Life Insurance Provisions Options Riders Flashcards
What is the Entire Contract?
The insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract. We can’t send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE CONTRACT.
Example: The entire contract provision can be found at the beginning of every insurance policy.
What is the Insuring Clause?
The insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage “We ensure to INSURE you for…”
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What is the Free Look?
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.
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What is the Consideration Clause?
A policyowner must pay a premium in exchange for the insurer’s promise to pay benefits. A policyowner’s consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. “Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, and how much, how often I agree to pay. Please consider me.”
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What is the Grace Period?
A period after the due date of a premium during which the policy remains in force without penalty. 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 minus any required premiums. For life insurance the grace period is typically one month. For health insurance, remember Aunt Grace’s Birthday 7(makes payments more than once a month)-10(makes premium payments once a month) -31 (makes Premium payments less than monthly (quarterly, semiannually, etc.).
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What is a Reinstatement?
Putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. 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. To reinstate any policy, you need: A reinstatement application, statement of good health, all back premiums.
No additional information provided.
What are Policy Loan (cash withdrawal) Provisions?
Provisions apply to 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.
What is the Automatic Premium Loan provision?
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.
What are Other insureds also known as?
Dependent riders may be added to a primary policy to cover a spouse or ‘another insured’, children or adopted children.
What is the ‘Incontestability Period’?
Provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured’s lifetime, usually one or two years after issue. After that period, the policy is considered incontestable.
What is Absolute Assignment?
A policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.
What is Collateral Assignment?
An assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured’s death.
What is the Accelerated Benefit Rider?
The Accelerated Benefit Rider 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 Example: 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.
What are exclusions in an insurance policy?
Exclusions are features of an insurance policy stating that the policy will not cover certain risks. There are 6 common exclusions in insurance.
- Suicide Clause: The policy will be voided and no benefit will be paid if the insured commits suicide within 2 years 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 or is injured 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 or is injured while in active military service or due to an act of war.
- Commitment of a Felony\illegal occupation: If the insured dies or is injured while committing a crime or participating in an illegal occupation, the insurer will not pay the claim.
- Alcohol\Narcotics: If the insured dies or is injured as a result of alcohol or narcotics, the insurer will not pay the claim.
- Hazardous Occupation or Hobby: If the insured dies or is injured as a result of a hazardous occupation or hobby, the insurer will not pay the claim.
What is the Misstatement of Age or Sex Provision?
The Misstatement of Age or Sex Provision 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. 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.
