Chapter 3- Life Insurance Policies (Provisions, Options & Riders) Flashcards
issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents.
- They were designed for burial coverage.
Industrial life insurance
life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).
Ordinary Life Insurance
insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract.
- One of the benefits is usually there is no evidence of insurability required.
Group Life Insurance
group life insurance is underwritten as ____
whole life
Term life insurance
gives you the greatest amount of coverage for a limited period of time.
- is only good for a limited period of time because it has a TERMination date.
- inexpensive type of insurance
- It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.
has a level face amount and level premiums.
- Premiums tend to be higher than annual renewable term
- However, the premiums will increase at each renewal
Level term (also called level premium level term)
Level Term Insurance
Life insurance written to cover a need for a specified period of time at the lowest premium
Decreasing term
Term life insurance that provides an annually decreasing face amount over time with level premiums.
- These policies are usually used for mortgage protection.
a type of decreasing-term life insurance policy. Its purpose is to provide policyholders a way to have their mortgages paid off if they die before it is fully paid. This prevents the full burden of paying the mortgage from falling on the surviving family members’ shoulders. With this design, the face value decreases as the balance remaining on the mortgage decreases.
Mortgage Redemption Insurance
are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance.
Credit policies
Increasing term
term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.
Convertible term
a provision that allows policy owners to convert their term insurance into permanent policies without showing proof of insurability.
Renewable term
is term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.
-temporary level coverage at the lowest possible cost for a limited period of time
Annual renewable term (ART) or yearly renewable term (YRT)
term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.
Term Rider
a type of life insurance product which covers children under their parent’s policy.
- provides both living and death benefits
- provides permanent life insurance protection for the insured’s entire life
- provides living benefits such as cash value and policy loans
Whole life insurance
whole life
provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium.
means that the cash value accumulations are equal to the face amount.
“Mature” or “endow”
Straight Life insurance
the basic whole life insurance with a level face amount and fixed premiums payable over the insured’s entire life
- premium payments made until death of insured or age 100 (maturity of policy)
Limited Pay Whole Life
whole life insurance where the insured is covered for his entire life, but premiums are paid for a limited time
- as the premium payment period shortens, cash values increase faster and the fixed premiums are higher
- these policies are in effect until the insured’s death or they reach age 100
single premium whole life
allows the insured to pay the entire premium in one lump-sum and have coverage for the insured’s entire life
single premium whole life:
- an immediate ___ ___ is created
- an immediate ___ ___ is created
- a large part of the premium is used to set up the policy’s ____
nonforfeiture value; cash value; reserve
low (or fixed) premiums in the early years (first 5 years) and jumps to a higher premium in the later years (year 6) and remains fixed thereafter
- premiums increase just once
Modified whole life
graded whole life
premium increases yearly for a started number of years, then remains level
is best described as a policy that exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract.
Modified Endowment Contract (MEC)
a policy that covers two or more people
- average the ages of the two insureds and a single premium is charged
- pay the face amount after the first person covered on the policy dies
A Joint Life policy
Joint Survivor or Last Survivor Life Policies
cover the lives of two individuals and save on premium costs by averaging the ages of the two insureds.
- benefit is paid upon the death of the last surviving insured
Family Maintenance policy
pays a monthly income from the date of death of the insured to the end of the preselected period.
- The payment of the face amount of the policy is payable at the end of such preselected period.
Family Income policies
whole life and decreasing term insurance (begins date of purchase)
- provides monthly income to a beneficiary if dealth occurs during a specified period after date of purchase
owner is usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policyowner can make adjustments to the premium and/or face amount
Adjustable Life policy
incorporates flexible premiums and an adjustable death benefit.
- The investment gains usually go toward the cash value.
Universal life insurance policy
require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling any variable policy contract, whether it be life insurance or an annuity, as they include regulated securities.
Variable life insurance policies
Variable Universal Whole Life (VUL)
the policyowner controls the investment of cash values and selects the timing and amount of premium payments.
combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index.
- Unlike, a traditional whole life plan, this plan allows policyholders to link accumulation values to an outside equity index like S&P 500.
Equity Index Universal Life Insurance or Equity Indexed Life
when the insured dies, the policyowner (investor) benefits. In normal circumstances, it is a beneficiary with insurable interest who benefits from the death of an insured.
Investor (or stranger) originated life insurance policy S(I)OLI
is the equity amount or “savings” accumulation in a whole life policy.
Cash Value
is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured’s death before the end of the stated period.
The Endowment Policy
is a contract that promises to pay at the insured’s death the face amount of the policy plus a sum equal to the policy’s cash value.
A face amount plus cash value policy
is written on the lives of children who are within specified age limits and generally under parental control.
Juvenile Insurance
is a suggested premium used in Universal Life policies. It does not guarantee there will be adequate funds to maintain the policy to any time, especially to life. It may give an indication of what will be needed (under conservative estimates), to maintain the policy.
Target premium
Monthly debit ordinary insurance
is a combination of industrial and ordinary insurance sometimes offered by home service companies.
- The hybrid nature of these policies allow for higher face amounts, and higher premiums.
Absolute Assignment
is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and full rights to its benefits.
Accidental Death Benefit (Multiple Indemnity) Rider
pays an additional sum to the beneficiary if the insured dies due to a covered accident.
Accelerated Benefits Rider
allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years
Accumulate Interest Option
dividend option allows the policy owner to leave dividends with the insurer to accumulate interest. In turn, the policy owner will be required to pay taxes on any interest (profit) generated by the dividend.
Assignment clause
allows the right to transfer policy rights to another person or entity.
Automatic Premium Loan Provision (or rider)
allows the insurance company to deduct the overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy.
cash option
a dividend option that allows the policy owner to cash out the dividends they receive.
nonforfeiture option allows the policy owner to receive the policy’s cash value. The policy owner no longer has coverage at this point.
- Usually, the maximum length of time a life insurance company may legally defer paying the cash value is six months (Delayed Payment provision).
Cash Surrender Option
is an assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. Any proceeds above the amount due at the insured’s time of death will be paid to a beneficiary designated by the policy owner.
Collateral assignment
consideration clause
states a policy owner must pay a premium in exchange for the insurer’s promise to pay benefits.
may be added to as additional (other) insureds through the use of a ____ ___. Other insured riders are typically used for spouses and children.
Dependent Riders (Other Insureds Rider)
Dividend Options
are the options a policy owner has when receiving dividend payments from an insurance policy.
states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the ____ ____between all parties.
Entire Contract Provision
are features of an insurance policy stating that the policy will not cover certain risks.
Exclusions
Extended Term Option
a nonforfeiture option that permits the policy owner to use the policy’s cash value to buy level, extended term insurance for a specified period.
- No further premium payments are made.
states the policy owner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.
Free Look Period
Grace Period
is a period after the due date of a premium during which the policy remains in force without penalty.
Guaranteed Insurability Rider (Future Increase Option)
permits the policy owner to buy additional permanent life insurance coverage at predetermined intervals without submitting proof of insurability.
Incontestable Provision (Period)
states that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time, typically two years.
is the insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss.
- States the scope and limits of coverage, “We ensure to INSURE you for…”
Insuring Clause (or Insuring Agreement)
When a policy owner decides he does not want his insurance policy anymore, he has the option to surrender his policy.if there is cash value remaining, the policy owner must use:
- cash surrender
- extended term option
- reduced paid-up option
Nonforfeiture options
dividend option allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy.
One-Year Term Option
allows the policy owner to exchange the dividend for an additional single payment whole life policy.
Paid-Up Additions Option
waives future premiums for a juvenile life insurance policy if the person responsible for paying the premiums dies or becomes disabled.
Payor Provision (Rider or Clause)
- policies that have cash value also have cash withdrawal and …
- These policies must begin to build cash value after a certain number of years. In most states, this is three years.
- the policy owner has the right to the policy’s cash value
- not taxable
Policy Loan Provisions (Cash Withdrawal)
nonforfeiture option allows the policy owner to reduce the policy’s benefit amount and, in turn, cease making premium payments.
Reduced Paid-Up Option
allows the policy owner to return the dividend payment to the insurer in exchange for a reduction in the following year’s premium payments.
Reduced Premiums Option
is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required.
Reinstatement provision
The return of premium rider
pays the total amount of premiums in addition to the face value, as long as the insured dies within a specific period specified in the policy.
suicide clause
states that the policy will be voided, and no benefit will be paid if the insured commits suicide within two years from policy issuance.
waiver of premium rider
allows the policy owner to waive premium payments during a disability and keeps the policy in force.
insuring clause
the insurer’s basic promise to pay specified benefits to a designated person in the vent of a covered loss
