LIFE Policy Riders, Provisions, Options and Exclusions 13% Flashcards
1
Q
Who adopted the standard policy provisions and what do they create?
A
The National Association of Insurance Commissioners (NAIC)
it creates uniformity among life insurance policies
2
Q
What provision stipulates that the policy and a copy of the application, along with any riders or amendments, constitute the entire contract
A
Entire Contract
3
Q
Can statements made before writing of contract be use to alter the contract?
A
NO
4
Q
When can a change in policy provisions happen?
A
When both parties agree to it (insurer/insured) and the change is affixed to contract
5
Q
What provision sets forth the basic agreement between the insurer and the insured?
A
Insuring Clause (insuring agreement)
6
Q
What is stated in the Insuring Clause provision?
A
states the insurers promise to pay the death benefit upon the insured’s death
7
Q
Where is the policy is the insuring clause located?
A
The policies face page
8
Q
What does the insuring clause define?
A
the premium to be paid, how long coverage is in force, and the amount of the death benefit
9
Q
Which provision allows the policy owner a specified number of days from the receipt to look over the policy, and if dissatisfied for any reason, return it for a full refund of premium?
A
Free Look
10
Q
When does the Free Look provision start?
A
When the policy owner RECEIVES the policy, NOT when insurer issues the policy
11
Q
What is consideration?
A
something of value that each party gives to the other (binding force in any contract) for contract to be valid
12
Q
Which provision states that the consideration (value) offered by the insured is the premium and statements made in the application, and the insurers consideration is the promise to pay within terms of contract?
A
The Consideration provision
13
Q
Who are the parties to an insurance contract?
A
Insurer, policy owner, insured (if different than owner), and the beneficiary
14
Q
Can policyowner be different than the insured?
A
Yes
15
Q
Who has ownership rights under a policy?
A
Policy owner
not insured or beneficiary
16
Q
What are the ownership rights under a policy?
A
1) Naming and changing the beneficiary if not irrevocable
2) receiving the policy’s living benefits
2) selecting a benefit payment option
3) Assigning the policy
17
Q
Who has the responsibility of paying the policy premiums?
A
Policy owner
18
Q
Who must have insurable interest in the insured at the time of application for insurance?
A
Policy owner
19
Q
What is the insurance arrangement referred to as when the owner and the insured are not the same person?
A
Third-party ownership
20
Q
What provision specifies the policy owner’s right to assign the policy (or transfer rights of ownership)
A
Assignment provision
21
Q
Who has the right to transfer partial or complete ownership of the policy without consent of the insurer?
A
The policy owner
22
Q
If assignment is being written, what must the policy owner do?
A
give notice to the insurer
23
Q
What changes and doesn’t change in a transfer of a policy
A
Does not change the insured or amount of coverage
Does change who has ownership rights
24
Q
What are the two types of policy assignments?
A
Absolute Assignment and Collateral Assignment
25
What is an Absolute Assignment?
transfer of all rights of ownership to another person or entity
26
What is a collateral assignment?
Transfer of partial rights to another person
27
Which assignment is permanent and which is temporary?
Absolute- permanent
Collateral- temporary
28
In an absolute assignment, does the new policy owner need to have insurable interest in the insured?
No
29
Which assignment is usually done in order to secure a loan or some other transactions?
Collateral
30
In a collateral assignment, when is the policy rights given back to the policy owner
When debt or loan is repaid
31
What does the policy stipulate?
when the premiums are due, how often they are due, and to whom
32
What are the different modes of payment?
Monthly, Quarterly, Semi-annually, and Annually
33
What is a Premium Mode?
manner or frequency that the policyowner pays the policy premium
34
What happens if a mode other than annually, is chosen?
There will be additional costs to offset the loss of earnings since the company doesn't have the entire premium at once
35
What other costs are associated with a different mode of billing other than annual?
Administrative costs associated with more frequent billing
36
What happens when an insured dies during a period of time for which the premium has been paid?
The insurer must REFUND any unearned premium along with policy proceeds
37
What protects a policy owner for a period of time after the premium due date has to be paid before the policy lapses?
Grace Period
38
What is the purpose of the Grace Period?
to protect the policy holder against an unintentional lapse of the policy
39
What is usually the time the Grace Period is effective?
30 or 31 day, or one month after due date
40
What happens to the death benefit if the insured dies during the Grace Period?
Death benefit is still payable, but any unpaid premiums are deducted
41
What is a level premium policy?
the premium remains the same throughout the duration of the contract
42
What is a flexible premium policy?
allows the policy owner to increase or decrease the premium during the policy period
43
Which provision allows a lapsed policy to be put back in force?
Reinstatement
44
What is the maximum time limit for reinstatement of a policy?
Usually 3 years after policy has lapsed
45
What is required when a policy owner reinstates a policy?
1) provide proof of insurabillity
2) Pay all back premiums plus interest
3) may repay any outstanding loans and interest
46
What is the advantage of reinstating a lapsed policy as opposed to purchasing a new one?
Policy will be restored to its original status
and
It'll retain all values that were established and the insureds issue age
47
Can a surrendered policy be reinstated?
No
48
What prevents an insurer from denying a claim due to a statements in the application after the policy has been in force for 2 years?
Incontestability Clause
49
Can an insurer deny a claim even if there has been material misstatement of facts or concealment of a material fact after 2 years in a policy?
No, not in the Incontestability clause
50
When does the Incontestability clause not apply?
doe not apply in the event of nonpayment of premiums, nor statements regarding age, sex, or identity
51
What can be changed at any time in an insurance policy if misstated?
Age and Gender
52
Which information is important for knowing what premiums to charge?
Age and Gender
53
What happens in the event of a claim but a person has misstated their age or gender?
Insurer allowed to adjust the benefits to an amount that the premium at the correct age or gender would have purchased
54
What is a beneficiary?
person or interest to which the policy proceeds will be paid upon death of the insured
55
What are the different types of beneficiaries?
1) person
2) class of person (i.e children)
3) insured's estate
4) Institution or other entity such as a foundation, charity, corporation or trustee of trust
56
Does the beneficiary need to has insurable interest in the insured?
No
57
Does a beneficiary need to be named for a policy to be valid?
No
58
What are the 3 levels of priority or choice for beneficiary designation?
Primary, Contingent, Estate
59
When are the benefits available to each level of succession?
When the level before each succession dies before them (i.e. primary, then contingent, and so on)
60
Who has first claims to the death benefit?
Primary
61
Who has second claim to the death benefit if the primary dies before the insured?
Contingent (secondary or tertiary)
62
Who receives the death benefits if both the primary and contingent die before the insured?
Insured's estate
63
What will happen in the event no beneficiary is named and the insured dies?
Automatically passes to the Insureds estate and death benefit of the policy may be included in the insureds taxable estate
64
What are the two beneficiary designations?
Revocable and Irrevocable
65
Which beneficiary designation can be changed without the consent of the beneficiary?
Revocable
66
Which beneficiary designation CANNOT be changed without consent of beneficiary?
Irrevocable
67
What can't the insured change beneficiaries in an irrevocable beneficiary?
the beneficiary has vested interest in the policy
68
What can't the insured do in the irrevocable situation towards the policy without consent of beneficiary?
Borrow against policies cash value (would decrease policy's face value) or assign the policy to another person
69
Which law protects the contingent beneficiary and stipulates that if the insured and primary beneficiary die in the same accident without knowing who died first, the death benefit will be distributed as if the primary died first?
The Uniform Simultaneous Death Law
70
What happens in a Common Disaster Clause when added to a policy?
Provides that if the insured and primary died in a common disaster (even if primary outlived the insured by a specified number of days), then it is presumed that the primary died first, and benefits go to Contingent or insureds estate
71
What is the Time frame the primaries death must occur in order for the Common Disaster clause to apply and is interpreted as the primary died first?
14 to 30 days
72
When it the Policy Loan option available?
In policies that contain cash value (whole life)
73
What happens in the policy loan option?
The policyowner is entitled to borrow an amount equal to the available cash value
74
What happens in the event of a policy loan to the policy proceeds in event of insureds death?
Outstanding loans and accrued interest will be deducted from policy proceeds
75
With an outstanding policy loan, in what event will a policy lapse?
if the outstanding loan and accrued interest exceed available cash value
76
What time frame must an insurer provide written notice that policy will lapse in a policy loan situation?
30 days
77
How long can a company defer a policy loan?
up to 6 months except if reason for loan is to pay policy premiums
78
Are policy loans subject to income taxation?
Yes
79
What type of special loan prevents the unintentional lapse of a policy due to nonpayment of a premium?
Automatic Premium Loans
80
Is the automatic premium loan charged interest?
Yes
81
What happens if the loan and interest are not repaid by the time the insured dies?
The outstanding amounts will be subtracted from the death benefit
82
When are the loan requests for payments of due premiums honored?
Immediately
83
What are Exclusions?
types of risks that the policy will not cover
84
What are the most common exclusions found in life insurance policies?
Aviation, Hazardous Occupation, and War and Military Service
85
What happens with noncommercial pilots?
Excluded for coverage, or pay an additional premium for coverage
86
What type of aviation WILL a life insurance cover?
insured is a fare-paying passenger or a pilot on a regularly scheduled airline
87
What happens to hazardous occupation or hobby individuals in life insurance?
Either be excluded or can charge a higher premium to insure the risks
88
What are the 2 clauses that CAN be exclusions to reduce death benefit for war or military service individuals?
Status Clause and Results Clause
89
What is the Status Clause?
excludes all causes of death while the insured is on active duty or in the military
90
What is the Results Clause?
only excludes the death benefit if the insured is killed as a result of an act of war (declared or undeclared)
91
Which provision in life insurance protects the insurers from individuals who purchase life insurance with the intent to commit suicide?
Suicide provision
92
What happens if a person commits suicide before or after the period stipulated on the clause in the policy?
Before- no death benefit
After- death benefit available
93
What happens to the beneficiary if the insured commits suicide before the stipulated period on the clause?
Only receive a refund of premiums, no death benefit
94
What are riders?
written modifications attached to a policy that provide benefits not found in original policy
95
Do riders come at an extra cost?
Yes, additional premiums
96
What are the benefits of adding riders?
Help tailor a policy to the specific needs of the insured
97
How are riders classified?
According to their primary purpose
98
Which riders provide benefits in event of the insured's disability?
Disability riders
99
Which riders provide for partial payment of the death benefit prior to the insured's death?
Accelerated or Living Benefits riders
100
Which rider waives the premium for a policy if the insured becomes totally disabled?
Waiver of Premium
101
How long will coverage remain in force in the Waiver of Premiums?
Until insured is able to return to work
102
What happens if the insured isn't able to return to work in the Waiver of Premium rider?
coverage will continue to be waived
103
What is the waiting period imposed by the insurers from the time of disability until the first premium is waived? In a waiver of premium
6 months waiting period
104
What happens if the insured is still disabled after 6 months waiting period in the waiver of premiums?
the premiums will be refunded from the start of disability
105
When does the Waiver of Premium Rider expire?
When insured reaches age 65
106
In order for someone to qualify for Waiver of Premium, what is required?
for the insured to meet definition of total disability
107
What is the definition of Total Disability?
insured's inability to perform duties of his/her own occupation for the first 2 years, then any gainful employment for which the insured is reasonably suited by education, training and experience
108
Are benefits payable for partial disability?
No
109
Which rider pays all monthly deductions while the insured is disabled after a 6-month waiting period?
Waiver of Monthly deductions
110
What is the length of time the rider will pay be based on?
on Age insured becomes disabled
111
What expenses are included in the Monthly deductions that are covered?
1) actual cost of insurance charge
2) Expense charge
3) costs or charges for any benefits added to the policy by rider
4) endorsement or amendment
5) and those specified to be deducted from account value
112
Which rider waives the policy premium AND pays a monthly income to the insured in event of disability?
Disability Income
113
What is the amount paid based off in disability income?
based on Percentage of the face amount of the policy to which it is attached
114
Which rider is primarily used with Juvenile policies (any life insurance written on the life of a minor)?
Payor benefit
115
Which is the difference between a Waiver of Premiums and a Payor benefit rider?
the premiums will be waived (for 6 months if parent dies or becomes disabled) until the minor reaches a certain age, such as 21
116
When is the Payor benefit rider also used?
when owner and insured are two different people
117
Which rider provides coverage for one or more family members other than the insured and is level term insurance?
Other Insured rider (also known as family rider)
118
Where is the other insured rider attached?
base policy covering the insured
119
Which rider covers just the spouse and allows the spouse to be added to coverage for a limited period of time and for a specified amount?
Spouse term rider
120
When does the spouse term rider usually expire?
when spouse reaches age 65
121
Which rider allows children (whether natural, adopted, or stepchildren) to be added to coverage for a limited period of time for a specific period of time and specific amount?
Children's term rider
122
Children's term rider is also term and expires at what age?
either when children reach 18 or 21
123
If the child wants to convert to a permanent policy after reaching a certain age, do they need proof of insurability?
No
124
What happens with the premiums on the children term rider?
Only on premium is needed for many children and does not change with addition of children. Based on average number of children
125
What rider incorporates both spouse term and children term rider?
Family term rider
126
What happens to a family term rider when it is added to a whole life policy?
the term rider provides level term life insurance benefits covering the spouse and all children in family
127
What rider allows someone who is not a family member of the insured to be covered?
nonfamily insureds rider
128
What rider permits changes of insured but not the change of an insured?
Substitute insured or change on insured rider
129
What is the change of insured rider most commonly used with?
Key persons insurance in a business (when a key person or employee retires or terminates employee)
130
Which rider pays some multiple of a face amount if death is the result of an accident as defined in the policy?
Accidental death rider
131
According to the accidental death rider, what time frame from time of accident should a death occur for a beneficiary to receives the benefits stated?
within 90 days
132
What are the benefits normally in an accidental death rider?
Double indemnity of the face amount or triple indemnity of face amount
133
At what age does the accidental death rider expire?
age 65
134
What is excluded in the accidental death rider?
death from self-inflicted injuries, war, or hazardous hobbies, or avocations
135
Which rider pays the PRINCIPAL (face amount) for accidental death and pays a percentage of that amount or a capital sum, for accidental dismemberment?
The accidental death and dismemberment rider (AD&D)
136
How much in the AD&D rider will the accidental death portion pay?
same as accidental death rider (double or triple indemnity)
137
How much in the AD&D rider will the dismemberment portion pay?
will usually determine the amount of benefit according to the severity of injury
138
In an AD&D rider, what loss would need to occur for the full principal to be paid for dismemberment?
loss of two hands, two arms, two legs, or loss of vision in both eyes
139
What is the capital amount usually limited to?
limited to the half the face value
140
When would a capital amount in AD&D rider be paid?
loss of one hand, arm, left, or eye
141
What rider allows the insured to purchase additional coverage at specified future dates (usually 3 years) or events (i.e. marriage or birth) without evidence of insurability, at an additional premium?
Guaranteed Insurability Rider
142
When does the Guaranteed Insurability Rider usually expire?
at insured's age 40
143
What will the Guaranteed Insurability Rider price be based off when purchased?
At insured's attained age
144
Can the guaranteed insurability rider be modified or defeated by the existence of other riders?
No
145
Which rider, when added to a whole life policy, 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, are also payable to the beneficiary?
Return of Premium
146
How is the Return of premium rider implemented?
by using increasing term insurance
147
When does return of premium rider usually expire?
at a specified age such as 60
148
What rider, usually attached to a whole policy to provide greater protection at a reduced cost, allows for an additional amount of temporary insurance to be provided on the insured without need to issue another policy?
Term riders
149
In what instances can an Accelerated death benefit rider allow for early payment of a portion of the death benefit?
If insured has:
1) terminal illness
2) medical conditions requiring extraordinary medical intervention to survive
3) medical condition that without extensive treatment drastically limits insured lifetime
4) inability to perform activities of daily living (ADL)
5) permanent institutionalization or confinement to a long-term care facility
5) any other conditions approved by DOI
in short: qualifying medical expense
150
In an accelerated benefit, what is the maximum benefits that are possible to be received before insured dies?
percentage of face amount, usually 50% but legal for 100% to be received or a dollar limit, such as $100,000
151
What happens to the face amount when benefits are paid in the accelerated benefit rider?
face amount reduced by benefits paid to insured
152
What happens to the premiums in the accelerated benefits?
premiums may not be reduced, but may be waived
153
Which rider provides for 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
154
What is the purpose of the living needs rider?
to provide the insured with the necessary funds to take care of necessary medical and nursing home expenses that incur as a result of terminal illness
155
Which riders provide for payment of part of the death benefit (called accelerated benefits) in order to take care of the insureds health care expense, which are incurred in a nursing or convalescent home.
Long-term care rider
156
What happens to the death benefit payable to the beneficiary in a Long term care rider?
The amount paid to insured will be reduced from the death benefit
157
When portion of the face amount is withdrawn by insured for use as accelerated benefits rider, what happens to the death benefit payable?
death benefit equals face amount minus the amount withdrawn and earnings lost by insurer as interest
158
Who has the decision to make about how the cash value in a policy should be protected, how the return of excess premiums (dividends) should be invested, and how benefit payments will be made?
the policy owner
159
What are the different choices available for a policy owner to make in a policy?
Non forfeiture Options, Dividend options, and Settlement Options
160
What are non forfeiture options?
certain guarantees that are built into a policy that cannot be forfeited by the policyower since policies have cash value
161
What must be included in a life insurance policy?
A table showing the non forfeiture values for a minimum period of 20 years
162
What type of non forfeiture options are there?
Cash surrender Value
Reduced-paid up
extender term
163
How are non forfeiture options triggered?
by policy surrender or lapse
164
In what non forfeiture option does the policy owner surrender the policy for the current cash value at the time when coverage is no longer needed or affordable?
Cash surrender value
165
What happens when a person decides to choose the cash surrender value option?
1) insured is no longer covered
2) the policy cannot be reinstated
3) a surrender fee is charged
166
What happens to the cash value if it exceeds premiums paid?
The excess is taxable as ordinary income
167
What happens in a Reduced-paid up option?
cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that had a reduced face amount than that of former policy
168
What happens to the reduced policy bought in a reduced-paid up option?
The reduced policy will build its own cash value and be in force until death or maturity
169
What happens if the Extended term option is selected?
insurer used the policy cash value to convert to term insurance for the same face amount as former policy
170
What happens to coverage in the extended term option?
duration of coverage last as long as the cash value can purchase
(same face amount, shorter term of coverage)
171
Which non forfeiture option is automatically chosen if insured neglected to choose an option in event of termination of original policy?
Extended term
172
What are dividends?
Return of excess premiums and are not taxable when paid to policy owner
173
Are dividends guaranteed?
No
174
How are dividends created?
the policy-owner pays a grossed up premiums in case of insurers losses are higher than anticipated, and if not needed, returned
175
What are the different dividend options?
Cash, Application to reduce premiums, Accumulation at interest, Paid-up additions, Paid-up Options, One-year term option
176
When could dividends be paid and how often?
as early as 1st policy anniversary but no later than 3rd anniversary of policy
and occur annually after
177
Which dividend option has the insurer send the policyowner a check for the amount of the dividends and paid annually?
Cash
178
Which option allows the insurer to put the dividend into an account where it can accumulate interest?
Accumulation at Interest
179
What in the Accumulation at interest is taxable when credited to the policy?
the dividends aren't taxed
| but the interest is taxable whether or not the policy owner receives the interest
180
Which dividend option is used to reduce the next years premium?
Application to reduce premiums
181
Which dividend option allows the dividends to purchase a single premium policy in addition to the face amount of the permanent policy?
Paid-up additions
182
Is a new policy issued in the Paid-up additions option?
No
183
What happens to the death benefit in the original policy with the Paid-up additions option?
Will increase with each one purchased
184
What happens to the policy in the Paid-up additions option?
It will accumulate cash value and pay dividends
185
The amount of additional coverage to be purchased with dividends in a Paid-up additions option is based on what?
Insured's attained age at the time dividend declared
186
In which dividend option can the insurer use accumulated dividends plus interest and the policy cash value to pay the policy up early?
Paid-up option
187
What is an accumulated dividend?
Dividends that have been accumulated at interest
188
What dividend option uses the dividends to purchase additional insurance in the form of one-year term insurance that increases the overall policy death benefit?
One-year term option
189
What choices does a policy owner have to use dividends in a one-year term option?
Buying as many single premiums on a one-year term insurance as the dividends will buy
or purchase term insurance equal to the policy's cash value for as long as it will last
190
What are Settlement Options?
methods used to pay the death benefits to a beneficiary upon insureds death
or to pay the endowment benefit if the insured lives to the endowment date
191
What is the policy owner able to do with the settlement option?
may select a option at time of policy application and may also change that option at any time during the life of the insured
192
Once a settlement option is selected by the policy owner, when can the settlement option be changed by the beneficiary?
Cannot be changed by beneficiary unless insured dies and no option was chosen at time of insureds death
193
What are the different Settlement Options?
Cash (lump sum), Life Income, Interest Only, Fixed Period, Fixed Amount,
194
Which option pays the death benefit or endowment benefit in cash unless recipient chooses a different mode of settlement?
Cash (lump sum)
195
Are the cash in a Cash settlement option after the insureds death taxable as income?
No
196
Which option, has another name as well, provides the recipient with an income that he or she cannot outlive?
Life Income
also known as Straight Life
197
What happens with the installment payments in a (Straight) Life Income option?
1) are guaranteed, irrespective of date of death
2) based on recipients life expectancy and amount of principal
3) payments can exceed total principal
4) can be forfeited to the insurer if beneficiary dies shortly after receiving payments
198
How will the insurer TRY to guarantee that the beneficiary receives some or all of the proceeds paid out since they could possibly die shortly after receiving payments? In a (straight) life income option
insurers will make options available to ensure
199
With each guarantee, what happens to size of the installment? in a (straight) life income option
decreased
200
Which life income option provides the recepient with the best of both worlds in terms of a life income and a guaranteed installment period?
Life Income with period certain
201
What happens with the payments in the Life Income with period certain?
The payments are guaranteed for the lifetime of the recipient as well as a specified period that is guaranteed
202
What happens if the insured dies shortly after receiving payments in the life with period certain?
the rest of the payments will go to the beneficiary for the rest of the period specified
(i.e. 10 years of payment if that period chosen)
203
What happens to the installments in a life with period certain?
installments are smaller
204
Which life option guarantees an income for two or more recipients for as long as they live?
Life income joint and survivor
205
What happens in a life income joint and survivor if the first recipient dies?
the surviving recipient receives a reduced payment
206
What are the possibilities that can happen to the payments in the income joint and survivor if a period certain option is also chosen?
payments may not be guaranteed if all beneficiaries die shortly after receiving payments
but the income for all lives of beneficiaries is guaranteed
207
What happens in an Interest-only option?
insurance company retains the policy proceeds and pays interest on the proceeds to the recipient (beneficiary) at regular intervals
208
What does the insurer guarantee in the Interest only?
certain rate of interest and will often pay interest in excess of the guaranteed rate
209
What is the interest only option considered?
temporary, until beneficiary picks a settlement option in the future, till then payments on the interest are made
210
Which settlement option specifies the period of years that equal installments are to be paid to the recipient?
fixed period installment options (or period certain)
211
What happens to the payments in the fixed period option?
payments will continue for specified period even if recipient dies before end of that period and will continue on to the beneficiary
212
What does the fixed period option guarantee and not guarantee?
Not guarantee- income for life of beneficiary
guarantee- entire principal will be distributed
213
What are the size of the installments based on?
by the amount of principal, guaranteed interest, and length of period selected
longer period selected = smaller installments will be
214
Which settlement option pays a fixed, specified amount in installments until the proceeds (principals and interest) are exhausted?
Fixed- amount installments option
215
What happens to the installments if the recipient (beneficiary) dies?
goes to the contingent beneficiary until all proceeds have been paid out
216
What happens when the installments are larger in the fixed amount option?
shorter the income period will be
217
What is and isn't guaranteed in a fixed amount option?
Guarantees- all proceeds will be paid out
Not guarantees- payments for life of beneficiary
