Chapter 2 Flashcards
Rider
An endorsement to an insurance policy that modifies the contract provisions of that policy. Life insurance riders normally increase the benefits, but may also be written to reduce benefits.
Declarations Page/Insuring Clause
defines who is insured by whom the amount of coverage/benefit. States obligation of the insurer and the risk that is considered: premature death. Name and address of insurance Issuing Agent contact information What, how much, how long, under which circumstances. Not proof of insurance.
Grace Period
If the insured dies, the death benefit is payable minus any premiums or loans due. Cash value remains the same and may be surrendered, loans may be taken out during grace period. In California, the grace period of individuals is likely 31 days.
Reinstatement
Requires the insured to pay back premiums, plus interest and prove insurability if the policy was not surrendered for its cash value. 3 years from lapsed status.
Assignment
The Transfer of ownership rights to another party. The two types are collateral (partial) and absolute (the entire face amount). Assignments can reduce a beneficiary’s claim settlement at the time of death because an assignment must be paid first. Insurer is not responsible for validity. Absolute Assignments occur in Viatical Settlements.
Entire Contract
Policy, any riders, and a copy of the application.
Incontestability
States that the insurer cannot contest statements contained in the application after the policy has been in force for 2 years, that includes errors, misstatements, and even fraud. Not applicable to sex and age, these result in recalculation of benefits.
Conversion Option
From term to life policies.
Free-Look
For those less than 60, it is not less than 10 days, but not more than 30 days. For those older than 60, it may not be less than 30 days. For those issued after January 1, 1990 with a face value of less than $10,000, they must be refunded within 30 days.
Exclusions
Conditions stipulated in the contract for which the insurer will not provide coverage. Normally the following:
Aviation
Military Status
War Clause - result of war, declared/undeclared.
Hazardous Occupation - stunt, auto racing
Suicide - if within 2 years, return of premium, if more than 2 years, full face value.
Policy Loan Rate Provisions
Policies with fixed rates have a maximum interest rate of 8%.
Policies with adjustable (variable) loan interest rates, maximum rate is based upon Moody’s corporate bond yield.
Policy loans cannot exceed cash value
Interest not paid when due is added to total debt.
Policy Provisions Prohibited by Law
Cannot limit any legal action to less than one year.
No backdating unless for the conserving of age of applicant and it’s not to exceed 6 months.
No settlement less than face amount less any indebtedness
Agents cannot be designated as representatives of the insured.
Cannot require contract forfeiture if loan is less than cash value.
Beneficiary Provisions
Revocable - the policy-owner may change the beneficiary at any time. Beneficiary doesn’t have vested interest in policy.
Irrevocable - no change in beneficiary, cannot assign policy, transfer ownership or surrender the policy without the written consent of the beneficiary. A minor would not likely be named beneficiary.
Succession
Primary - has first claim to policy proceeds following death of insured.
Contingent - receives proceeds if primary beneficiary dies before insured.
Tertiary - receives policy proceeds if both primary and contingent predecease the insured. At this time these benefits are paid to insured’s estate.
Designation Options
Individual/Named Class Estate Trust Credit
Individual/Named
Allows conveyance of death benefit to beneficiary outside probate proceedings.
Class
Not directly named such as in minors.
Per Capita - Surviving benefits share equally in death benefits.
Per Stirpes - Heirs of those beneficiaries who predecease the insured will receive their portion of the claim proceeds and not have it split between living beneficiaries.
Trust
when a recipient is not to have direct access to the death benefits, such as in the case of minors, and the proceeds are to be distributed as per the insured’s directions set forth in a trust.
Credit
Named beneficiary is normally the creditor.
Debtor makes collateral assignment (partial).
Common Disaster Clause
Provides that if it cannot be determined whether the insured or primary beneficiary died first, the insured will be presumed to have survived the beneficiary and proceeds will be paid to a named contingent or estate.
Spendthrift
Denies the beneficiary the right to commute, alienate, or assign his/her interest in the policy proceeds. The purpose is to prevent creditors of a beneficiary from claiming any benefits payable to him/her before he/she actually receives the benefits.
Change of Insured
Corporate owned life insurance when executive moves to another company or retires.
Change the insured
Remove loading
Proof of insurability is always required.
