Chapter 5 Flashcards
What are life insurance riders?
Benefit options to tailor a policy to the owner’s needs
Are policyowners charged additional premium for certain types of riders?
Yes
What is a “waiver of premium” rider?
If policyowner becomes disabled, the waiver of premium rider will pay the premiums so the policyowner can continue to have coverage for the duration of the policy
What is the “waiting period” for a “waiver of premium” rider?
Insured must be able to work for a certain period, called the waiting period before the waiver takes effect
What is the “waiting period” for a “waiver of premium” rider generally?
90 to 180 days
If the insured is still disabled at the end of the waiting period, what does the company do?
It retroactively refunds any premiums paid during the waiting period
When does the waiver of premium rider generally expire?
between ages 60 and 65. However, if an insured becomes permanently disabled before that age, premiums will continue to be waived for life
Disability premium waivers for flexible premium policies, such as universal life, behave somewhat differently - what do they do?
They suspend monthly cost of insurance deductions that are made from the cash account instead of waiving the premium payment.
Given the nature of disability premium waivers for flexible premium policies, what is the “disability premium waiver” generally called in those cases?
Waiver of monthly deductions or waiver of cost of insurance
A flexible premium policy cannot lapse while the waiver of monthly deductions is in effect and cash values continue to grow with the interest that is credited monthly
Note
Do disability waivers for flexible premium policies also have 3-6 month waiting periods and expire at the ages of 60 and 65
Yes
With a waiver of premium, must the insured and the owner be the same person?
Yes
With a waiver of premium, does the insured pay premiums during the waiting period?
Yes (but they are later reimbursed if make it through the waiting period)
What is a “disability income rider”?
A “disability income rider” provides the insured with a monthly benefit check if they become disabled
With “disability income riders” the benefit is typically based on what?
THe life insurance policy death benefit - and an industry standard 1% of the face value
The length of time that income payments will continue from a disability income rider depends on what?
the definition of disability in the policy
With a disability income rider, do all of the other components stay in force?
Yes - death benefit, cash values build, and if policy is participating, dividends continue to be paid
What is a payor benefit rider?
Usually found in juvenile policies - provision states that if the person responsible for the premiums, for example the parent, becomes disabled or dies before the child legally becomes an adult, the rest of the premiums are waived until the child reaches a stated age, usually 18 or 21.
Since the payor benefit riders adds insurance on the payor (not simply the insured), might medical underwriting of the payor be required?
Yes
What are the 4 types of disability riders?
- Waiver of premium
- Waiver of cost of insurance (universal life)
- Disability income rider
- Payor rider
What is an accelerated death benefit rider?
Option added to a life policy that enables the policyowner to apply for an advance on the death benefit proceeds during the lifetime of the insured
WHat must be the case for the insured to exercise an accelerated death benefit rider (and receive a portion or all of the death benefit before death)
The insured must have a limited life expectancy or meet certain medical circumstances in order to be eligible for an advanced payment of all or a portion of a life insurance policy’s death benefit
What are 5 examples of events that would allow an individual to exercise an accelerated death benefit?
- Terminal illness (24 hours death imminent)
- Serious illness (e.g. cancer) reducing life expectancy
- Long-term care (number of activities unable to be performed)
- Admitted to hospice or permanent confinement in nursing home
- Catastrophic illness, requiring extraordinary treatment - such as an organ transplant
What is the typical range of accelerated death benefit payments?
25-100% of the death benefit
The amount of the accelerated payment will be reduced by any outstanding loans against the policy and the death benefit is reduced by the amount of the accelerated benefit amount
Note
What must be disclosed to the applicant regarding accelerated death benefits?
A written disclosure including, but not limited to, a brief description of the accelerated benefit and definitions of the conditions or occurences triggering payment of the benefits shall be given to the applicant. The description shall include an explanation of any effect of the payment on a benefit on the policy’s cash value, accumulation value, death benefit, premium, policy loans and policy liens
What is a “spouse rider” or a “children’s rider” (type of “other insured” rider)
Other (additional) insured riders provide convertible term insurance for a spouse or an immediate family member of the primary insured
What is a “family rider” (type of “other insured” rider
Rider that covers both spouse and children
Can “other insured’ riders also be bought for business associates?
Yes
The insurance coverage provided by “other (additional) insured riders” (such as spouse riders, children’s riders, family riders, and business associate riders) is generally what type?
Term and often convertible to permanent coverage during the effective period of the rider
What is an “exchange privilege” rider
also called a “substitute insured rider” - used to change the insured to a different person. Typically used for business insurance when key person leaves the firm (for retirement)
With an “exchange privilege” rider, does the policy’s face amount stay the same and do premiums adjust based on the new insured’s age and other ratings?
Yes - also, the new insured is required to provide proof of insurability (submit a medical examination)
What are the 4 main types of “other insured” riders?
- Spouse
- Children
- Family
- Exchange privilege (exchange of insured)
How can an insured add term insurance to a permanent insurance policy?
With a term insurance rider - lower premium than purchasing a separate term policy
What are the 3 term insurance riders available?
- Level
- Decreasing
- Increasing
Term insurance riders expire after a specified age or a certain number of years - the premium for the rider is paid while it is in force
Note
Why would someone purchase a term insurance rider as opposed to simply a new term policy?
Because the premiums would be cheaper
What is a “return of premium” rider?
An increasing term rider, the death benefit always equals the total of premiums paid for the rider and the underlying permanent policy. The rider does not return the actual premiums but pays an additional term insurance death benefit that equals the amount of premiums paid. Term riders have a limited duration and expire at a specified age or after a specified number of years
What is an accidental death benefit rider?
Rider that pays an extra benefit if the insured dies as a result of an accident.
What is an accidental death benefit rider sometimes referred to as?
A double or triple indemnity because the death benefit is twice or three times the face value of the policy
For an extra benefit (from an accidental death benefit rider) to be in effect, the insured must die within how many days of an accident?
90 days - only payable if the insured’s death was the result of an accident
Are war, aviation activities other than commercial flight, and commission of crimes examples covered under accidental death?
No (I don’t believe that they are for other deaths either)
When do accidental death riders generally expire?
When the insured reaches age 60 or 65
What is an “accidental death and dismemberment” rider?
Supplementary coverage that can be added to traditional life insurance policies - in addition to paying an extra benefit if the insure dies as a result of an accident, the accidental death and dismemberment rider (AD&D) also pays an extra benefit if the insured lives after suffering a severe dismemberment - the AD&D has a stated amount of coverage
Generally, if dismembered (as opposed to dead) will the payout be the total policy amount?
No - the policy amount is only paid out in full for death - dismemberment would trigger a percentage (say 50%) of the benefit (but if you lose both limbs, you might get 100%)
The differences in payout between the (1`) Dismemberment and (2) Accidential death from an AD&D rider are called by different names - what are they?
Death: Principal sum (amount of rider and 100% of death benefit)
Capital sum: Dismemberment benefit and is 50% of principal sum
What is included under dismemberment?
- Severance of legs, arms, hands, or feet
- Loss of sight
- Loss of hearing
- Paralysis
What is a guaranteed insurability rider? (GIR) (also called a guaranteed insurability option (GIO) or a guaranteed insurability benefit (GIB)
May be attached to a permanent life insurance policy - allows the owner to purchase additional life insurance at specified intervals for certain amounts without having to provide evidence of insurability. Options to purchase may be exercised between the ages of 25 and 40 at 3-year intervals
With guaranteed insurability riders, are individuals generally able to exand coverage without evidence of insurability at 3-year intervals? What is a notable corollary?
Yes - however, the insured may advance the next option date due to a life event - (defined as marriage, birth, or adoption)
What is a cost of living rider?
Rider that allows the death benefit to increase (but not decrease) based on increases in the CPI. The premium for additional coverage would be based on the insured’s attained age
Is the premium for a cost of living rider based on attained age?
Yes
Would the death benefit increase on a cost of living rider without need for proof of insurance?
Yes
What are the 6 riders affecting amount of death benefit?
- Insured term rider
- Return of premium rider
- Accidental Death Rider
- Accidental Death and Dismemberment rider
- Guaranteed Insurability Rider
- Cost of Living Rider
There are two approaches to the long-term care rider concept - what are they?
- Independent Approach: Recognizes the long-term care rider as independent from the life policy because the benefits paid to the insured will not affect the life policy’s face amount or cash value
- Integrated approach: Links the LTC benefits to the life policy’s face value amount and/or cash value.
The long-term care rider may offer benefits consistent with the benefits offered by a stand-alone long-term care policy. Because of this special rider, the insured can elect to use all, some, or none of their life insurance benefit - while they are still living to help pay for long-term care expenses
Note
Long-term care riders allow for advance of death benefit while the insure is still living - t/f?
True (% of face amount each month)
Does the long-term care rider reduce the death benefit payable upon death?
Yes
WIth a guaranteed insurability rider, are any medical questions asked to obtain additional coverage?
No - just the age of the individual is used to determine the cost of additional insurance
Note - “return of premium” is the rider discussed here where the term insurance always equals the total of premiums paid - not “waiver of premium” (trick question on a test)
Note - return of premium
