Life Insurance Policy Provisions

Question 1

What is a provision

Answer 1

Describe how certain situations will be handled, as well as the rights and obligations of policy owner

Question 2

Free look

Answer 2

Begins when policy owner receives the policy

Usually no fewer than 10 days

Policy can be returned for a full refund

Question 3

Insuring Clause

Answer 3

Usually found on first page of policy

Insurers promise to pay upon death

Includes face amount

Usually signed by an officer of the company

Question 4

Ownership rights

Answer 4

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

Question 5

Policy assignment

Answer 5

Transfer of owners rights, in whole or part, to another individual or entity

Collateral “a pledge for a loan” (does not change ownership)

Absolute “permanent change” (does change ownership)

Question 6

Entire contract

Answer 6

Policy plus copy of application plus any riders or amendments

Question 7

Endorsements

Answer 7

Any change to contract must be made in writing and agreed to by both the insurer and the policy owner. Must be signed by executive officer and not agent

Question 8

Consideration

Answer 8

Something of value

Insured’s consideration (premiums and truthful statements made on application)

Insurers consideration (pay benefits at time of claim)

Question 9

Payment of premium

Answer 9

Due in advance of the coverage period

Question 10

Grace period

Answer 10

If premium payment is missed policy will stay in force for a limited time before coverage actually lapses (usually 31 days)

Insurance still in force

Death benefit paid minus premiums due

Question 11

Reinstatement

Answer 11

Restoration of a lapsed policy as originally purchased

Up to 3 years to reinstate

Policy was not surrendered for cash

Must pay missed premiums plus interest

Prove insurability

Save original policy + issue age

Question 12

Incontestability provision

Answer 12

Usually after 2 years policy can’t be taken away for any reason

Even if material misrepresentation or fraud

Question 13

Suicide clause

Answer 13

If commits suicide prior to having a policy for 2 years. Only premium will be paid back

After 2 years full face amount will be paid

Question 14

Misstatement of age (gender)

Answer 14

Incontestability provision does not apply

If older than application states death benefit is reduced accordingly

If younger than application states death benefit is increased accordingly

Question 15

Payment of claims

Answer 15

Says insurer will pay the death benefit promptly (usually no longer than 60 days)

Question 16

Beneficiary

Answer 16

The person or entity who will get the death benefit

Question 17

Trust

Answer 17

A legal entity which can hold title to property while it is managed for the benefit of others

Grantor (individual who sets up trust)

Trustee (party manages property according to grantors instructions)

Beneficiary (person who receives benefits of the trust)

Question 18

Multiple beneficiary in same class

Answer 18

Per capita (by the head)

Per stirpes (by branch)

Question 19

Levels of beneficiaries

Answer 19

Primary (First)

Contingent or secondary (if no primary party alive)

Tertiary (if no contingent party alive)

Estate of insured (if no beneficiary named or alive)

Question 20

Beneficiary designations

Answer 20

Can be changed at any time without knowledge or consent

Revocable (can be changed by the owner at any time)

Irrevocable (can’t be changed without beneficiary consent)

• Loan or withdrawal from cash values
• Usually becomes revocable upon death of irrevocable beneficiary

Question 21

Facility of payment provision

Answer 21

Insurer can pay someone other than beneficiary if

Beneficiary is a minor, is deceased or can’t be found

Someone other than the beneficiary incurred the insured’s final medical or funeral expenses

Question 22

Uniform simultaneous death act

Answer 22

If beneficiary and insured die in same accident it is assumed beneficiary died first

So proceeds will be paid to contingent beneficiary

Question 23

Common disaster provision

Answer 23

Insured beneficiary are in common accident

Both die within 30-90 days after the accident

Proceeds paid as if the primary beneficiary died first

Proceeds paid to contingent beneficiary

Question 24

Spreadthrift division

Answer 24

Maybe included in policy and make the payment to beneficiary be in installments and not a lump sum

Question 25

Exclusions

Answer 25

Define when coverage does not apply

Question 26

Suicide exclusion

Answer 26

Death by suicide is not covered for a certain period of time after the policy goes into effect

Question 27

Aviation exclusion

Answer 27

Eliminates coverage for only certain types of aviation activities

(Does not apply to commercial flight)

Question 28

War or military service exclusion

Answer 28

Status type (eliminates coverage during which the insured is in military, even if on leave)

Results type ( coverage is eliminated on if the cause of death was related to military service)