Chapter 9: Life Insurance Policy Provisions

Question 1

Beneficiary

Answer 1

Person entitled to receive death benefits.

Question 2

Standard Policy Provision Laws

Answer 2

State requirements for life and health insurance policies to contain certain provisions.

Question 3

Grace Period

Answer 3

Additional period of time to pay any premium after it has become due. (30-31 days typically)

Question 4

Late Remittance Offer

Answer 4

Insurer’s option to offer policyowner whose coverage has lapsed after grace period.

Question 5

Policy Loans

Answer 5

No credit check
Access to cash value (between 90-100%)
Fixed or variable interest rates
Unpaid interest added to loan balance
No repayment scheduled or requirement

Question 6

Automatic Premium Loan Option

Answer 6

Any delinquent premium is automatically paid by a new policy loan.

Question 7

Direct Recognition

Answer 7

Dividends reduced based upon outstanding loans.

The more the policyowner borrows, the less the policy earns.

Question 8

Incontestable Clause

Answer 8

Prohibits the insurer from disputing or contesting the validity of the policy after it has been in force for a certain period of time. (typically 2 years)

Question 9

Divisible Surplus

Answer 9

Portion of an insurer’s surplus declared as a dividend.

Question 10

Dividend Options #1: Cash Option

Answer 10

Dividends paid out in cash.

Question 11

Dividend Options #2: Reduction of Premiums

Answer 11

Dividends used to reduce amount of premium due.

Question 12

Dividend Options #3: Accumulation at Interest

Answer 12

Dividends maintained in interest bearing account; can be withdrawn at any time; if not added to death proceeds.

Question 13

Dividend Options #4: Purchase of Paid-Up Additions

Answer 13

Dividends used to purchase additional fully paid up whole life insurance.

Question 14

Dividend Options #5: Purchase of Term Insurance (5th dividend option)

Answer 14

Dividends used to buy 1 year term insurance equal to policy’s then cash value.

Question 15

Entire Contract Provision

Answer 15

The policy and any attached riders make cup the entire contract.

Question 16

Reinstatement

Answer 16

Policyowner can reacquire coverage under a policy that has lapsed. (within 3 years)

Question 17

Misrepresentation

Answer 17

Falsely providing material facts.

Question 18

Misstatement of Age or Gender

Answer 18

Policy adjusted to reflect accurate information with changes in premium or benefits.

Question 19

Nonforfeiture Option #1: Cash Surrender

Answer 19

May surrender the policy at any time for the cash value minus loans plus dividends.

Question 20

Nonforfeiture Option #2: Reduced Paid Up Insurance

Answer 20

Policyowner may take a reduced amount of paid-up whole life insurance payable under same conditions as original policy.

Question 21

Nonforfeiture Option #3: Extended Term Insurance

Answer 21

Term insurance purchased in an amount equal to the original face amount of the policy.

Question 22

Nonforfeiture Option #4: Annuity

Answer 22

May use value to purchase annuity for lifetime income.

Question 23

Settlement Option #1: Interest

Answer 23

Death proceeds stay with insurer and beneficiary is paid periodic interest.

Question 24

Settlement Option #2: Fixed Period

Answer 24

Insurer makes installment payments using death proceeds and interest over a specified period of time.

Question 25

Settlement Option #3: Fixed Amount

Answer 25

Insurance company makes level payments of a specific amount until funds are gone.

Question 26

Settlement Option #4: Life Income

Answer 26

Death proceeds are used as a single premium to purchase annuity.

Question 27

Primary Beneficiary

Answer 27

Person or organization who is to receive death proceeds.

Question 28

Contingent Beneficiary

Answer 28

Person or organization who receives proceeds only if primary beneficiary dies.

Question 29

Contingent Payee

Answer 29

Another party who receives proceeds after all beneficiaries die.

Question 30

Suicide Provision

Answer 30

Not in effect for first or second year of policy.

Question 31

Ownership Provision

Answer 31

States clearly who the owner of the policy is and their rights.

Question 32

Assignment Provision

Answer 32

Specifies who has rights within policy.

Question 33

Plan Change Provision

Answer 33

Parties may agree to change terms of the contract.

Question 34

Accelerated Benefits Provision

Answer 34

Policyowners may withdraw portion of death benefits due to illness or disability.

Question 35

Riders: Guaranteed Purchase Option

Answer 35

Allow purchase of specified additional amounts of insurance at specified times and ages
No need to show evidence of insurability
Options to purchase don’t build

Question 36

Riders: Waiver of Premium

Answer 36

Premiums waived if insured becomes totally disabled with specified limitations.