Chapter 3: Policy Provisions, Options and Riders Flashcards
What is an ABSOLUTE ASSIGNMENT?
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. 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.
What is an ACCIDENTAL DEATH BENEFIT (MULTIPLE INDEMNITY) RIDER?
The accidental death benefit rider 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.
What is an ACCELERATED BENEFITS RIDER?
The Accelerated Benefit 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. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.
What is an ACCUMULATE INTEREST OPTION?
The “accumulate interest” 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.
What is an ASSIGNMENT CLAUSE?
The assignment clause allows the right to transfer policy rights to another person or entity.
What is an AUTOMATIC PREMIUM LOAN PROVISIONS (OR RIDER)?
The automatic policy loan provision 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. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM if they don’t receive payment when due. This automatic premium loan can continue until the policy owner resumes making payments, or the policy runs out of cash value. Your policy will lapse if you don’t resume payments before you run out of cash value.
What is a CASH OPTION?
The “cash” dividend option allows the policy owner to cash out the dividends they receive.
What is a CASH SURRENDER OPTION?
The “cash surrender” 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 of a surrendered policy is six months (Delayed Payment provision).
What is COLLATERAL ASSIGNMENT?
Collateral assignment 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.
What is CONSIDERATION CLAUSE?
The consideration clause states a policy owner must pay a premium in exchange for the insurer’s promise to pay benefits. A policy owner’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. “Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, and how much, how often I agree to pay. Please consider me.”
What are DEPENDENT RIDERS (OTHER INSUREDS RIDER)?
Dependents may be added to as additional (other) insureds through the use of a dependent rider. Other insured riders are typically used for spouses and children.
What are DIVIDEND OPTIONS?
are the options a policy owner has when receiving dividend payments from an insurance policy.
What are ENTIRE CONTRACT PROVISION?
The entire contract provisions (or clause) states the insurance policy itself, any riders and endorsements/amendments, and the application comprises the entire contract between all parties.
What are EXCLUSIONS?
Exclusions are features of an insurance policy stating that the policy will not cover certain risks.
What are EXTENDED TERM OPTIONS?
the “extended-term” nonforfeiture option 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. The coverage provided with the extended-term nonforfeiture option is equal to the net death benefit of the lapsed policy.