Kaplan - Unit 7

Question 1

Life Insurance Policy Provisions

Answer 1

The terms of a policy, also known as clauses. They describe how certain common situations will be handled, as well as the rights and the obligations of the policyowner and the insurer.

Question 2

Free Look

Answer 2

Also known as Right to Examine, gives the policyowner a period of time to return a policy for any reason within ten days of delivery and receive full refund.

Question 3

Insuring Clause

Answer 3

A.k.a. Insuring agreement sets forth the insurer’s promise to pay and it is usually found on the first page of the policy. It includes what the company will pay, the death benefit amount, and to whom it will be paid. An authorized officer of the company signs this clause.

Question 4

Ownership Rights

Answer 4

Owner of a policy may exercise all policy rights and privileges without the consent of any beneficiary including the right to:

• Name or change the beneficiary
• Select settlement options
• Borrow or withdraw policy cash values
• Receive policy dividends
• Surrender or cancel the policy
• Assign or transfer ownership
• Select/change the premium payment mode
• Select a non-forfeiture option

Question 5

Assignment

Answer 5

A transfer of the owner’s rights to another individual or entity.
There are two types of assignment:

1. Collateral assignment (temporary or conditional assignment) does not change ownership of the policy. Most common type of partial assignment is to pledge all or part of the death benefit as collateral for a loan.
2. Absolute or permanent assignment transfers all rights of ownership to another person or entity.

Question 6

Entire Contract

Answer 6

The life insurance policy and a copy of the original application. The insurer may not refer to documents other than these when denying or paying a claim. This would also include any riders or amendments (if any).

Question 7

Endorsements (Modifications)

Answer 7

Must be made in writing and agreed to by both the insurer and the policyowner. This amendment must be signed by an executive officer of the company and cannot be authorized by an agent.

Question 8

Consideration

Answer 8

A legal term meaning something of value. Exchange of value is necessary to form a valid contract.

Question 9

Payment of Premium

Answer 9

States that premiums are due in advance - that is, on or before the date on which the next period of coverage begins. Premium payment amounts can be either level, single payment, graded, or flexible.

Question 9

Grace Period

Answer 9

31 days of grace if the insured does not pay the premium on date when due. The policy will stay in force before it actually lapses and if the insured dies during this period, the policy will pay the benefit minus the amount owed.

Question 10

Reinstatement

Answer 10

The restoration of a lapsed policy as originally purchased.

• Policy lapsed for nonpayment of premiums
• Up to three years to reinstate
• Policy was not surrendered for cash
• Must pay missed premiums + interest
• Prove insurability
• Saves original policy + issue age

Question 11

Incontestability

Answer 11

After a life insurance policy has been in effect for two years the company cannot claim that a statement made in the application for insurance was meant to defraud the insurer. First 2 years are known as the contestable period.

Question 12

Suicide Clause

Answer 12

Whether sane or insane, committing suicide during the first two years, the company will pay only the premium paid by the insured. Otherwise the company will pay the benefit. It is excluded from accidental death benefits.

Question 13

Misstatement of Age

Answer 13

• Insured older than application states
  + Death benefit reduced to correct premium amount
• Insured younger than application states
  + Death benefit increased to correct premium amount
• Incontestability provision does not apply.

Misstatement of sex will be adjusted in a similar way.

Question 14

Payment of Claims

Answer 14

States that the insurer will pay the death benefit promptly which is generally required to pay within 60 days after receiving notification of the claim or interest must be paid if payment is made after that time.

Question 15

Life Insurance Policy Provisions

Answer 15

• Free look
• Insuring clause
• Ownership rights
• Assignment
• Entire contract
• Modification
• Consideration
• Payment of premium
• Grace period
• Reinstatement
• Incontestability
• Suicide
• Misstatement of age or sex
• Payment of claims

Question 16

Beneficiary

Answer 16

The person or entity who will get the death benefit. This can be an individual, a class, or a trust.

Individuals need to be identified.

Classes (my children) need not be identified.

Trusts are legal entities which can hold title to property and made up of three parties:
- Grantor - individual who sets up the trust, transfers property into it, and writes the instructions as to how the trust will operate
- Trustee - the party that manages the property according to the grantor’s instructions. Could be an individual or entity.
Beneficiary - the person who receives the benefits of the trust.

Question 17

Estates

Answer 17

Used to pay debts and the costs of legally closing the estate. The remaining proceeds will be distributed to the insured’s heirs along with the estate’s other assets.

Question 18

Per Capita, Per Stirpes

Answer 18

Multiple Beneficiaries in the same class

• Per capita - by the head (not inheritable)
• Per stirpes - by branch (inheritable)

Question 19

Secondary/Contingent Beneficiaries

Answer 19

The nest in line after the primary beneficiary to receive the benefits. There can be more than one level of contingent beneficiary.

Question 20

Revocable Versus Irrevocable

Answer 20

• Revocable - can be changed by the owner at any time
• Irrevocable - can’t be changed without the beneficiary consent. This includes loan or withdrawal from cash values.

Question 21

Facility of Payment Provision

Answer 21

Allows the insurer to pay all or part of the benefit to someone other than a designated beneficiary if:

• the beneficiary is a minor, is deceased, or cannot be found; or
• someone other than the beneficiary incurred the insured’s final medical or funeral expenses.

Question 22

Uniform Simultaneous Death Act

Answer 22

Insured and primary beneficiary are in the same accident and both die in that accident. This assumes that the primary beneficiary dies first and the proceeds are paid to the contingent beneficiary.

Question 23

Common Disaster Provision

Answer 23

Insured and primary beneficiary are in a common accident and both die within 30-90 days after the accident. The proceeds are paid as if the primary beneficiary died first and then the proceeds are paid to the contingent beneficiary.

Question 24

Spendthrift Provision

Answer 24

A clause that may be included in a life insurance policy:

• Death benefit cannot be paid in a lump sum
• Death benefits cannot be claimed by creditors before payment to beneficiary
• Death benefits cannot be pledged by the beneficiary to a creditor
• Death benefits cannot be used by the beneficiary as collateral for a loan

Question 25

Exclusions

Answer 25

Exceptions that define when coverage does not apply. Illegal activity is one of them. Other exclusions are suicide, aviation, war or military service, or hazardous occupation or hobby exclusion.