chapter 3 Flashcards
explain / describe the following policy provisions :
- entire contract,
- insuring clause,
- free-look,
- consideration
entire contract — entire contract is composed of CRAP (copy of application, riders, amendments, policy)
insuring clause — agreement that sets up the basic agreement between insurer and insured; defines parties, protection, type of loss insured against
free-look — starts when policyowner receives policy; allows owner to review policy and request a refund if dissatisfied
consideration — value offered on both sides. The consideration provision states that the consideration (value) offered by the insured is the premium and statements made in the application. The consideration given by the insurer is the promise to pay in accordance with the terms of the contract.
explain / describe the following policy provisions :
- owner’s rights (and description of owner),
- assignment (definition, difference between absolute and collateral),
- beneficiary designations (per capita vs per stirpes, 3 levels of priority — primary, contingent, no beneficiaries, and revocable vs irrevocable designations)
owner’s rights – defines the parties involved in the insurance contract (beneficiary, insurer, insured, policy owner); Among the ownership rights are naming and changing the beneficiary, receiving the policy’s living benefits, selecting a benefit payment options, and assigning the policy. owner has all the rights, pays premium, and has insurable interest in insured
assignment — specifies the owner’s right to transfer ownership (must alert insurer; reassigning does not change insured, coverage or beneficiary)
- absolute = transfer of all rights, permanent, new owner doesn’t have to have insurable interest
- collateral = partial rights, temporary, usually for debt/loan repayment
beneficiary designations —
class designations for grouping beneficiaries :
per capita (by head = evenly distributed among named living beneficiaries)
per stirpes (by bloodline = if beneficiary dies, goes to beneficiary heir(s))
primary (first claim to policy proceeds),
contingent (gets benefits if primary dies before insured), w no beneficiaries alive or named at the time of insured’s death, estate receives proceeds
deals w consent of policyowner &or beneficiary when it comes to changing designations :
revocable = designations that can be changed w/o beneficiary consent
irrevocable = designations can’t be changed and owner cant borrow against cv without beneficiary consent
explain how the Uniform Simultaneous Death Law & Common Disaster Clause works and the intent of them
the content of both is to protect the contingent and the intent of policy owner
Uniform Simultaneous Death Law = if insured and primary die around the same time and we don’t know who died first, treat as if primary died first
Common Disaster Clause = if this clause is added to a policy, states that if the primary dies 14-30 days after the insured dies, benefits goes to contingent or estate (assumes primary dies first)
explain / describe the following policy provisions :
- premium payment (mode, grace period, refunds of unearned premium)
- reinstatement (definition, owner requirements for reinstatement)
- incontestability / misstatement of gender or age
premium payment :
mode = manner / frequency with which premium is paid
grace period = 30-31 days after payment due date in which policy is still active; if death occurs during this time, death benefit minus unpaid premium
refunds of unearned premium = if insured dies during a time for which premium has been paid, insurer refunds unearned premium
reinstatement :
up to 3 years after policy has lapsed, it can be reinstated to original policy at issue date
owner must :
- provide proof of insurability
- pay unpaid premium, interest, outstanding loans
incontestability / misstatement of gender / age
- insurer cant deny claim due to misstatement in application after the policy has been in force for 2 years, except in the cases of misstatements relating to ages, sex or identity.
- insurers can adjust benefits/premium at any time based on insurers rate at time of policy issue
explain / describe the following policy provisions :
- policy loans (when are these applicable, how does it work, what are automatic premium loans)
- exclusions (what are they, list a few)
- suicide
policy loans :
ONLY in policies with a cash value, owner can borrow amount equal to cash value but if insured dies, outstanding loans will be deducted from benefit
automatic premium loans – policyowner MUST SPECIFY IN WRITING FOR THIS TO BE EFFECTIVE; prevents unintentional lapse of policy by loaning against cash value with interest
exclusions :
uncovered risks — noncommericial pilots, dangerous hobbies / occupation (skydiving), military (status clause — active duty; results clause — act of war)
suicide :
if insured commits suicide before 2 years of issue date, beneficiary only entitled to ROP
what is a rider?
describe these disability riders :
- waiver of premium
- waiver of monthly deductions
- disability income
- payor benefit
- term rider
a rider is a modification attached to an existing policy, usually costs something
- waiver of premium : if insured becomes “totally disabled” (unable to work), after 6th month of being disabled, premium is waived and insured gets a 6 month ROP
- waiver of monthly deduction : usually applies to variable / universal variable, and only applies to policies with cash value. rider covers monthly deductions (not money added to cash value though) while insured is disabled after 6 month waiting period
- disability income = waived premium + monthly income (usually a percentage of death benefit) when disabled
-payor benefit = if parent/guardian of a minor becomes disabled for 6 months or dies, premium waived until minor reaches certain age
-term rider = used to customize a permanent life insurance policy to meet the needs of policy owner
describe these riders covering additional insured :
- other family / spouse / family (kind of policy)
- children’s rider (type and premium details)
- nonfamily (substitute insured or change of insured)
other family / spouse / family - level term attached to base policy
childrens - term rider, one premium for ALL children
nonfamily - allows substitution of insured or changing of insured person but isn’t allowing additional people; usually w key person insurance at a company (key person coverage can be transferred to another key employee)
describe riders that affect the death benefit amount :
- accidental death
- accidental death and dismemberment
- guaranteed insurability
accidental death - if death occurs within 90 days of an accident, double or triple indemnity (2-3x face amount)
accidental death and dismemberment - pays principal (face amount) + percentage of face amount (capital sum) for dismemberment
guaranteed insurability - insured can purchase additional coverage w/o evidence of insurability for additional premium at attained age (max amt is in base policy & expires at age 40)
what are accelerated (living) benefits?
describe riders :
- living needs
- long-term care
- cost of living
These riders allow early payment of a portion of death benefit if insured is ill or has medical issues that quality for rider
living needs - free rider for terminally ill people that will die within 2 years (part of death benefit)
long term care - accelerated benefits (partial death benefit) for nursing home care
cost of living - automatically increase insurance by a factor tied to inflation (consumer price index)
what are nonforfeiture options, and what are they triggered by?
describe these 3 types of nonforfeiture options :
- cash
- reduced paid up insurance
- extended term insurance
which is the automatic option if none is selected?
policy guarantees that can’t be surrendered by policyowner – TRIGGERED BY LAPSE OR SURRENDER
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cash = policy surrendered for current cash value
reduced paid up = insurer uses cash value to buy another policy of the same type that can be completely paid off (same type of coverage, lower death benefit)
extended term = insurer uses cash value to buy a term policy with same face amount (shorter period of coverage, same death benefit)
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extended term is automatic option.
what are dividends and what are they triggered by?
describe these dividend options :
- cash
- reduced premium
- accumulation at interest
- paid-up additions
- paid-up option
- one-year term
what is the automatic option?
dividends are return of excess premiums unused by insurer, not taxable. TRIGGERED BY INSURER’S NEED FOR PREMIUM BEING LOWERED THAN WHAT IS PAID BY POLICY
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cash = cut a check annually
reduction of premiums = apply dividend to next years premium
accumulation at interest = dividends placed in an account to accrue taxable interest
paid up additions = insurer buys a single paid-up policy (accumulates cash value / pays dividends) – death benefit increases (db = original db + db of paid-up policy)
paid up option = use dividends + dividend interest + cash value to pay off policy early
one year term = insurer purchases one year term, increases db (db = original db + db of one-year term policy)
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automatic option is paid up additions
what are settlement options and what are they triggered by?
describe these settlement options :
- cash
- life income
- interest only
- fixed period / fixed certain
- fixed amount
what is the automatic option?
settlement options are methods used to pay death benefit to beneficiary or endowment benefit if insured lives to endowment date (age 100) . TRIGGERED BY POLICY MATURITY AT DEATH OR ENDOWMENT
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cash = lump sum payment
life income / straight life = income payment for the life of the recipient (cannot outlive benefit payments)
interest only = insurer keeps benefit and pays interest to beneficiary at regular intervals (temporary until the principal is paid out through one of the other options – For example, the policyowner may specify that interest only will be paid annually to the surviving spouse, with the principal to be paid to their children when they reach a certain age or at the death of the surviving spouse.)
fixed period = specified number of years are selected and equal installments are paid to recipient
fixed amount installments option = pays a fixed, specified amount in installments until the proceeds (principal and interest) are exhausted
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automatic option is cash (lump sum to beneficiary)
