Chapter 12 Vocab (Text)

Question 1

Ownership Clause

Answer 1

the p/h possesses all contractual rights in the policy while the insured is living

Question 2

Entire Contract Clause

Answer 2

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

Question 3

Incontestable Clause

Answer 3

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

Question 4

Suicide Clause

Answer 4

states that if the insured commits suicide within two years after the policy is issued, the face amount of insurance will not be paid; there is only a refund of the premiums paid

Question 5

Grace Period

Answer 5

period during which the p/h has a period for 31 days to pay an overdue premium

Question 6

Reinstatement Provision

Answer 6

permits the owner to reinstate a lapsed policy

Question 7

Misstatement of Age or Sex Clause

Answer 7

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

Question 8

Primary Beneficiary

Answer 8

beneficiary who is first entitled to receive the policy proceeds on the insured’s death

Question 9

Contingent beneficiary

Answer 9

entitled to the proceeds if the primary beneficiary dies before the insured

Question 10

Revocable Beneficiary

Answer 10

the p/h reserves the right to change the beneficiary designation without the beneficiary’s consent

Question 11

Irrevocable Beneficiary

Answer 11

a beneficiary cannot be changed without the beneficiary’s consent

Question 12

Class Beneficiary

Answer 12

a specific beneficiary is not named but is a member of a group designated as beneficiary

Question 13

Specific Beneficiary

Answer 13

the beneficiary is specifically named and identified

Question 14

Change of Plan Provision

Answer 14

allows policyholders to exchange their present policies for different contracts

Question 15

War Clause

Answer 15

excludes payment if the insured dies as a direct result of war

Question 16

Absolute Assignment

Answer 16

all ownership rights in the policy are transferred to a new owner

Question 17

Collateral Assignment

Answer 17

the policyholder temporarily assigns a life insurance policy to a creditor as collateral for a loan. Only certain rights are transferred to the creditor to protect its interest and the p/h retains the remaining rights

Question 18

Policy Loan Provision

Answer 18

allows the p/h to borrow the cash value

Question 19

Automatic Premium Loan Provision

Answer 19

an overdue premium is automatically borrowed from the cash value after the grace period expires, provided the policy has a loan value sufficient to pay the premium

Question 20

Participating Policy

Answer 20

the policy pays dividends

Question 21

Nonparticipating Policy

Answer 21

a policy that does not pay dividends

Question 22

Paid-Up Additions Option

Answer 22

the dividend is used to purchase a small amount of paid-up whole life insurance

Question 23

Nonforfeiture Laws

Answer 23

requires insurers to provide at least a minimum nonforfeiture value to p/h who surrender their policies

Question 24

Reduced Paid-Up Option

Answer 24

the cash surrender value is applied as a net single premium to purchase a reduced paid up policy

Question 25

Extended Term Insurance Option

Answer 25

the net cash surrender value is used as a net single premium to extend the full face amount of the policy into the future a term insurance for a certain number of years and days

Question 26

Settlement Options

Answer 26

refer to the various ways that the policy proceeds can be paid

Question 27

Interest Option

Answer 27

the policy proceeds are retained by the insurer, and interest is periodically paid to the beneficiary

Question 28

Fixed-Period (Income for Elected Period) Option

Answer 28

the policy proceeds are paid to a beneficiary over some fixed period of time

Question 29

Fixed Amount (Income for Elected Period) Option

Answer 29

a fixed amount is periodically paid to the beneficiary

Question 30

Life Income Option

Answer 30

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

Question 31

Waiver of Premium Provision

Answer 31

if the insured becomes totally disabled from bodily injury or disease before some state age, all premiums coming due during the period of disability are waived

Question 32

Guaranteed Purchase Option

Answer 32

gives p/h the right to purchase additional amounts of life insurance at specified times in the future without evidence of insurability

Question 33

Accidental Death Benefit Rider

Answer 33

doubles the face amount of life insurance if death occurs as a result of an accident

Question 34

Cost of Living Rider

Answer 34

allows the p/h to purchase one year term insurance equal to the percentage change in the consumer price index with no evidence of insurability

Question 35

Accelerated Death Benefits

Answer 35

that allow part or all of the life insurance face amount to be paid to a chronically or terminally ill policyholder before they die

Question 36

Viatical Settlement

Answer 36

sale of a life insurance policy by a terminally ill insured to another party, typically to investors, or investor groups who hope to profit by the insured’s early death

Question 37

Life Settlement

Answer 37

a financial transaction by which a p/h who no longer needs or wants to keep a life insurance policy sells the policy to a third party for more than its cash value