Life Insurance Policy Provisions, Options, And Riders Flashcards
Stipulate the rights and obligations of an insurance contract and are fairly universal from one policy to the next.
Provisions
Modify provisions that already exist and are used to increase or decrease policy benefits and premiums.
Riders
Offer insurers and insureds ways to invest or distribute a sum of money available in a life policy
Options
A person’s essential activities that include bathing, dressing, eating, transferring, toileting, continence
Activities of daily living ( ADLs)
Transfer of rights of policy ownership
Assignment
A beneficiary who has second claim to the policy proceeds after the death of the insured (usually after the death of the primary beneficiary)
Contingent beneficiary
An organization composed insurance commissioners from all 50 states , the District of Columbia and the 4 US territories formed to resolve insurance regulatory issues
National Association of Insurance Commissioners (NAIC )
A beneficiary who has the first claim to the policy proceeds after the death of the insured.
Primary Beneficiary
The face value of the policy; the original amount invested before the earnings
Principal amount
An arrangement in which funds or propwr gu are held by a person or corporation for the benefits of another person (trust beneficiary)
Trust
Involves transferring all rights of ownership to another person or entity. Is permanent and total transfer of all policy rights. New owner does not need to have insurable interest in the insured.
Absolute Assignment
Partial and temporary transfer of rights; usually done to secure a loan or some other transaction and once paid, rights are returned
Collateral Assignment
Entire contract =
Policy + copy of application + any riders or amendments
_________ or Changes in the policy must be endorsed on or attached to the policy in writing over the signature of an executive officer of the insurer
Modifications
Starts when the policyowner receives the policy (policy delivery) and they have 10 days to look over the policy can get a full refund if they are dissatisfied with anything
Free-look period
Protect policyholders from losing insurance coverage if they are late on a premium payment.
Grace periods
Maximum time limit for reinstatement is usually ____ _________ after the policy has lapsed.
3 years
After this timeframe, a policy cannot be contested
2 years after has been in force
A policy that has been surrendered cannot be:
Reinstated
Misstatement of age on the application will result in
Adjustment of premiums or benefits
Exclusions and Restrictions: WASH
W: war or military service ( status clause & results clause)
A: aviation excludes coverage for noncomericial flights or requires an additional premium for coverage
S: suicide not covered within the first 2 years but after the first 2 years it is covered
H: hazardous occupation or hobbies; no dangerous or life threatening jobs or hobbies
Excludes all causes of death while the insured is on active duty in the military
Status Clause
Only excludes the death benefit if the insured if the insured is killed as a result of an act of war ( declared or undeclared).
Results Clause
Insurers must pay first-party claims within 30 days of receipt of proof of loss; after thay an interest will be assessed
Intereg on Life Insurance Proceeds
Benefits designated to a minor will be paid to:
The minor’s guardian, or to the trustee of the minor if the trust is named beneficiary, or paid as directed by a court.
If no beneficiary is named, policy proceeds go to the insured6
Estate
Meaning by the head: evenly distributed benefits among the living named beneficiaries.
Per Capita
Meaning by bloodline; distributed the benefits of a beneficiary who died before the insured to that beneficiary’s heirs.
Per Stirpes
Has first clain to the police proceeds following the death of the insured.
Primary beneficiary
Also referred as secondary or tertiary beneficiary) has second claim in the event that the primary beneficiary dies before the insured.
Contingent Beneficiary
Beneficiary designations can be either
Revocable or irrevocable
Can be changed (removed from or amount given changed) without the consent or knowledge of the beneficiary
Revocable
May not change beneficiary designation without written consent from them.
Irrevocable
Are Only available in policies that have cash value (whole life).
Policy loans
Loan that prevent s the unintentional lapse of a policy due to nonpayment of the premium.
Automatic premium loans
_______ _______ _______ allow the partial withdrawal or surrender of the policy cash value.
Universal life policies
Written modifications attached to a policy that provides benefits not found in the original policy.
Riders
Waives the premium for a rot disabilith after a waiting period.
Waiver of premium rider
AKA: waiver of monthly deductions is found in Universal life insurance; waives the cost of insurance and other expenses; but does not waive the cost of premiums necessary to accumulate cash values.
Waiver of cost of insurance
Primarily used with juvenile policies ( any life insurance written on the life of a minor); otherwise it functions likes the waiver of premium rider. Premium I’d waive if payor usually parent become disabled for at least 6 months or dies; until the minor turns 21.
Payor benefit
Provides coverage for one or more famy members other than the insured l. Usually level term insurance. Also known as family rider.
Other insured rider
If it just covers the spouse for a specific timeframes and for limited coverage usually till spouse reaches age 65.
Spouse term rider
One premium for all children. Term insurance that can be added on for limited time until the children turn 18 or 21.
Children’s Term Rider
Equals the Spouse term plus the Children’s term
Family term
Pays some multiple of face amount if death is the result of an accident as defined in the policy. Death must usually occur within 90 days of an accident
Accidental death rider
Benefit may pay out double or triple of face amount
Double indemnity or Triple indemnity
Allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or birth of a child), without evidence of insurability, for an additional premium. When exercised, additional policies are purchase at the attained age and this rider expires at age 40.
Guaranteed insurability Rider
Addresses the inflation factor by automatically increasing the amount of insurance without evidence of insurability from the insured.
Cost of living Rider
Usually expires at age 60. When added to a polish it provides that at death prior to a given age not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to the beneficiary. Implemented by using increasing term insurance.
Return of premium rider
Equal early payment of part of death benefit to the insured from the insurer for qualifying medical expenses.
Accelerated living benefit
Provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within 2 years.
Living Needs Rider
Often purchased as a separate policy, can also be marketed as a rider to a life insurance policy. Provides for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insured’s health care expenses, which are incurred in a nursing home or convalescent home.
Long-term care (LTC) coverage
Equals face amount minus amount withdrawn minus earnings lost by insurer in interest.
Payable Death Benefit
Certain guarantees built into the policy that cannot be forfeited by the policyowner. Using triggered by policy surrender or lapse.
Nonforfeiture options
Policy is paid up to age 100 and face amount reduces to a value that the cash value can afford. Lasts the longest.
Reduced-paid up insurance
Is the automatic nonforfeitureoption; same face amount, shorter term of coverage because coverage ends when cash value is depleted.
Extended term
Fee charged to the insured when a life policy or annuity is surrendered for its cash value. Usually when coverage is no longer needed or affordable.
Cash Surrender Value
A return of excess premiums; therefore, not taxable when paid to the policyowner.
Dividends
Dividend Options remember:
DO = CRAPO
C: Cash
R: Reduction of premium
A: Accumulation at interest
P: Paid-up additions
O: One year term
Check sent to the policyowner for the amount of the dividend as it declared; usually anually
Cash payment option
Uses the dividend to reduce the next year’s premium.
Reduction of premium
Insurance company keeps the dividends in an account where it accumulates interest and the policyowner is allowed to withdraw the dividends at any time. Dividend still not taxable but interest is taxable.
Accumulation of interest option
Using the dividends to pay for additional face amount value. You pay the original face amount and the dividend pays for extra amount.
Automatically chosen by the insurer if the policyowner does not choose an option.
Paid-up Additions option
Insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall policy death benefit.
One-year term option
Triggered by the insured’s death or age 100.
Settlement options
Settlement options remember:
SO = CLIFF
C: cash lump-sum payment is paid out
L: life income option based on the I individuals life expectancy
I: interest only- most flexible option if you dont need the money
F: fixed period installments
F: fixed amount installments
The receipt cannot outlive the benefit payments.
Life-income (straight life) settlement option
Provides a single beneficiary income for the rest of his/her life. Once beneficiary dies, payments stop.
Single life option
Guarantees an income for two or more recipients for as long as theh live. Surviving recipient will recieve a reduced payment after the first recipient dies.
Joint and survivor
Life refund income comes in either:
Cash refund or an installment refund
The recipient is provided with the best of both worlds in terms of a lifetime income and a guaranteed installment period.
Life income with period certain option
Insurance company retains the proceeds and pays interest on the proceeds to the recipient (beneficiary) at regulat intervals (monthly, quarterly, semiannually or annually)
Interest-only option
AKA: period certain
A specified period of years is selected and equal installments are paid to the recipient.
Fixed period installments option
Pays a fixed , specified amount in installments until the proceeds (principal and interest) are exhausted.
Fixed amount installments option
