Chapter 5 : Life Insurance Policy Provisions, Options & Riders

Question 1

Absolute Assignment

Answer 1

A policy assignment under which the assignee receives full control over the policy and full rights to the benefits.

Question 2

Accidental Death Benefit Rider

Answer 2

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.

Question 3

Accelerated Benefits Rider

Answer 3

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.

Question 4

Accumulate Interest Option

Answer 4

Allows the policy owner to leave dividends with the insurer to accumulate interest.

Question 5

Assignment Clause

Answer 5

Allows the right to transfer policy rights to another person or entity.

Question 6

Automatic Premium Loan Provision or Rider

Answer 6

Allows the insurance company to deduct the overdue premium from an insured’s cash value

Question 7

Cash Option

Answer 7

Allows the policy owner to cash out the dividends they receive

Question 8

Cash Surrender Option

Answer 8

Allows the policy owner to receive the policy’s cash value.
Policyowner no longer has coverage.

Question 9

Collateral Assignment

Answer 9

An assignment of a policy to a creditor as security for a debt.

Question 10

Consideration Clause

Answer 10

A policy owner must pay a premium in exchange for the insurer’s promise to pay benefits.

Question 11

Guaranteed Insurability Rider

Answer 11

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

Question 12

Incontestable Provision (Period)

Answer 12

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

Question 13

Insuring Clause

Answer 13

AKA Insuring Agreement
The insurer’s basic promise to pay specified benefits to a deisgnated person in the event of a covered loss.

Question 14

Nonforfeiture Options

Answer 14

Options you have for your cash value if you terminate a policy that has a cash value.

Question 15

One-Year Term Option

Answer 15

Allows the policy owner to exchange the dividend for additional coverage in the form of a one-year term policy.

Question 16

Paid-Up Additions Option

Answer 16

Allows the policy owner to exchange the dividend for an additional single payment whole life policy

Question 17

Payor Provision Rider/Clause

Answer 17

Waives future premiums for a juvenile life insurance policy fi the person responsible for paying the premiums dies or becomes disabled

Question 18

Reduced Paid-Up Option

Answer 18

Allows the policy owner to reduce the policy’s benefit amount and, in turn, cease making premium payments.

Question 19

Return of Premium Rider

Answer 19

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.

Question 20

What can be contested even after the 2 years?

Answer 20

Age, Sex, Gender

Question 21

Free-Look Provision

Answer 21

Usually 10 days

Question 22

Grace Period

Answer 22

Generally 30-31 days

Question 23

Reinstatement Provision

Answer 23

Requested within 3-5 years.
Once the reinstatement application is sent to the insurer, coverage will be reinstated within 45 days.

Question 24

2 methods for excess interest provision

Answer 24

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.

Question 25

Cost Recovery Rule

Answer 25

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.

Question 26

Right to Defer Loan

Answer 26

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.

Question 27

Spendthrift Clause

Answer 27

Stipulates that the policyowner may select a settlement option at the time of application.

Question 28

Dividend Options (5)

Answer 28

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:

Question 29

Waiver of Premium Rider

Answer 29

If the insured becomes totally disabled for six consecutive months, the insurer promises to waive any future premium payments until she returns to work.

Question 30

Waive of Cost of Insurance Rider

Answer 30

AKA Waiver of Monthly Deductions
Universal Whole Life Policies
The insurer will waive the monthly cost of the insurance if it gets too high

Question 31

Disability Income Benefit Rider

Answer 31

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.

Question 32

Accidental Death Benefit Rider (ADB)

Answer 32

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.

Question 33

Accidental Death & Dismemberment Rider

Answer 33

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.

Question 34

What are all names for the Guaranteed Insurability Option?

Answer 34

1) Insurance protection rider
2) Future increase option

Question 35

Cost of Living Rider

Answer 35

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.

Question 36

Payor Rider

Answer 36

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.

Question 37

Exchange Privilege Rider

Answer 37

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.