chapter 3

Question 1

Two types of assignment

Answer 1

Absolute - all rights of ownership permanent.

Collateral - partial rights. You can use cash values of other investments

Question 2

Insuring clause

Answer 2

covers: Parties to the contract, length of coverage, premium to be paid, and amount of death benefit

Question 3

Consideration in life insurance policies

Answer 3

Insurance company: promise to pay a claim

Policy owner/ insured: The premium check as well as the statements on the application

Question 4

What makes up the entire contract?

Answer 4

Copy of application + the policy

Question 5

Free look period

Answer 5

The 10 day period where the client can say they no longer want the policy. Insurance company has to pay back 100%. Is put in place in case of buyers remorse

Question 6

Grace period

Answer 6

The period of time after the premium due date that the policyowner has to pay the premium before the policy lapses

Question 7

Incontestatbility clause

Answer 7

During the first 2 years, if the insurance company discovers that the insured lied on their application, then they can void out the contract

Question 8

Misstatement of age provision

Answer 8

If someone lies about age, they will get the amount of money they would have gotten. (At age 57 someone would get 100k of life insurance. But they lied and said they were 37. which is worth 150k) When insurance company finds out about death they would pay out whatever they should have got when they signed the insuring clause

Question 9

3 major exclusions on life insurance

Answer 9

1. Aviation (if you are a private pilot)
2. harzardous occupation or hobbies
3. War and military service

Question 10

Suicide clause

Answer 10

If a person commits suicide within first 2 years, they will not pay out beneficiary.

Question 11

Beneficiaries (5)

Answer 11

Individual - A spouse or child
Classes - all children equally
Minors - Child cannot directly attain that money until age 18. In this case, there would have to be a trustee
estates - Goes to all other assets that have your name on it
Trusts

Question 12

Primary and contingent beneficiary

Answer 12

Primary beneficiary is the first person agents would go to when the insured dies….if primary is dead then it would go to contingent beneficiary

Question 13

Automatic premium loans (APL)

Answer 13

This prevents unintentional lapse. Gives permission to automatically take money out of cash value if a premium is missed and avoids a lapse in the contract

Question 14

Disability Riders - waiver of premium

Answer 14

premium is waived if insured is totally disabled. There is a 6 month waiting period. Refund of premium after the waiting period if insured is still disabled

Question 15

Disability Riders - waiver of cost of insurance

Answer 15

Waives the cost of insurance and other expenses but Only in inversial life policies

Question 16

Disability Riders - waiver of monthly deductions

Answer 16

6month waiting period. Pays deduction but not full premium

Question 17

Disability Riders - payor benefit

Answer 17

Only on a juvenile policy. If adult becomes disabled for at least 6 months, it would then waive premiums

Question 18

Disability Riders - Disability income

Answer 18

Replaces lost and pays a monthly income to the insured.

Question 19

Accidental Death Rider

Answer 19

Must die as direct result of accident within 90 days of an accident.

Question 20

Guaranteed Insurability Rider

Answer 20

In the future, if the person becomes uninsurable, it allows them to increase the death benefit. (Usually for people who has a family history of some disease)

Question 21

Accelerate (living) benefit rider

Answer 21

Can take early payment of death benefit if you are still alive but terminally ill. Rider can usually be added on at no cost.

Question 22

Nonforfeiture (cannot afford life insurance anymore) options

Answer 22

1. Cash Surrender
2. Extended term
3. Reduced paid up

Question 23

Cash surrender option (nonforfeiture)

Answer 23

You get a payout of a much smaller value (a 50,000 death payout would only pay out 2750 if cancelled after 7 years)

Question 24

Reduced paid up

Answer 24

This will last the full term (which is age 100) but will payout a much smaller amount of money at that time

Question 25

Extended term

Answer 25

Would still pay out 50,000 but only for the next x amount of years

Question 26

Reduction of premium payments dividend

Answer 26

Take the premium you owe minus the divend you have earned which gives you the new premium you owe

Question 27

paid up additions dividend

Answer 27

If you have a life insurance death benefit of 100k and you earn 1k in dividend you could now have 101k as a death benefit

Question 28

Settlement options:
cash payment (lump sum)
Life income
Insurance only

Answer 28

lump sum - paid up front at death. No tax
Life income - paid for as long as the beneficiary lives. But if beneificary dies before the set amount of time is up then the insurance company keeps the money
Interest only - Temporary option until proceeds are paid out using one of the settlement