Chapter 3 - Life Insurance Provisions, Options and Riders Flashcards
Who has exclusive ownership rights to any insurance policy
The policyowner
What are the two types of assignment?
Absolute - the assignee becomes the policyowner
Collateral - partial assignment (e.g. as collateral for loans)
Insuring Clause (x4)
- Parties to the contract
- Length of coverage
- Premium to be paid
- Amount of death benefit
Entire contract (x3)
- Application
- Policy
- Riders and options
Free-look period
Period of time (usually 10 days) insured can reject the policy for any reason for a full refund
- Starts on the date the policy is MAILED, not delivered
Incontestability clause
Insurer can only contest applications within the first two years of a policy. After two years, they surrender that right.
- Liars pray for 2 years, then they’re covered
What are the three exceptions to the Incontestability Clause?
- Age
- Gender
- Identity
What are the three typical exclusions?
- Noncommercial aviation
- Hazardous occupation or hobby
- War and military service
Suicide
Excluded the first two years of a policy, included thereafter
What are the five classes of beneficiaries?
- Individuals
- Groups (e.g. children)
- Minors
- Estates
- Trusts
What is automatic premium coverage called?
Automatic Premium Loan or APL
What is a loan against the cash value of a Universal Life policy called?
Partial surrender or withdrawal.
- Fees MAY be charged and interest MAY be taxable
Principal sum
Face amount with accidental death ridter. If double indemnity, then 2x the face amount. If triple indemnity, then 3x.
Capital sum
A percent of face amount with accidental dismemberment rider - usually 50%
What happens to the premium if the Guaranteed Insurability rider is excercised?
It goes up commensurate with the increase in death benefit
What are the two benefits of the Accelerated (Living) Benefit Rider?
- Early payment of partial death benefit
- If terminally ill and projected to die in <2 years, can be used to pay for medical treatment
- Will reduce remaining death benefit
What is nonforfeiture and what are the three options?
Policyowner forfeits a whole life policy he can no longer afford.
1) Refund cash value
2) Extended term policy
3) Reduced paid-up (whole life) policy
What are the six options with dividends?
- Only paid on participating policies
- Cash payment
- Premium reduction
- Accumulation at interest
- Paid-up addition (increased death benefit)
- Paid-up premium - reduces number of payments due
- One-year term policy
What are the five settlement options?
- CLIFF
- Cash payment (lump sum)
- Life income
- Interest only (temporarily until you make a final decision)
- Fixed-period installments
- Fixed-amount installments
What life insurance policy provision prevents an insurer from disputing or denying a claim due to misstatements on the application after a certain period of time?
Incontestability
If a settlement option is not chosen by the policyowner or the beneficiary, what option will be used by the insurer?
Lump-sum payment
With the interest only settlement option, what happens to the policy’s death benefit?
Policy proceeds are retained by the insurance company; only the interest is paid to the beneficiary
With the reduction of premium dividend option, how is the dividend used?
The dividend is applied to the next year’s premium (it reduces the next year’s premium)
What life policy rider allows the company to forgo collecting the premium if the insured becomes disabled?
Waiver of premium
What are the three nonforfeiture options?
- Cash Surrender Value
- Extended Term
- Reduced Paid-Up Insurance
What is the name for a life insurance policy rider that provides coverage on the insured’s family members?
Other-insured rider
What provision allows the policyowner to reactivate a lapsed life insurance policy within a specified period of time with proof of insurability?
Reinstatement
What are policy dividends?
Return of unused premiums
Is the beneficiary required to have insurable interest in the insured?
No.
What is the advantage of reinstating a policy instead of applying for a new one?
The original age is used for premium determination
An insured commits suicide six months after his life insurance policy was issued. The insurer will…
Refund the premiums paid
