trustee (legal title) and the trust beneficiary (equitable title).
What is equitable title?
ownership rights based on considerations of fairness and equity.
What are a trustee’s fiduciary’ duties include?
- duty to manage the trust property by exercising the degree of care that a reasonable prudent person would exercise in managing his own affairs
- a duty of loyalty to the trust beneficiary.
Is a trustee liable to a trust beneficiary for any losses caused by a breach of the trustee’s fiduciary duties?
yes
What do you call a trust that takes effect during the settlor’s life time?
inter vivos trust (living trust)
What is a trust agreement?
a writing doccument that spells out the terms of the trust including instructions as to how the trustee is to handle the trust property.
What is a successor trustee
a person who will assume the position of trustee if the original trustee can no longer serve the function
What is a testamentary trust?
a trust that takes effect at the settlor’s death. Will must comply with will statue to be valid.
What is a revocable trust?
where the settlor retains the right to change the terms of the trust or to dissolve the trust
what is an irrevocable trust?
where the settlor may not change or revoke the trust
What is an insurance trust?
an irrevocable trust in which the trust property consists of insurance policies on the life of the settlor or the proceeds of such policies.
What is a discretionary trust?
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.
What is a non-discretionary trust?
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.
What is an Annuity trust?
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
what is a bond trust?
a trust in which the trust property consists of bonds
what is an express trust
a trust created in express terms, (written usually)
What is a constructive trust?
a trust that is created by operation of law as distinguished from an express trust.
What is a spendthrift trust?
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
What is the purpose of a settlement option provision?
it grants the policyowner or beneficiary several choices as to how the insurer will pay the policy proceeds.
What is a settlement agreement?
a contractual agreement between the policyowner and the insuere goverining the rights and obligations of the parties after the insured’s death.
Can settlement options be irrevocable?
Yes, this means the beneficiary will not be able to change to another option when the policy proceeds become payable.
Name 4 common settlement options
- interrest option
- fixed period option
- fixed amount option
- life income option
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?
Supplementary contract
What term is given to the beneficiary who will receive policy proceeds under a settlement agreement?
payee.
What is a contingent payee?
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.
What is a spendthrift clause?
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.
