Definitions (Chapter 4, Section 2) Flashcards
Entire Contract
states the insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract. We can’t send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE contract.
Insuring Clause (Insuring Agreement)
is the insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage.
Free Look
states the policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.
Consideration Clause
states a policyowner must pay a premium in exchange for the insurer’s promise to pay benefits. A policyowner’s consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause.
Grace Period
is a period after the due date of a premium during which the policy remains in force without penalty. If an insured dies during the Grace period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy minus any required premiums. For life insurance the grace period is typically one month.
Reinstatement
is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It permits the policyowner to reinstate a policy that has lapsed as long as the policyowner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5-7 years. To reinstate any policy, you need; A reinstatement application, statement of good health, all back premiums.
Policy Loan (cash withdrawal) Provisions
apply to policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy’s cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured’s policy proceeds.
Automatic Premium Loan Provision (or rider)
allows the insurance company to deduct overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against you CASH VALUE to cover you PREMIUM in the event they don’t receive payment from you. This can continue for as long as they don’t receive a payment and you still have cash value. Once all of your cash value is gone, if you don’t start paying, your policy will lapse. This is just like any other cash value loan.
Incontestability Period
provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured’s lifetime, usually one or two years after issue. After that period, the policy is considered incontestable.
Assignment Clause
allows the right to transfer policy rights to another person or entity.
Absolute Assignment
is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.
Collateral Assignment
is an assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured’s death.
Accelerated Benefit Rider
allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.
Exclusions
are features of an insurance policy stating that the policy will not cover certain risks. There are 6 common exclusions in insurance
Suicide Clause (Exclusion)
the policy will be voided and no benefit will be paid if the insured commits suicide within 2 years from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.
