Chapter 9: Life Insurance Policy Provisions Flashcards
Beneficiary
Person entitled to receive death benefits.
Standard Policy Provision Laws
State requirements for life and health insurance policies to contain certain provisions.
Grace Period
Additional period of time to pay any premium after it has become due. (30-31 days typically)
Late Remittance Offer
Insurer’s option to offer policyowner whose coverage has lapsed after grace period.
Policy Loans
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
Automatic Premium Loan Option
Any delinquent premium is automatically paid by a new policy loan.
Direct Recognition
Dividends reduced based upon outstanding loans.
The more the policyowner borrows, the less the policy earns.
Incontestable Clause
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)
Divisible Surplus
Portion of an insurer’s surplus declared as a dividend.
Dividend Options #1: Cash Option
Dividends paid out in cash.
Dividend Options #2: Reduction of Premiums
Dividends used to reduce amount of premium due.
Dividend Options #3: Accumulation at Interest
Dividends maintained in interest bearing account; can be withdrawn at any time; if not added to death proceeds.
Dividend Options #4: Purchase of Paid-Up Additions
Dividends used to purchase additional fully paid up whole life insurance.
Dividend Options #5: Purchase of Term Insurance (5th dividend option)
Dividends used to buy 1 year term insurance equal to policy’s then cash value.
Entire Contract Provision
The policy and any attached riders make cup the entire contract.
Reinstatement
Policyowner can reacquire coverage under a policy that has lapsed. (within 3 years)
Misrepresentation
Falsely providing material facts.
Misstatement of Age or Gender
Policy adjusted to reflect accurate information with changes in premium or benefits.
Nonforfeiture Option #1: Cash Surrender
May surrender the policy at any time for the cash value minus loans plus dividends.
Nonforfeiture Option #2: Reduced Paid Up Insurance
Policyowner may take a reduced amount of paid-up whole life insurance payable under same conditions as original policy.
Nonforfeiture Option #3: Extended Term Insurance
Term insurance purchased in an amount equal to the original face amount of the policy.
Nonforfeiture Option #4: Annuity
May use value to purchase annuity for lifetime income.
Settlement Option #1: Interest
Death proceeds stay with insurer and beneficiary is paid periodic interest.
Settlement Option #2: Fixed Period
Insurer makes installment payments using death proceeds and interest over a specified period of time.
Settlement Option #3: Fixed Amount
Insurance company makes level payments of a specific amount until funds are gone.
Settlement Option #4: Life Income
Death proceeds are used as a single premium to purchase annuity.
Primary Beneficiary
Person or organization who is to receive death proceeds.
Contingent Beneficiary
Person or organization who receives proceeds only if primary beneficiary dies.
Contingent Payee
Another party who receives proceeds after all beneficiaries die.
Suicide Provision
Not in effect for first or second year of policy.
Ownership Provision
States clearly who the owner of the policy is and their rights.
Assignment Provision
Specifies who has rights within policy.
Plan Change Provision
Parties may agree to change terms of the contract.
Accelerated Benefits Provision
Policyowners may withdraw portion of death benefits due to illness or disability.
Riders: Guaranteed Purchase Option
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
Riders: Waiver of Premium
Premiums waived if insured becomes totally disabled with specified limitations.
