chapter 6 summary Flashcards
entire contract
the entire contract clause or provision is found at the beginning of the policy
privilege of change clause
(or policy change provision) outlines the conditions under which the company will allow the policy owner to change the policy’s coverage
insuring clause or agreement
sets forth the company’s basic promise to pay benefits upon the insured’s death and specifies the amount and frequency of premium payments.
execution clause or provision
specifies that, after a certain period has elapsed (typically 2 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.
incontestable 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 insured is misstated.
suicide rules
death caused by suicide is excluded during the initial period after the policy becomes effective
owners provision or rights of policy ownership
states that the policy owner possesses all of the rights contained in the policy. The primary rights of a policy owner include:
the right to assign and change beneficiaries
the right to determine how proceeds will be paid (settlement options)
the right to terminate the policy and select a non-forfeiture option
the right to determine and change the premium payment schedule
the right to assign ownership of the policy to another person
the right to decide what happens with dividends that are paid out from a participating policy
the right to cnvert or renew a term policy if such option exists within the contract
absolute assignment
absolute assignment of a policy involves a complete transfer of the policy to another
beneficiaries
and assignees are entitled to the proceeds upon the death of the insured before any claims of the insured’s creditors
irrevocable beneficiary
beneficiary cannot be changed
two types of assignments
absolute and collateral
mode of premium
premiums must be paid to an insurer or its representative in order for coverage to be provided and allows the policy owner to select the mode of premium.
free-look provision
allows the policy owner to return the policy for a full premium refund without providing the issuer with a reason
the grace period
meant to protect the policy owner against the unintentional lapse of the policy
reinstatement period
allows an insured to reinstate a lapsed insurance policy. typically, this must be done within 3 years of the policy lapse. however in some states reinstatement may be allowed for as long as 7 years. if the insurer doesn’t accept or reject the reinstatement within 45 days, coverage will be automatically reinstated as if it had never lapsed.
non-forfeiture options prevent the policy owner from forfeiting a policy’s cash value if he decides to terminate the policy. The three non-forfeiture options are
- cash surrender
- reduced paid-up option
- extended term option
cost recovery rule
when a life policy is surrendered for its cash value, the cost basis (total premiums paid) is exempt from taxation.
extended term insurance option
provides the insured with the most life insurance protection in the event of a voluntary policy surrender or non-payment of premium
policy loan
the main advantage of a policy loan is that it provides ready cash for the policy owner without needing to apply or qualify for the loan.
automatic premium loan provision
allows the insurance company to automatically take a loan against the policy’s cash value to pay the premium due if the required premium is not paid by the end of the grace period.
spendthrift clause
stipulates that a settlement option may be selected by the policy owner at the time of application. additionally, it protects the monies, left on account with the insurer to the named beneficiary from creditors
accelerated benefits provision
referred to as the living benefits or terminal illness rider, allows a policy owner to “accelerate” the death benefit of a life insurance policy if certain conditions are met.
catastrophic illness
covers only identified or listed diseases in the policy such as cancer, heart disease, renal failure, stroke, etc.
long term care rider
will generally pay benefits when the insured cannot perform at least two activities of daily living (ADLs)
ADLs include
eating, dressing, bathing, toileting/continence, walking/ambulation, transferring, taking medication
two ways a long term care rider can be designed
generalized or indepenent approach
integrated approach
insurance dividend
not considered a taxable income. a policy that provides a choice of dividend options must incude the statement that dividends are not guaranteed.
dividend options
cash, reduced, reduction, or suspension of premiums, paid up permanent additions, one year term insurance, and accumulate at interest.
waiver of cost insurance rider
reffered to as waiver of monthly deductions, typically reserved for universal whole life policies
disability income benefit rider
provides an income benefit if the insured is totally and permanently disabled as defined by the policy
double indemnity
policies that pay a multiple of 2 times the policy face amount
principal sum
the death benefit that’s paid under accidental death coverage
capital sum
generally hald of the principal sum, it is the severance benefit that’s paid under accidental dismemberment
guaranteed insurability option
allows a policy owner to purchase additional life insurance coverage at specified dates without providing evidence of insurability
payor rider
also referred to as the payor benefit provision or payor clause-is only added to a policy than an adult purchases to cover the life of a child.
term insurance riders
created to give an insured an inexpensive option to add additional temporary coverage to a permanent policy
level term rider
adds an additional fixed, level death benefit to the existing face value of a prmanent policy for a predetermined period and at a predetermined cost
decreasing term rider
adds an additional decreasing death benefit to the existing face value of a permanent policy for a predetermined period and at a predetermined cost
increasing term rider
will allow for a greater amount of coverage each year. increasing term riders provide an additional term insurance face amount at death that’s equal to either all of the premiums paid or the amount of cash value.
cost of living rider
automatically increases the face amount of the policy at specified intervals based on increases in the consumer price index (CPI)
additional insurance rider
can be added to a life insurance policy to provide term insurance coverage for a spouse, children, or an entire family.
exchange privelage rider/ substitute or change of insured rider
outlines the conditions and processes for changing the insured of an insurance policy
war exclusion
prevents an insurer’s financial catastrophe and typically applies to declared and undeclared wars
status war clause
a restrictive-type clause which states that the insured will not possess coverage under an individual life insurance policy while he’s in the military even if he’s killed while away on furlough
results clause
states that an individual policy doesn’t provide coverage if the insured dies while participating in military activities or during military maneuvers of some sort
aviation activities
most life insurance policies exclude deaths that result from certain types of high risk activities such as aviation activities
