Life Insurance Provisions, Options and Riders

Question 1

Insuring Clause (or Insuring Agreement):

Answer 1

The insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss.

part of the health insurance policy that states the kind of benefits provided and the circumstances under which they will be paid.

The insuring clause is the part of the insurance policy that identifies the specific type of benefits or or services that are covered by that policy and the circumstances under which they will be paid.

Any promises the INSURER makes will be in the INSURING clause.

Question 2

Consideration Clause

Answer 2

A policyowner must pay a premium in exchange for the insurer’s promise to pay benefits.

consists of completing the application and paying the initial premium.

The amount and frequency of premium payments are contained in the consideration clause.

Consideration is an exchange of something of value on which a contract is based

An insurance contract is valid only if the insured provides consideration in the form of the initial full minimum premium required and the statements made in the application

Question 3

Entire Contract

Answer 3

• The entire contract includes the actual policy and the application

It states that nothing outside of the contract (the contract includes the signed application and any attached policy riders) can be considered part of the contract

It also assures the policyowner that no changes will be made to the contract or waive any of the provisions after it has been issued, even if the insurer makes policy changes that affect all policy sales in the future. This, however, does not prevent a mutually agreeable change or modifying the contract after it has been issued.

• Any change to a policy must be made with the approval of an executive officer of the insurance company whose approval must be endorsed on the policy or attached in a rider
• This mandatory health policy provision states that the policy, including endorsements and attached papers, constitutes the entire insurance contract between the parties
• We can’t send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE CONTRACT.

Question 4

Grace Period:

Answer 4

The period of time policyowners are allowed to pay an overdue premium during which the policy remains in force, usually 30 days. If an insured dies during the Grace Period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy less any required premiums. The purpose of the Grace Period is to give the policyowner additional time to pay overdue premiums. The policyowner is given a number of days after the premium due date during which time the premium payment may be delayed without penalty and the policy continues in force. Grace period is the same definition for your insurance bill as it is for all of your other bills. Don’t pick it as an answer if the question isn’t talking about paying your bill late and keeping your insurance.

Question 5

Reinstatement:

Answer 5

Permits the policyowner to reinstate a policy that has lapsed- as long as the policyowner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5-7 years. The Reinstatement provision specifies that if an insured fails to pay a renewal premium within the time granted but the insurer subsequently accepts the premium, coverage may be restored. Under certain conditions, a policy that has lapsed may be reinstated. Reinstatement is automatic if the delinquent premium is accepted by the company or its authorized agent and the company does not require an application for reinstatement. If it takes no action on the application for 45 days, the policy is reinstated automatically. To reinstate any policy, you need: A reinstatement application, statement of good health, all back premiums.

Question 6

Incontestable Clause:

Answer 6

The clause in a life insurance contract that prohibits the insurer from questioning the validity of the contract after a certain period of time has elapsed.

Question 7

Misstatement of Age or Sex:

Answer 7

Allows the insurer to adjust the policy benefits if the insured’s age or sex is misstated on the policy application. The misstatement of age provision allows the insurer to adjust the benefit payable if the age of the insured was misstated when application for the policy was made. The insurer can adjust the benefit to what the premiums paid would have purchased at the insured’s actual age. If the insured was older at the time of application than is shown in the policy, benefits would be reduced accordingly. The reverse would be true if the insured were younger than listed in the application

Question 8

Policy Loan Provisions:

Answer 8

Policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy’s cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured’s policy proceeds.

Question 9

Automatic Premium Loans:

Answer 9

Allows the insurer to automatically use the policy cash value to pay an overdue premium. There is no cost for this provision. Automatic Premium Loans: Like using a savings account for overdraft protection, but there’s no fee, just interest for borrowing your money. If you don’t pay it back, interest is added to the loan, it also will be subtracted from any death benefit or cash surrenders if not paid back first.

Question 10

Owner’s Rights Provision

Answer 10

Defines the person who may name and change beneficiaries, select options available under the policy, and receive any financial benefits from the policy.

Question 11

Assignment Clause or Provisions:

Answer 11

The right to transfer policy rights to another person or entity. The new owner is known as the assignee.

Question 12

Absolute assignment:

Answer 12

When the assignee receives full control of the policy and rights to the policy benefits from the current policyowner. Under an absolute assignment, the transfer is complete and irrevocable, and the assignee receives full control over the policy and full rights to its benefits.

Question 13

Collateral assignment:

Answer 13

The partial and temporary transfer of rights to another person or entity. Collateral assignments are usually intended for securing a loan with a creditor. A collateral assignment is one in which the policy is assigned to a creditor as security, or collateral, for a debt. If the insured dies (or sometimes becomes totally\permanently disabled), the creditor is entitled to be reimbursed out of the benefit proceeds for the amount owed. The insured’s beneficiary is then entitled to any excess of policy proceeds over the amount due to the creditor.

Question 14

Free Look:

Answer 14

The policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

Question 15

Notice of Claim

Answer 15

• The notice of claim provision describes the policyowner’s obligation to notify the insurance company of a claim in a reasonable period of time
• Typically, the period is 20 days after the occurrence or a commencement of the loss, or as soon thereafter as is reasonably possible
• You need to let the insurance company know that you are going to be filing a claim, so they are expecting your claim forms.

Question 16

Claim Forms

Answer 16

• It is the company’s responsibility to supply a claim form to an insured within 15 days after receiving notice of claim
• If the insurance company fails to send out the claim forms within the time period required by the provision, the insured should submit the claim in any form, which must be accepted by the company as adequate proof of loss
• You can submit your claim using a napkin and crayon as long as you provide all the necessary information.

Question 17

Proof of Loss

Answer 17

• The statement that an insured must give an insurance company to show that a loss actually occurred is a Proof of Loss
• After a loss occurs, or after the company becomes liable for periodic payments (e.g., disability income benefits), the claimant has 90 days in which to submit proof of loss.
• Insurance company can’t pay you if you don’t prove there is a loss.

Question 18

Time of Payment of Claims

Answer 18

• The time of payment of claims provision provides for immediate payment of the claim after the insurer receives notification and proof of loss.
• If the claim involves disability income payments, they must be paid at least monthly if not at more frequent intervals specified in the policy
• The purpose of the Time of Payment of Claims provision is to prevent the insurance company from delaying claim payments
• You did your part (Paid your bill and got injured/sick/ etc.) now the insurance company has to immediately do our part (Pay you) and it can’t be less often than monthly, or you wouldn’t be able to pay your bills.

Question 19

Payment of Claims

Answer 19

• The payment of claims provision in an insurance contract specifies how and to whom claim payments are to be made.
• Payments for loss of life are to be made to the designated beneficiary
• If no beneficiary has been named, death proceeds are to be paid to the deceased insured’s estate. Claims other than death benefits are to be paid to the insured.
• Should the insurance company pay you, or the doctor, or someone else?

Question 20

Physical Exam and Autopsy

Answer 20

• The physical exam and autopsy provision entitles a company, at its own expense, to make physical examinations of the insured at reasonable intervals during the period of a claim, unless it’s forbidden by state law.
• Forget everything you learned on “Law and Order,” only the state can forbid an autopsy. You gave up your (and your families) rights to refuse when you applied for insurance.

Question 21

Legal Actions

Answer 21

• The insured cannot take legal action against the company in a claim dispute until after 60 days from the time the insured submits proof of loss.
• The Legal Action provision provides the insurer adequate time to research a claim
• At least give the insurance company 2 months to take care of you before you take them to court.

Question 22

Beneficiary designation

Answer 22

• Where the policyowner indicates who is to receive the proceeds.

Question 23

Change of Beneficiary

Answer 23

• The insured, as policyowner, may change the beneficiary designation at any time unless a beneficiary has been named irrevocably.

Question 24

Settlement options

Answer 24

• Where the ways in which the proceeds can be paid out or settled are explained.

Question 25

Other insureds Provision

Answer 25

Also known as, Dependent riders may be added to a primary policy to cover a spouse or “another insured”, children or adopted children.

Question 26

Discretionary Provision

Answer 26

• Limits the way a court can review a claim denial and makes it difficult for the court to conduct a fair review of the claim. Some states have enacted laws that prohibit Discretionary provision because they are designed to protect the insurance company.

Question 27

Change of Occupation

Answer 27

• This provision also allows the insurer to reduce the maximum benefit payable under the policy if the insured switches to a more hazardous occupation or to reduce the premium rate charged if the insured changes to a less hazardous occupation

Question 28

Unpaid Premiums

Answer 28

• If there is an unpaid premium at the time a claim becomes payable, the amount of the premium is to be deducted from the sum payable to the insured or beneficiary.

Question 29

Cancellation

Answer 29

• Though prohibited in a number of states, the provision for cancellation gives the company the right to cancel the policy at any time with 45 days’ written notice to the insured
• This notice must also be given when the insurer refuses to renew a policy or change the premium rates
• If the cancellation is for nonpayment of premium, the insurer must give 10 days’ written notice to the insured, unless the premiums are due monthly or more frequently
• The cancellation provision also allows the insured to cancel the policy any time after the policy’s original term has expired by notifying the insurer in writing

Question 30

Conformity with State Statutes

Answer 30

• Any policy provision that is in conflict with state statutes in the state where the insured lives at the time the policy is issued is automatically amended to conform with the minimum statutory requirements.

Question 31

Illegal Occupation

Answer 31

• The illegal occupation provision specifies that the insurer is not liable for losses attributed to the insured’s being connected with a felony or participation in any illegal occupation.

Question 32

Intoxicants and Narcotics

Answer 32

• The insurer is not liable for any loss attributed to the insured while intoxicated or under the influence of narcotics.
• Losses due to injuries sustained while committing a felony, or attempting to do so, also may be excluded

Question 33

The Policy Face

Answer 33

• The Policy face contains a summary of the type of policy and the coverage provided by the policy. It Identifies the insured, the term of the policy (the effective date and termination date), and how the policy can be renewed.

Question 34

Guaranteed Insurability Option Rider

Answer 34

• Allows a policyowner to purchase additional life insurance coverage at specified dates without providing evidence of insurability.

Question 35

Payor Provision (Rider)

Answer 35

• Provides waiver of premiums if the adult premium-payor should die or, with some policies, become totally disabled.

Question 36

Accidental Death Benefit Rider (Double Indemnity)

Answer 36

• Provides an additional amount of insurance usually equal to the face amount of the base policy if the cause of death was an accident

Question 37

Exclusions:

Answer 37

A feature of a life insurance policy stating that the policy will not cover certain risks.

Question 38

Exclusions and restrictions

Answer 38

situations or conditions which are not covered or covered with substantial limits.

• The common ones are injuries due to war or an act of war, self-inflicted injuries, and those incurred while the insured is serving as a pilot or crew member of an aircraft
• Other exclusions are losses resulting from suicide, hernia (as an accidental injury), riots, or the use of drugs or narcotics
• Losses due to injuries sustained while committing a felony, or attempting to do so, also may be excluded
• Foreign travel may not be excluded in every instance, but extended stays overseas or foreign residence may cause a loss of benefits
• Occupational injuries and illnesses are covered by Workers’ Compensation and typically excluded
• The exclusions section is NOT included in the policy face (first page of an insurance policy)
• Suicide Clause: The policy will be voided and no death benefit will be paid if the insured commits suicide within 1 year from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.
• Aviation: The insurer will not pay the claim if the insured dies due to involvement with aviation, such as a military pilot flying a jet aircraft.
• War or Military Service: The insurer will not pay the claim if the insured dies while in active military service or due to an act of war.
• Hazardous Occupation or Hobby: If the insured dies as a result of a hazardous occupation or hobby, the insurer will not pay the claim.

Question 39

Waivers for Impairments

Answer 39

• When an insurance company does not cover a loss due to a specific condition the insured has. This is usually called an impairment rider.
• If the insured’s condition improves, the company may be willing to remove the waiver.

Question 40

Nonforfeiture Options

Answer 40

You are closing your account (surrendering your policy), what do you want us to do with your cash (so you don’t forfeit it)?

When a policyowner decides he does not want his life insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining he must use one of the following nonforfeiture options:

Question 41

Cash Surrender:

Answer 41

allows the policyowner to receive the policy’s cash value. Policyowner no longer has coverage at this point. Normally, the maximum length of time a life insurance company may legally defer paying the cash value of a surrendered policy is 6 months (Delayed Payment provision).

Question 42

Extended Term Option:

Answer 42

permits the policyowner to use the policy’s cash value to buy level, extended term insurance for a specified period. No premium payments are made. The coverage provided with the extended term nonforfeiture option is equal to the net death benefit of the lapsed policy.

Question 43

Reduced Paid-Up Option:

Answer 43

the policyowner pays no more premiums but the face amount is decreased.

Question 44

Dividend Options

Answer 44

Participating policies pay dividends to policyowners if the company’s operations result in a divisible surplus. Recall that dividends are a return of overcharged premiums, and are therefore not taxable. Insurers typically pay dividends on an annual basis. The following dividend options are available to policyowners for settling dividend payments.

Question 45

Cash Option:

Answer 45

Take the cash - It’s your money, you can take it and run.

Question 46

Reduced Premiums Option:

Answer 46

Reduces premium payments - “Just keep them and next year don’t charge me so much.”

Question 47

Accumulate Interest Option:

Answer 47

Allows dividends to accumulate interest. Interest is the only thing you can be charged tax on.

Question 48

Paid-Up Additions Option:

Answer 48

Purchase single payment whole life coverage

Question 49

One-Year Term Option:

Answer 49

Purchase one-year term protection

Question 50

Waiver of Premium Rider:

Answer 50

Allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent and have sustained through the waiting period (90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void. Waiver: Covers the PRIMARY INSURED. Does NOT provide income. Is NOT a loan. The insurance company is “waiving” the premiums” it’s just as if the insured made the premiums every month.

Question 51

Payor Rider (or Payor Clause):

Answer 51

If the individual paying the premiums on a juvenile life policy becomes disabled or dies, the Payor Rider ensures that premiums will be waived.

Question 52

Accelerated Benefit Rider:

Answer 52

Allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs. Accelerated Benefit: Your doctor said you are going to die, so you aren’t going to stop paying your insurance (since you know you’ll need it soon). Insurance company now knows you are going to die soon which means they are going to have to pay out the benefit. To make things a little easier and less stressful, they will give YOU some of the proceeds NOW and deduct from what would go to your beneficiary at your death.

Question 53

Accidental Death Benefit Rider (multiple indemnity):

Answer 53

Pays an additional sum to the beneficiary if the insured dies due to an accident. The amount paid is a multiple of the policy face amount such as double or triple the original benefit. Truly the cheapest way to add a lot of coverage for a period of time.

Question 54

Accidental Death and Dismemberment:

Answer 54

May be added to a life insurance policy. Pays benefits for dismemberment and accidental death. Pays a principal sum for loss of both hands, both arms, both legs, or loss of vision in both eyes. AD&D: FACE VALUE= amount for accidental loss or loss of 2 hands, feet, eye sight, etc. 1/2 face value for loss of 1 foot, hand eye, etc. One foot and one hand = 100% face value.

Question 55

Guaranteed Insurability Rider (future increase option):

Answer 55

Permits the policyowner to buy additional permanent life insurance coverage at specific points of time in the future without submitting proof of insurability. It also includes specific events like marriage and births, without requiring the proof of insurability. Usually the benefit is allowed every 3 years, up to the original face amount of the policy.

Question 56

Cost of Living Rider:

Answer 56

Allows the policy face amount to be adjusted to account for inflation based on the consumer price index.

Question 57

Return of Premium Rider:

Answer 57

pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a certain time period specified in the policy. It also returns premiums to the living insured at the end of a specified period of time, as long as the premiums have been paid.

Question 58

Automatic Premium Loan Rider:

Answer 58

Allows the insurance company to deduct overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM in the event they don’t receive payment from you. This can continue for as long as they don’t receive a payment and you still have cash value. Once all of your cash value is gone, if you don’t start paying, your policy will lapse. This is just like any other cash value loan.