Chapter 12 Vocab (Notes)

Question 1

Ownership Clause

Answer 1

policyowner possesses all contractual rights in the policy while the insured is living

Question 2

Entire Contract Clause

Answer 2

life insurance policy and attached application constitute the entire contract between the parties

Question 3

Incontestable Clause

Answer 3

the insurer cannot contest policy after it has been in force two years during insured’s lifetime

Question 4

Reinstatement Provision

Answer 4

permits the owner to reinstate a lapsed policy

Question 5

Grace Period

Answer 5

the policyholder has a period of 31 days to pay an overdue premium

Question 6

Misstatement of Age or Sex Clause

Answer 6

if the insured’s age/sex is misstated, the amount payable is the amount that the premiums paid would have purchased if correct

Question 7

Beneficiary

Answer 7

the party named in the policy to receive the proceeds

Question 8

Primary Beneficiary

Answer 8

1st entitled to receive proceeds on the insured’s death

Question 9

Revocable Beneficiary

Answer 9

means the policyholder reserves the right to change the beneficiary without the beneficiary’s consent

Question 10

Irrevocable Benficiary

Answer 10

one that cannot be changed without beneficiary consent

Question 11

Specific Beneficiary

Answer 11

is specifically identified

Question 12

Class Beneficiary

Answer 12

member of a group

Question 13

Change of Plan Provision

Answer 13

allows policyholders to exchange their present policies for different contracts

Question 14

War Clause

Answer 14

excludes payment if insured dies as a direct result of war

Question 15

Absolute Assignment

Answer 15

all ownership rights are transferred to a new owner

Question 16

Collateral Assignment

Answer 16

policyowner temporarily assigns a life insurance policy to a creditor as collateral for a loan, but only certain rights are transferred to the creditor

Question 17

Policy Loan Provision

Answer 17

allows policyowners to borrow the cash value

Question 18

Automatic Premium Loan Provision

Answer 18

an overdue premium is automatically borrowed form the cash value after the grace period expires

Question 19

Participating Policy

Answer 19

a policy that pays dividends

Question 20

Nonparticipating Policy

Answer 20

a policy that does not pay dividends

Question 21

Nonforfeiture Value/Cash Surrender Value

Answer 21

payment to a withdrawing policyowner

Question 22

Life Income Option

Answer 22

installment payments are paid only while the beneficiary is alive and cease on the beneficiary’s death

Question 23

Waiver of Premium Provision

Answer 23

if the insured becomes totally disabled, all premiums coming due during the period of disability are waived

Question 24

Guaranteed Purchase Option

Answer 24

permits the policyowner to purchase additional amounts of life insurance at specified times in the future without evidence of insurability

Question 25

Accidental Death Rider

Answer 25

twice the face amount of life insurance if the death is a result of an accident

Question 26

Cost of Living Rider

Answer 26

allows policyowners to purchase a one year term to equal to the percent change in CPI with no evidence of insurability

Question 27

Accelerated Death Benefits Rider

Answer 27

allow insureds who are terminally ill to collect art or all of their life insurance benefits before they die

Question 28

Viatical Settlement

Answer 28

sale of life insurance by terminally ill to another party who hope to profit by insured’s early doom

Question 29

Life Settlement

Answer 29

policyowner who no longer wants a life insurance policy sells to a third party for more than cash value