chapter 5 Flashcards
outlines the conditions under which the company will allow the policyowner to change the policy’s coverage.
privilege of change clause
specifies that, after a certain period has elapsed (typically two years from the issue date), the insurer no longer has the right to contest the validity of the insurance policy so long as the contract continues in force.
execution clause
allows an insurer to contest a claim during the contestable period. However, statements related to age, sex, or gender can be contested at any time. The company reserves the right to adjust the premium if the age of the
incontestable clause
states that premiums must be paid to an insurer or its representative in order for coverage to be provided and allows the policyowner to select the mode of premium
mode of premium
allows the policyowner to return the policy for a full premium refund without providing the issuer with a reason.
free look provisions
states that, when a life policy is surrendered for its cash value, the cost basis (total premiums paid) is exempt from taxation.
cost recovery rule
provides a constant or fixed amount of coverage for as long as the policy remains in force. This form is characterized by a level face amount (death benefit) for a specified period.
level term life insurance
term life insurance that provides a death benefit which increases at periodic intervals over the policy’s term.
increasing term life insurance
normal whole life insurance
straight/ordinary whole life insurance
policies can be paid out quicker
limited pay whole life insurance
extreme form of a limited payment policy and is characterized by a lump-sum or single premium payment.
single premium whole life insurance
The policyowner will pay a lower initial premium, as compared to the straight life premium, for the first few years. After this time, the premium will increase to an amount that’s higher than what the initial straight whole life premium would have been.
modified whole life insurance
low premium based participating permanent insurance policy.
ENHANCED WHOLE LIFE INSURANCE (ECONOMATIC / EXTRAORDINARY LIFE)
premiums that vary to reflect the insurer’s changing assumptions concerning its death, investment, and expense factors. However, interest-sensitive products also provide that the cash values may be higher than the guaranteed levels. If the company’s underlying death, investment, and expense assumptions are more favorable than expected, policyowners will have two options—lower premiums or higher cash values.
Current Assumption Whole Life (CAWL) \ Interest Sensitive Whole Life
This policy offers a face amount that increases along with rises in the Consumer Price Index (CPI).
indexed whole life insurance
guaranteed minimum interest rate, tax deferral of interest accumulations, and policy loan access. The equity index returns are designed to keep pace with or beat inflation, which protects the policyholder against downside market risk.
equity index whole life insurancr
The death benefit may not be guaranteed (i.e., if not appropriately managed).
The interest rate paid on the cash value is guaranteed (i.e., for the policy year).
At times, the amount of coverage provided for the year will be dependent on the amount of cash value available.
universal life
This rider waives the monthly portion of the premium that pays for the expenses of the policy (e.g., contract expenses and mortality charge), but not the portion that’s allocated to the cash value.
waiver of monthly deduction rider
Part of the premium paid is placed into a separate account, which is invested in a stock, bond, or money market fund.
variable life
typically purchased to provide a living benefit for a specified future time (e.g. for retirement) or to fund a child’s college education.
endowments
characterized by comparatively small issue amounts, such as $1,000, with premiums collected by the agent on a weekly or monthly basis at the policyowner’s home. This insurance is often marketed and purchased as burial insurance
industrial life insurance
