Industry Policy Provisions and Starting Your Journey

Question 1

A policy specifies the amount of benefit that will be payable when a covered loss occurs, regardless of the actual amount of the loss that was incurred.

Answer 1

Valued Contract

Question 2

A policy is enforceable because the parties to the contract met requirements concerning the substance of agreement.

Answer 2

Informal Contract

Question 3

In a life insurance policy, only one of the parties to the contract, in this case the insurer, has a legally enforceable obligation.

Answer 3

Unilateral Contract

Question 4

In a life insurance policy, one party provides something in value to another party in exchange for a conditional promise. A conditional promise is a promise to perform a stated act if a specified, uncertain event occurs, then the promise must be performed; if the event does not occur, the promise will not be performed.

Answer 4

Aleatory Contract

Question 5

In a life insurance policy, one party, in this case, the insurer, prepares the contract which the other party, in this case, the client, may accept or reject as a whole, without any bargaining between the parties to the agreement.

Answer 5

Contract of Adhesion

Question 6

This exists when a policyowner has reasonable chance of suffering financial loss if the person who is insured dies.

It should also exist between the insured and the named beneficiaries.

Answer 6

Insurable Interest

Question 7

This occurs when the policyowner neglects to pay premiums on the due date of the policy. This provision protects the policy from lapsing.

Answer 7

The Grace Period Provision

Question 8

These are the guaranteed amount received in case the plan is terminated prior to the death of the insured or the maturity of the policy. These are the savings element of policies.

Answer 8

Cash Values

Question 9

These are paid on participating policies. At the end of the year, the company issuing participating policies looks over the year’s operations.

Answer 9

Dividends

Question 10

Dividends Options

Answer 10

1. Choose to have their dividends paid in cash.
2. Use them to help reduce premium payments.
3. Leave them with the company to accumulate and earn interest. This will give the policyowner maximum available cash in case of emergencies.
4. Use them to purchase paid-up insurance or paid-up additions.
5. Use them to buy Yearly Renewable Term insurance with any extra cash remaining on deposit with the company and earning interest at a rate to be declared by the company from time to time

Question 11

Are options a policyowner has when they want to stop paying for their premiums on whole life and endowment policies. Companies may also elect an automatic _____ upon the application.

Answer 11

Non-Forfeiture Options

Question 12

Kinds of Non-Forfeiture Options

Answer 12

Cash Surrender Value (CSV)
Reduced Paid-Up (RPU)
Extended Term Insurance (ETI)
Automatic Premium Loan (APL)

Question 13

This gives the policyowner the right to exchange the policy for its equivalent cash value. The cash value is the savings element of permanent life insurance policies. This option is drastic and final. The policyowner can claim an immediate payment of cash but when this option is applied, the contract stops completely.

Answer 13

The Cash Surrender Value Option

Question 14

In this option, when the policyowner is unable to make premium payments but still needs life insurance protection, the option will take the cash value built up to purchase paid-up insurance. This means that because the policyowner will stop paying premiums, the new face amount of the client will be smaller but his life insurance protection will still continue until age 100.

Answer 14

The Reduced Paid-Up Option or Paid-Up Insurance

Question 15

When the policyowner is unable to continue premium payments, the company will continue to protect him for the original face amount but only until a specified period. In this option, the cash value is used to buy a term insurance contract which extends the period of protection even though no more premiums are being paid.

Answer 15

Extended Term Insurance Option

Question 16

On this option, the company lends to the insured such an amount from the cash value to pay for overdue premiums. This can be done as long as there is sufficient cash value to keep the policy active. The policy will also remain in force for only such period. After the cash value has been exhausted, the policy will lapse unless premium payments are resumed and loans are paid.

Answer 16

Automatic Premium Loan Option

Question 17

is a provision that may revive or save a policy even when it has already lapsed. Unless certain conditions apply, the policyowner has the right to reinstate the lapsed policy and bring its value up-to-date. However, this provision does not apply to policies that have been surrendered already for their equivalent cash value.

Answer 17

Reinstatement

Question 18

The policyowner pays back all past due premiums plus interest on these premiums. The policyowner would also have to pay all outstanding loans plus interest due and even prove insurability.

Answer 18

Pure Reinstatement

Question 19

A new premium would be charged to the policyowner based on the policyowner’s new attained age and a new contestable period and suicide clause starts over.

Answer 19

Redating

Question 20

When the insured dies, the following circumstances are looked into:

Answer 20

Statement of Age
Contestability
Manner of Death
Beneficiary
Settlement

Question 21

The age of the insured is very important to determine the correct premium rate for life insurance.

Answer 21

Statement of Age

Question 22

Through this clause, the company is given two years to rescind or contest the validity of the life insurance contract by reason of concealment or misrepresentation upon the death of the insured. The incontestable period will not begin until the policy has been in force for two years during the lifetime of the insured.

Answer 22

Contestability

Question 23

Are ways wherein the company can hold in trust the proceeds of the policy. The company guarantees the absolute safety of funds and keeps them profitably invested so that they will earn a fair rate of interest.

Answer 23

Settlement Options

Question 24

The first person in line to receive the death proceeds is called the primary beneficiary. This is usually the insured’s immediate family, or someone the insured financially supports.

Answer 24

Primary Beneficiary

Question 25

Is a person nominated by the policyowner to receive the proceeds of the policy in case of death of the primary beneficiary.

Answer 25

Secondary or Contingent Beneficiary

Question 26

Kinds of Settlement Options

Answer 26

Lump Sum | Interest Option
Fixed Period Option | Fixed Income Option
Life Income Option

Question 27

In this option, the company pays the beneficiary equal amounts at regular intervals over a specified period of years. Both the principal amount and interest earnings are paid out.
The amount of each installment is determined by the length of desired period of income.
If this option is selected, the policy proceeds are used to pay out a specified amount of income as long as the proceeds last. It pays out both the principal proceeds and earnings from interest.

Answer 27

Fixed Period Option | Fixed Income Option

Question 28

Under this option, the beneficiary receives a guaranteed regular income, not for a specified period of years, not as long as the proceeds last but for the primary beneficiary’s entire lifetime, no matter how long he lives.

Answer 28

Life Income Option

Question 29

Are contracts where the insurance company makes fixed payments to the annuitant for the term of the contract, usually until the annuitant dies. The company guarantees both earnings and the principal.

Answer 29

Fixed Annuities

Question 30

Entire premium is deposited in the annuity fund at one time

Income begins immediately

Answer 30

Single Premium Immediate

Question 31

Annuity fund is purchased through a single payment

Income begins years after the payment is made

Answer 31

Single Premium Deferred

Question 32

Provides pension for life; no life insurance coverage

Fund is built up through a series of regular payments

Answer 32

Installment Deferred

Question 33

Cannot guarantee an interest yield from investments because its results are usually geared mostly to a portfolio of common stocks.

Answer 33

Variable Annuities

Question 34

Variable annuities could be:

Answer 34

Conventional or Deferred

Question 35

Investment yield is guaranteed and is based on fixed-dollar investments

Specified interest and maturity values

Answer 35

Variable Annuity (Conventional)

Question 36

Period of time (allow) the fund to accumulate

Value may rise and fall depending on the investment results

Answer 36

Variable Annuity (Deferred)

Question 37

The different Annuity Settlement Arrangements:

Answer 37

Life Annuity
Cash Refund Annuity
Installment Refund Annuity
Joint and Full Survivor Annuity
Period Certain Annuity

Question 38

Kinds of Unethical Practices

Answer 38

Twisting
Knocking
Overloading
Rebating
Misinterpretation

Question 39

It is persuading the person to lapse or surrender a policy in order to purchase a new one.

Also called Replacement

Answer 39

Twisting

Question 40

Making derogatory remarks about competing policies, advisors or companies.

Answer 40

Knocking

Question 41

Selling insurance to a person that is more that what is warranted by his/her resources.

Answer 41

Overloading

Question 42

Offering part of your commission to your client, or accepting a smaller premium than the one stipulated in the policy.

This implies premium discrimination against policyholders.

Answer 42

Rebating

Question 43

Any written or oral statement which does not tell the exact truth about the policy’s terms or benefits.

Answer 43

Misinterpretation