chapter 3 policy provision, options and riders

Question 1

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. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.

Answer 1

Absolute Assignment

Question 2

pays an additional sum to the beneficiary if the insured dies due to a covered accident. The amount paid is a multiple of the policy face amount, such as double or triple the original benefit. Accident death life insurance provides the cheapest way to add a lot of coverage for a limited period.

Answer 2

accidental Death Benefit (Multiple Indemnity) Rider

Question 3

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. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Answer 3

accelerated benefits rider

Question 4

Insuring Clause (or Insuring Agreement

Answer 4

The insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss.

Question 5

A policyowner must pay a premium in exchange for the insurer’s promise to pay benefits. A policyowner’s consideration consists of completing the application and paying
the initial premium. The amount and frequency of premium payments are contained in the
consideration clause.

Answer 5

Consideration Clause

Question 6

Entire Contract:

Answer 6

The insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every life insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract.

Question 7

grace period

Answer 7

he period of time policyowners are allowed to pay an overdue premium during which the policy remains in force, usually 30 days. If an insured dies during the Grace Period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy less any required premiums.

Question 8

Permits the policyowner to reinstate a policy that has lapsed- as long as the policyowner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5-7 years.

Answer 8

reinstatement

Question 9

The clause in a life insurance contract that prohibits the insurer from questioning the validity of the contract after a certain period of time has elapsed.

Answer 9

incontestable clause

Question 10

Allows the insurer to adjust the policy benefits if the insured’s age or sex is misstated on the policy application.

Answer 10

misstatement of age or sex

Question 11

Policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy’s cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured’s policy proceeds.

Answer 11

Policy Loan Provisions

Question 12

Allows the insurer to automatically use the policy cash value to pay an overdue premium. There is no cost for this provision.

Answer 12

automatic premium loans

Question 13

The right to transfer policy rights to another person or entity.

Answer 13

assignment clause

Question 14

When the assignee receives full control of the policy and rights to the policy benefits from the current policyowner.

Answer 14

absolute assignment

Question 15

The partial and temporary transfer of rights to another person or entity. Collateral assignments are usually intended for securing a loan with a creditor.

Answer 15

collateral assignment

Question 16

The policyowner 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.

Answer 16

free look

Question 17

The policy will be voided and no death benefit will be paid if the insured commits suicide within 1 year from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.

Answer 17

suicide clause

Question 18

Aviation: The insurer will not pay the claim if the insured dies due to involvement with aviation, such as a military pilot flying a jet aircraft.
War or Military Service: The insurer will not pay the claim if the insured dies while in active military service or due to an act of war.
Hazardous Occupation or Hobby: If the insured dies as a result of a hazardous occupation or hobby, the insurer will not pay the claim.

Answer 18

Policy exclusions

Question 19

When a policyowner decides he does not want his life insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining he must use one of the following nonforfeiture options:

Answer 19

nonfrofeiture options

Question 20

non forfeiture options – cash surrender

Answer 20

allows the policyowner to receive the policy’s cash value. Policyowner no longer
has coverage at this point. Normally, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is 6 months (Delayed Payment provision).

Question 21

non forfeiture options- extended term options

Answer 21

permits the policy owner to use the policys cash value to buy level, extended insurance for a specified period. no premium payments are made. the coverage provided witht he extended term nonforfeiture option is equal to the net death benefit of the lapsed policy

Question 22

nonforfeiture options-reduced paid up option

Answer 22

the policyowner pays no more premiums but the face amount is
decreased.

Question 23

types of divedend options

Answer 23

Cash Option: Take the cash
* Reduced Premiums Option: Reduces premium payments
* Accumulate Interest Option: Allows dividends to accumulate interest
* Paid-Up Additions Option: Purchase single payment whole life coverage
* One-Year Term Option: Purchase one-year term protection

Question 23

dividend options

Answer 23

Participating policies pay dividends to policyowners if the company’s operations result in a divisible surplus. Recall that dividends are a return of overcharged premiums, and are therefore not taxable. Insurers typically pay dividends on an annual basis.

Question 24

Allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent and have sustained through the waiting period (90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void.

Answer 24

waiver of premium rider

Question 25

If the individual paying the premiums on a juvenile life policy becomes disabled or dies, the Payor Rider ensures that premiums will be waived.

Answer 25

payor rider or payor clause

Question 26

Allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Answer 26

accelerated benefit rider

Question 27

Pays an additional sum to the beneficiary if the insured dies due to an accident. The amount paid is a multiple of the policy face amount such as double or triple the original benefit.

Answer 27

accidental death benefit rider (multiple indemnity)

Question 28

May be added to a life insurance policy. Pays benefits for dismemberment and accidental death. Pays a principal sum for loss of both hands, both arms, both legs, or loss of vision in both eyes.

Answer 28

accidental death and dismemberment

Question 29

Permits the policyowner to buy additional permanent life insurance coverage at specific points of time in the future without submitting proof of insurability. It also includes specific events like marriage and births, without requiring the proof of insurability. Usually the benefit is allowed every 3 years, up to the original face amount of the policy.

Answer 29

guaranteed insurability Rider

Question 30

Allows the policy face amount to be adjusted to account for inflation based on the consumer price index.

Answer 30

cost of living rider

Question 31

pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a certain time period specified in the policy. It also returns premiums to the living insured at the end of a specified period of time, as long as the premiums have been paid.

Answer 31

Return of premium rider

Question 32

Allows the insurance company to deduct overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy.

Answer 32

automatic premium loan rider