Chapter 4 - Life Insurance Policy Provisions Flashcards
Entire Contract; Changes
The policy, application, endorsement make up the entire contract
Only an executive officer of the company can make a change in the contract
The agent does not have the authority to change or alter the contract
Insuring Clause
States the promise made by the insurer (to pay in the event of certain perils)
Lists the parties in the contract
Incontestable Clause
The period of time the company has to challenge the information on the application
2 years
Misstatement of age or sex
Insurer corrects the mistake instead of voiding the policy
Allows for an adjustment of death benefit when age or sex is misstated
Grace Period
Period of time the owner has to pay the premium after it comes due
30 days
Coverage applies during the grace period
If insured dies during grace period, the company can deduct the late payment from the death benefit
Reinstatment
Must be within 3 years
Back premiums (plus interest) must be paid
Insurability must be established
Assignment Clause
To give a right to another party
Total (permanent ) assignment - total relinquishment of rights and ownership
Partial (temporary) assignment - rights are given up for a temporary period of time
- cash value can be used as collateral for a loan
- rights are re-instated after the loan is paid off
Loan Values
Maximum loan value is the cash value minus the first year’s interest
Cash value must begin after 3 years
Automatic premium loan (APL)
- insurer deducts the premium from the cash value if not paid on time
- interest will then be charged until paid off
Time limit on lawsuits - after 60 days and within 3 years
Free look
- allows the insured to review the contract
- begins when the policy is delivered
- 10 days
Discretionary Provisions
Suicide Clause
- if suicide occurs within the first 2 years of the policy, it is not covered and all premiums are refunded (without interest)
- if suicide occurs after 2 years, it is covered
Hazardous occupations/hobby clause
- hazardous occupations and hobbies may be excluded
- the insured could pay more to have them covered
Beneficiary Designations
Beneficiary - recipient of the death benefit
Owner had the right to name or change the beneficiary designation
Primary - first person designated to receive the death benefit
Contingent - anyone listed after the primary (secondary or tertiary)
Revocable beneficiaries - can be changed by the owner
Irrevocable beneficiaries - cannot be changed unless the beneficiary gives up the irrevocable designation
Estate as Beneficiary
The estate becomes the beneficiary when:
- listed
- all listed beneficiaries have predeceased the insured
- no designation listed
- it is unclear who the benefit is owed to
- probate - the process of determining and transferring ownership of an estate
Trust as Beneficiary
Commonly used to manage the death benefits of a life policy
Legal contract that avoids probate
Effective way for funds to be managed for juveniles
Minors
Children may be listed, but as minors cannot manage the funds
Trusts are the best way to ensure the funds will be used for the purpose of the children
Common Death
Uniform simultaneous death act - if the insured and the primary beneficiary dies in the same accident, it is assumed that the insured outlived the primary beneficiary
Death benefit is paid to the contingent beneficiary
Per Capita
Distributes the benefit to the surviving beneficiaries on an equal basis
