Chapter 5 : Life Insurance Policy Provisions, Options & Riders Flashcards
Absolute Assignment
A policy assignment under which the assignee receives full control over the policy and full rights to the benefits.
Accidental Death Benefit Rider
AKA Multiple Indemnity 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.
Cheapest way to add a lot of coverage for a limited period.
Accelerated Benefits 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.
Accumulate Interest Option
Allows the policy owner to leave dividends with the insurer to accumulate interest.
Assignment Clause
Allows the right to transfer policy rights to another person or entity.
Automatic Premium Loan Provision or Rider
Allows the insurance company to deduct the overdue premium from an insured’s cash value
Cash Option
Allows the policy owner to cash out the dividends they receive
Cash Surrender Option
Allows the policy owner to receive the policy’s cash value.
Policyowner no longer has coverage.
Collateral Assignment
An assignment of a policy to a creditor as security for a debt.
Consideration Clause
A policy owner must pay a premium in exchange for the insurer’s promise to pay benefits.
Guaranteed Insurability Rider
AKA Future Increase Option
Permits the policy owner to buy additional permanent life insurance coverage at predetermined intervals without submitting proof of insurability.
Includes specific events like marriage and births, without requiring proof of insurability.
Benefit is allowed every 3 years, up to the original face amount of the policy
Incontestable Provision (Period)
States that the insurance company may not challenge the validity of the policy once the policy has been in force for a period of time; usually 2 years
Insuring Clause
AKA Insuring Agreement
The insurer’s basic promise to pay specified benefits to a deisgnated person in the event of a covered loss.
Nonforfeiture Options
Options you have for your cash value if you terminate a policy that has a cash value.
One-Year Term Option
Allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy.
Paid-Up Additions Option
Allows the policy owner to exchange the dividend for an additional single payment whole life policy
Payor Provision Rider/Clause
Waives future premiums for a juvenile life insurance policy fi the person responsible for paying the premiums dies or becomes disabled
Reduced Paid-Up Option
Allows the policy owner to reduce the policy’s benefit amount and, in turn, cease making premium payments.
Return of Premium Rider
Pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a specific period specified in the policy.
What can be contested even after the 2 years?
Age, Sex, Gender
Free-Look Provision
Usually 10 days
Grace Period
Generally 30-31 days
Reinstatement Provision
Requested within 3-5 years.
Once the reinstatement application is sent to the insurer, coverage will be reinstated within 45 days.
2 methods for excess interest provision
1) Index-linked Method: Credits the excess interest from earnings tied to an economic indicator
2) Portfolio Method: Credits the excess interest in direct relation to the insurance company’s earnings on its investments.
Cost Recovery Rule
When a life policy is surrendered for its cash value, the cost basis (premiums paid) is exempt from taxation.
If the amount received in the cash surrender is more than the premiums paid, the total in excess will be taxable.
Right to Defer Loan
Insurers can defer a policy loan or the payment of the cash value up to six months after its request.
Insurers cannot defer a policyowners request to use the cash value for their premium, death benefit claims or automatic premium loan payments.
Spendthrift Clause
Stipulates that the policyowner may select a settlement option at the time of application.
Dividend Options (5)
1) Cash. Dividends are tax-exempt.
2) Reduced, Reduction or Suspension of Premiums.
3) Accumulate At Interest.
4) Paid-Up Permanent Additions.
5) One-Year Term Insurance:
Waiver of Premium Rider
If the insured becomes totally disabled for six consecutive months, the insurer promises to waive any future premium payments until she returns to work.
Waive of Cost of Insurance Rider
AKA Waiver of Monthly Deductions
Universal Whole Life Policies
The insurer will waive the monthly cost of the insurance if it gets too high
Disability Income Benefit Rider
Provides an income benefit if the insured is totally and permanently disabled as defined by the policy.
Usually 1% of the face amount; limited to no more than $1000.
Accidental Death Benefit Rider (ADB)
AKA Double Indemnity
Policies that pay a multiple of two times the policy face amount if the death is accidental.
Insured must die within 90 days of the accident in order for it to be paid.
Accidental Death & Dismemberment Rider
Death benefit paid under accidental death is called the principal sum.
The capital sum is the accidental dismemberment and is 1/2 of the principal sum.
What are all names for the Guaranteed Insurability Option?
1) Insurance protection rider
2) Future increase option
Cost of Living Rider
AKA Adjustment Rider
Matches the CPI however insured must pay more for more benefit.
Does not have to requalify.
Only for Whole Life and Term Life Insurance.
Payor Rider
AKA Payor Benefit Provision/Payor Clause
Only added to a policy that an adult purchases to cover the life of a child or juvenile.
Premiums are waived until the child reaches age 21 (or 18-25) if the premium payor dies or becomes totally disabled.
This rider only covers the premium; there are no death benefits or income.
Exchange Privilege Rider
AKA Substitute Insured Rider
Outlines the conditions and processes for changing the insured of an insurance policy.
Usually limited to a business policy that covers a key employee or executive.
Must requalify.
