Chapter 3: Life Provisions, Riders And Options

Question 1

Activities of daily living (ADLs)

Answer 1

Activities of daily living are a person’s essential activities that include bathing, dressing, eating, transferring, toileting, continence

Question 2

Assignment

Answer 2

Assignment is transfer of rights of policy ownership

Question 3

Provisions

Answer 3

Provisions define the characteristics of an insurance contract and are fairly universal from one policy to the next.

Question 4

Riders

Answer 4

Riders are added to a policy to modify provisions that already exists

Question 5

Options

Answer 5

Options offer insurers and insureds ways to invest or distribute a sum of money available in a life policy

Question 6

Consideration

Answer 6

Consideration is something of value that each party gives to the other (binding force in any contract)

Question 7

Indemnity

Answer 7

Indemnity is a principle of reimbursement on which insurance is based; in the event of loss, an insurer reimburses the insured or beneficiaries for the loss

Question 8

Lump sum

Answer 8

Lump sum is the payment of the entire benefit in one sum

Question 9

Minor

Answer 9

Minor is a person under legal age

Question 10

What is the NAIC (National Association of Insurance Commissioners)?

Answer 10

The National Association of Insurance Commissioners is an organization composed of insurance commissioners from all states and jurisdictions formed to resolve insurance regulatory issues

Question 11

Principal

Answer 11

Principle is the face value of the policy; the original amount invested before their earnings

Question 12

According to the entire contract provision, a policy must contain:

Answer 12

A copy of the original application for insurance (along with any riders or amendments)

Question 13

The provision which states that both the policy and a copy of the application form the contract between the policy owner and the insurer is called the:

Answer 13

Entire contract

Question 14

According to the entire contract provision, what document must be made part of the insurance policy?

Answer 14

Copy of the original application

Question 15

What does the insuring clause or insuring agreement state?

Answer 15

The insurance clause sets forth the basic agreement between the insurer and the insured and states the insurer’s promise to pay the death benefit upon the insured’s death.

Question 16

Where is the insuring clause located in the policy and what does it define?

Answer 16

That insuring clause usually is located on the policy face page, and it defines who the parties to the contract are, the premium to be paid, how long the coverage is in force, and the amount of the death benefit.

Question 17

What is the Free look period?

Answer 17

The free look period is a provision that allows the policy owner 10 days from receipt to look over the policy and if this satisfied for any reason, return it for full refund of the premium

Question 18

When does the free-look period start? When does the free-look period not start?

Answer 18

The free look period starts when the policy owner receives the policy (policy delivery), not when the insurer issues the policy.

Question 19

Both parties to a contract must provide some value or ___________in order for the contract to be valid.

Answer 19

Consideration

Question 20

What is the consideration offered by the insured?

Answer 20

The consideration offered by the insured is the premium and statements made an application.

Question 21

What is the consideration given by the insurer?

Answer 21

The consideration given by the insurer is the promise to pay.

Question 22

Third-party ownership

Answer 22

When the owner and the insured on not the same person, the insurance arrangement is referred to as the third-party ownership

Question 23

Transfer of the life insurance policy does not what?

Answer 23

Transfer of the life insurance policy does not change the insured or amount of coverage; it only changes who has the policy ownership rights

Question 24

Assignment

Answer 24

The transfer of ownership rights of a life insurance policy from one person to another

Question 25

Absolute assignment

Answer 25

Absolute assignment involves transfer all rights of ownership to another person or entity. This is permanent and total transfer of all policy rights. The new policy owner does not need to have an insurable interest and the insured.

Question 26

Collateral assignment

Answer 26

Collateral assignment involves a transfer a parcel rights to another person. It is usually done in order to secure a loan or some other transaction. A collateral assignment is a parcel and tempura assignment of some of the policy right. What is the debt or loan is repaid, the assigned rights are returned to the policy owner.

Question 27

Beneficiary

Answer 27

The beneficiary is the person or interest to which the policy proceeds will be paid upon the death of the insured.

The beneficiary may be a person, class of persons (sometimes used with children of the insured), the insured’s estate, or an institution or other entity such as a foundation, charity, corporation or trustee of a trust.

Question 28

Primary beneficiary

Answer 28

The primary beneficiary has first claim to the policy proceeds following the death of the insured.

The policy owner may name more than one primary beneficiary, as well as how the proceeds are to be divided.

Question 29

Contingent beneficiary

Answer 29

The contingent beneficiary (also referred to as secondary or tertiary beneficiary) has second claim in the event that the primary beneficiary dies before the insured.

Question 30

Who receives the proceeds of a life insurance policy if there are no beneficiaries alive?

Answer 30

The insured’s estate

Question 31

Revocable

Answer 31

The policy owner, without the consent or knowledge of the beneficiary, may change a revocable designation at anytime.

Question 32

Irrevocable

Answer 32

An irrevocable designation May not be changed without the written consent of the beneficiary.

Irrevocable beneficiaries have a vested interest in the policy; therefore, the policy owner may not exercise certain rights without the consent of the beneficiary.

In addition to being unable to change the beneficiary designation, the policy owner cannot borrow against the policy’s cash value or assign the policy to another person without the beneficiary’s agreement.

Question 33

Common Disaster Clause

Answer 33

The Common Disaster Clause, which is provided under the Uniform Simultaneous Death Law, has been adopted by most states to address this problem, in order to protect the policy owner’s original intent, as well as to protect the contingent beneficiary.

Question 34

What will be assumed under the Uniform Simultaneous Death Law?

Answer 34

Under the Uniform Simultaneous Death Law, it will be assumed that the primary beneficiary died first in a common disaster.

Proceeds will be pay to contingent beneficiary or to the insurance estate, if no contingent beneficiary is designated. Usually, the insurer specify 14 to 30 days in which death must occur in order for the provision to apply.

Question 35

Premium mode

Answer 35

The premium mode is the matter or frequency that the policy owner pays the policy premium. Most policies allow for annual, semi annual, quarterly, or monthly payments.

Question 36

Grace Period

Answer 36

The grace period is the period of time after the premium due date that the policy owner has to pay the premium before the policy lapses usually 30 or 31 days.

The purpose of the grace period is to protect the policyholder against an unintentional lapse of the policy. If the insured dies during this period, the death benefit is payable; however, an unpaid premium will be the deducted from the death benefit.

Question 37

Level premium

Answer 37

Level premium means that the premium remains the same throughout the duration of the contract.

Question 38

Flexible premium

Answer 38

Flexible premium policy allows the policy owner to increase or decrease the premium during the policy period.

Question 39

How long usually with an insurance company allow Reinstatement? What must be done to have a policy reinstated?

Answer 39

And insurance company will allow reinstatement-Usually 3 years; The policy owner is required to pay all back premiums plus interest, and may be required to pay any outstanding loans and interest.

Note that a policy that has been surrendered cannot be reinstated.

Question 40

What does the incontestability clause prevent?

Answer 40

The incontestability clause prevents an insurer from denying a claim due to statements in the application after the policy has been enforced for two years, even if there has been a material miss statement of facts or concealment of a material fact.

The incontestability period does not apply to statements relating to age, sex or identity.

Question 41

What does the ensure do in the case of miss statement of age and/or gender?

Answer 41

The insurer is allowed to adjust the policy at any time due to misstatement of age or gender; the insurer is allowed to adjust the benefit to an amount that the premium at the correct age or gender would have purchased.

Question 42

Will a policy lapse with a policy loan? If so, how many days notice must the insurer give? How long may an insurance company defer a policy loan request?

Answer 42

The policy will not lapse with an outstanding policy loan unless the amount of the loan and accrued interest exceeds the available cash value. However, the insurer must provide 30 days written notice to the policy owner that the policy is going to lapse. Insurance companies may defer a policy loan request for up to six months, unless the reason for the loan is to pay the policy premium.

Question 43

Automatic Premium Loans

Answer 43

The automatic premium loan provision is not required, but is commonly added to contacts with a cast value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.

Question 44

Exclusions

Answer 44

Exclusions are the types of risks the policy will not cover. Certain exclusions are standard for all policies, while others are attached to the policy as an exclusion rider.

Aviation
Hazardous Occupations or Hobbies
War or Military Service

Question 45

What does the suicide provision in life insurance policies protect?

Answer 45

The thoughts that provision in life insurance policy protects the insurers from individuals who purchase life insurance with the intention of committing suicide.

If the insured commits suicide within two years following the policy effective date or issue date, the insurer’s liability is limited to refund a premium. If suicide happens after two years, the death proceeds are paid.

Question 46

Policy Riders

Answer 46

Riders are written modifications attached to a policy that provides benefits not found in the original policy. Riders sometimes require an additional premium, but they also help tailor a policy to the specific needs of the insured, and can be classified according to their primary purpose.

Question 47

Disability Riders

Answer 47

Some riders provide benefits and the event of the insured’s disability, while other riders provide for a partial payment of the death benefit prior to the insured’s death, call accelerated or living benefits riders.

Question 48

Waiver of premium

Answer 48

The waiver of premium rider waves the premium for the policy if the insured becomes totally disabled.

Coverage remains in force until the insured is able to return to work. If the insured is never able to return to work, the premiums will continue to be waived by the insurance company.

Most insurers impose a six month waiting period from the time of disability until the first premium is waived. If the insured is still disable after the waiting period, the insurer were refund of premium paid by the insured from the star of the disability. This rider usually expires when the insured reaches age 65.

Question 49

In which policies are the waiver of monthly deductions rider found?

Answer 49

In universal life (A combination of flexible premium an adjustable life insurance policy) and variable universal life policies.

Question 50

What is the waiver of monthly deduction?

Answer 50

The waiver of monthly deductions rider pays all monthly deductions weather and short is disabled, at the a six month waiting period. This rider only pays the monthly deductions and not the full premium necessary to accumulate cash values.

Question 51

What is the payor benefit rider?

Answer 51

The payor benefit rider is primarily use with juvenile policies [Any life insurance written on the life of a minor]; otherwise, it functions like the waiver of premium rider. If the payor [Usually a parent or guardian] becomes disabled for at least six months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.

Question 52

What is the other insured rider?

Answer 52

The other insured writer provides coverage for one or more family members other than the insured. The rider is usually level term insurance, attached to the base policy covering the insured. This is also known as a family rider.

Question 53

What is a spouse term rider?

Answer 53

If the rider covers just the spouse of the insured, it can be specified as a spouse term rider, and allows the spouse to be added to coverage for a limited period of time in for a specified amount [it usually expires when the spouse reaches 65].

Question 54

What is the children’s term rider?

Answer 54

The children’s term rider allows children of the insured to be added to coverage for a limited period of time for a specified amount. This coverage is also term insurance and usually expires when the minor reaches a certain age [18 or 21].

Question 55

What is the family term rider?

Answer 55

The family term rider incorporates the spouse term rider along with the children’s term rider in a single rider. When added to a whole life policy, the family term rider provides level term life insurance benefits covering the spouse and all of the children in the family.

Question 56

Non-family insureds

Answer 56

Other riders are also available to insure somebody who is not a member of the insured’s family.

This rider is often used by businesses that have a joint life policy that covers multiple keep persons.

Question 57

What is the accidental death rider?

Answer 57

The accidental death rider pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death much usually occur within 90 days of such an accident.

The benefit is normally two times [Double indemnity] the face amount. Some policies pay triple the face amount [triple indemnity] for accidental death.

Question 58

What is accidental death and dismemberment rider [AD&D]?

Answer 58

Accidental death and dismemberment writer pays the principal for accidental death, and pays a percentage of the amount, or a capital some, for accidental dismemberment.

The full principal amount will usually be paid for loss of two hands, two arms, two legs or the loss of vision in both eyes. Half the amount is paid for loss of one body part.

Question 59

What is guaranteed insurability?

Answer 59

The guaranteed insurability rider allows the insured to purchase additional coverage at specified future dates (usually every three years) or events (such as marriage or birth of a child), without evidence of insurability, for an additional premium.

Question 60

What is the return of premium rider?

Answer 60

The return of premium rider provides that at death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary. The return of premium rider usually expires at age 60.

Question 61

What types of conditions allow for the early payment of accelerated death benefits?

Answer 61

A terminal illness

a medical condition that requires an extraordinary medical intervention (such as an organ transplant) for the insured to survive;

a medical condition that without extensive treatment drastically limits the insurance lifetime;

inability to perform activities of daily life (ADLs);

Permanent institutionalization or confinement to a long-term care facility

Any other condition approved by the department of insurance

Question 62

What is the Living Needs Rider?

Answer 62

The Living Needs Rider provides for the payment a part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within two years.

The remainder of the policy proceeds are payable to the beneficiary at the time of the insured’s death.

Question 63

What is long-term care (LTC)?

Answer 63

Long term care is health and social services provided under the supervision of physicians and medical health professionals for persons with chronic diseases or disabilities. Care is usually provided in a long-term care facility which is a state license facility that provides services.

Question 64

What does a long-term care rider provide?

Answer 64

A long-term care rider provide for the payment of part of the death benefit in order to take care of the insured’s healthcare expenses, which are incurred in a nursing or convalescent home.

Question 65

What are nonforfeiture options?

Answer 65

Because permanent life insurance policies have cash values, certain guarantees are built into the policy that cannot be forfeited by the policy owner.

Question 66

What is extended term?

Answer 66

Under the extended term option, the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase.

Question 67

What is reduced paid up insurance?

Answer 67

Under this option, the policy cash value is used by the insurer as a single premium to purchase a completely paid up permanent policy that has a reduced face amount from that of the former policy.

Question 68

What are dividends?

Answer 68

Dividends are a return of excess premiums, and for that reason they are not taxable to the policy owner. Insurance companies cannot guarantee dividend

Question 69

Reduction of premiums

Answer 69

The insurer uses the dividends to reduce the next year’s premium.

Question 70

Accumulation of interest

Answer 70

That insurance company keeps the dividend in an account where it accumulates interest.

Although the dividends themselves are not taxable, the interest on the dividends is taxable to the policy owner when credited to the policy, whether or not the policy owner receives the interest.

Question 71

What is paid up additions?

Answer 71

Each of these small single premium payments will increase the death benefit of the original policy by whatever amount the dividend will buy. In addition, each of these paid up policies will accumulate cash value and pay dividends.

Question 72

One-year Term Option

Answer 72

The insurance company uses the dividend to purchase additional insurance in the form of one year term insurance that increases the overall policy death benefit.

Question 73

What are settlement options?

Answer 73

Settlement options are the methods used to pay the death benefits to a beneficiary upon the insured’s death, or to pay the endowment benefit if the insured lives to the endowment date.