chapter 3 Flashcards
Two types of assignment
Absolute - all rights of ownership permanent.
Collateral - partial rights. You can use cash values of other investments
Insuring clause
covers: Parties to the contract, length of coverage, premium to be paid, and amount of death benefit
Consideration in life insurance policies
Insurance company: promise to pay a claim
Policy owner/ insured: The premium check as well as the statements on the application
What makes up the entire contract?
Copy of application + the policy
Free look period
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
Grace period
The period of time after the premium due date that the policyowner has to pay the premium before the policy lapses
Incontestatbility clause
During the first 2 years, if the insurance company discovers that the insured lied on their application, then they can void out the contract
Misstatement of age provision
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
3 major exclusions on life insurance
- Aviation (if you are a private pilot)
- harzardous occupation or hobbies
- War and military service
Suicide clause
If a person commits suicide within first 2 years, they will not pay out beneficiary.
Beneficiaries (5)
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
Primary and contingent beneficiary
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
Automatic premium loans (APL)
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
Disability Riders - waiver of premium
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
Disability Riders - waiver of cost of insurance
Waives the cost of insurance and other expenses but Only in inversial life policies
Disability Riders - waiver of monthly deductions
6month waiting period. Pays deduction but not full premium
Disability Riders - payor benefit
Only on a juvenile policy. If adult becomes disabled for at least 6 months, it would then waive premiums
Disability Riders - Disability income
Replaces lost and pays a monthly income to the insured.
Accidental Death Rider
Must die as direct result of accident within 90 days of an accident.
Guaranteed Insurability Rider
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)
Accelerate (living) benefit rider
Can take early payment of death benefit if you are still alive but terminally ill. Rider can usually be added on at no cost.
Nonforfeiture (cannot afford life insurance anymore) options
- Cash Surrender
- Extended term
- Reduced paid up
Cash surrender option (nonforfeiture)
You get a payout of a much smaller value (a 50,000 death payout would only pay out 2750 if cancelled after 7 years)
Reduced paid up
This will last the full term (which is age 100) but will payout a much smaller amount of money at that time
Extended term
Would still pay out 50,000 but only for the next x amount of years
Reduction of premium payments dividend
Take the premium you owe minus the divend you have earned which gives you the new premium you owe
paid up additions dividend
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
Settlement options:
cash payment (lump sum)
Life income
Insurance only
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
