Industry Policy Provisions and Starting Your Journey Flashcards
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.
Valued Contract
A policy is enforceable because the parties to the contract met requirements concerning the substance of agreement.
Informal Contract
In a life insurance policy, only one of the parties to the contract, in this case the insurer, has a legally enforceable obligation.
Unilateral Contract
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.
Aleatory Contract
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.
Contract of Adhesion
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.
Insurable Interest
This occurs when the policyowner neglects to pay premiums on the due date of the policy. This provision protects the policy from lapsing.
The Grace Period Provision
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.
Cash Values
These are paid on participating policies. At the end of the year, the company issuing participating policies looks over the year’s operations.
Dividends
Dividends Options
- Choose to have their dividends paid in cash.
- Use them to help reduce premium payments.
- Leave them with the company to accumulate and earn interest. This will give the policyowner maximum available cash in case of emergencies.
- Use them to purchase paid-up insurance or paid-up additions.
- 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
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.
Non-Forfeiture Options
Kinds of Non-Forfeiture Options
Cash Surrender Value (CSV)
Reduced Paid-Up (RPU)
Extended Term Insurance (ETI)
Automatic Premium Loan (APL)
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.
The Cash Surrender Value Option
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.
The Reduced Paid-Up Option or Paid-Up Insurance
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.
Extended Term Insurance Option
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.
Automatic Premium Loan Option
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.
Reinstatement
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.
Pure Reinstatement
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.
Redating
When the insured dies, the following circumstances are looked into:
Statement of Age Contestability Manner of Death Beneficiary Settlement
The age of the insured is very important to determine the correct premium rate for life insurance.
Statement of Age
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.
Contestability
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.
Settlement Options
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.
Primary Beneficiary
