Objective 4 : Common Life Insurance Contractual Provisions and Riders

Question 1

Riders

Answer 1

additions to life insurance contracts that customize the policies to better meet the insureds’ needs.

Question 2

Common Life Insurance Contractual Provisions

Answer 2

(1) Assignment Clause Provision
absolute assignment
- transfers all ownership rights to another party

collateral assignment

• assigns the policy to another as collateral for a loan
• transfers only certain policy rights to a creditor.

(2) Dividend Options
- not guarantee
- voir annexe pour options

(3) Grace Period
- 31 days.
- If an insured dies during the grace period, death
benefits would still be paid. Generally, the death
benefit is reduced by the overdue premium amount
that is due the insurer.

(4) Incontestable Clause
- period, usually 2 years, after which the insurer
cannot deny a claim because of any
misrepresentation on the part of the policyowner

(5) Misstatement of Age or Sex
- there could be an adjustment in the face value of
the policy or in the amount of premiums owed.

(6) Nonforfeiture Options
(a) Cash surrender value
The policyowner would surrender the policy for
cash, and all of the insurer’s future obligations
under the policy would cease. Any outstanding
loan amounts would be deducted from the cash
surrender amount.
(b) Reduced paid-up insurance
The policyowner may elect to use the
accumulated cash value in the policy to purchase
paid-up insurance at a reduced face amount. The
type of coverage provided is the same as that
provided under the original contract that was
surrendered.
(c) Extended term insurance
The policyowner may choose to continue the full
death benefit of the original policy, but for a
shorter period, under a term policy.

(7) Policy Loan Provisions
-Policyowners can borrow an amount up to the cash
value of the policy, subject to interest.
-If a policy loan is not repaid at the time of the
insured’s death, outstanding loan amounts are
deducted from the death benefit amount.
- Because no repayment schedule is set for life
insurance policy loans, the policyowner has
flexibility in repaying the loan.

(8) Reinstatement Clause
- allows a policyowner to reinstate a life insurance
policy that has lapsed for nonpayment of premium
- require the policyowner to provide evidence of
insurability, pay all outstanding premiums with
interest
- Most insurers do not allow policies that have been
surrendered for cash value to be reinstated.

(9) Settlement Options

(10) suicide clause
Most policies will refund the policy premium to the
beneficiary if a suicide occurs within the first two
years of the policy.

Question 3

Common Life Insurance Riders

Answer 3

(1) Accelerated Death Benefits
- In the case of a catastrophic or terminal illness

(2) Accidental death benefits/double indemnity
- additional death benefit when death results from
accidental bodily injury, or accidental means
- amount = face value of policy

(3) Disability income rider
- provide a regular monthly income if the insured
becomes permanently disabled.

(4) Guaranteed insurability rider
- particularly those issued to younger insureds
- guarantee access to coverage if a policyholder
becomes uninsurable
- must be buy before a certain age
- limited to whole life insurance

(5) Waiver of premium rider
- insurer agrees to waive the payment of any
premium falling due while the insured is disabled