Chapter 16: Standard Life Insurance Contract Provisions and Options

Question 1

Annual appointment of divisible surplus (2)

Answer 1

Participating policies
non participating policies

Question 2

Participating policies

Answer 2

issued by mutual life insurers, charge owner a high premium and then provides owner with divided to reflect experience of risk

Question 3

Non Participating Policies

Answer 3

more realistic projections and require lower premium, no dividend paid at the end of year

Question 4

Policy Illustrations

Answer 4

financial projections showing dividend and cash value accumulations on life insurance policy based on current assumptions and experience factors

Question 5

Suicide clause

Answer 5

control moral hazard by excluding payment if suicide occurs within 2 years of policy issue date.

Question 6

other clauses

Answer 6

exclude death in military or non commercial flights

Question 7

Options to provide to Policyholders for coverage features (4)

Answer 7

1. Dividend Option
2. Non forfeiture option
3. Policyholder loans
4. Settlement options

Question 8

Dividend Option

Answer 8

what form it takes etc cash, left to accum interest, pay off next premium, buy paid up insurance, from participating insurance

Question 9

Nonforfeiture option

Answer 9

policyholder can use existing cash value on terminated lapse policy

Question 10

cash surrender value

Answer 10

obtain remaining cash value as lump-sum for remaining face amount, policy not reinstated after

Question 11

extended term

Answer 11

convert to term policy providing same face amount, insurance protection and cash value gone though after calculated term but can reinstated

Question 12

Reduced Paid Up Life Insurance

Answer 12

stop paying and choose fully paid up policy with new face value

Question 13

Policyholder loans option

Answer 13

Cash surrender values have loan provision

Question 14

loan provision

Answer 14

gives policy owner the right to borrow an amount of money less than or equal to cash value of policy

Question 15

policyholder loan

Answer 15

secured by cash surrender value of insurance policy

Question 16

Automatic Premium Loan

Answer 16

modifies policy so insurer will advance a policy loan to the insured for purpose of paying premium, if insured does not pay premium and grace period expires with sufficient cash value, insurer makes automatic loan to insured to pay

Question 17

Settlement Options

Answer 17

specify how death proceeds are paid to beneficiary in term & whole life

Question 18

cash option

Answer 18

beneficiary receives life insurance policy in single cash payment

Question 19

fixed amount

Answer 19

provide beneficiary with regular fixed income payments, earns interest on remaining balance

Question 20

Fixed Period

Answer 20

choice of length of period determines size of each payment

Question 21

interest only

Answer 21

process with insured. Insurer pays regular payments composed of interest earnings

Question 22

Life-income

Answer 22

guarantee lifetime of series of regular payments to beneficiary

Question 23

Riders

Answer 23

add on to regular insurance benefits

Question 24

Guaranteed Insurability Option

Answer 24

obtain legal rights to purchase more insurance at additional intervals and at standard rates, regardless of changes in insurability

Question 25

Waiver of Premium

Answer 25

insured becomes totally disabled, insurer forgives any premium due during period of disability and life insurance policy remains in force. 6month waiting period. Dividends paid and cash values increase

Question 26

Double Indemnity Option

Answer 26

insured death is result of specified peril, twice the face value of policy will be paid

Question 27

Critics about Double Indemnity Option

Answer 27

inconsistent with needs-based life insurance, misdirection of consumer dollars spent for the option

Question 28

Defence about Double Indemnity Option

Answer 28

makes life insurance policy easier to sell to individuals who otherwise would not make purchase