Options + Riders

Question 1

Name 2 types of Options

How are Riders different?

And what is the affect on the premium?

List 8 types of options/ rider.

[SAND LADD]

Answer 1

2 Types of Options

• settlement options
• dividend options

By comparison, a policy rider adds an additional benefit or an additional provision to a base policy. Hence, riders get their name because they sit on top of or “ride,” on a policy.

additional benefits = additional premiums

8 Types of Options/ Riders

1. nonforfeiture options
2. loan and withdrawal provisions
3. dividend options
4. settlement options
5. disability riders
6. additional insureds rider
7. accelerated living benefit provisions/riders
8. death benefit amount riders

Question 2

2 characteristics of a Cash Surrender?

How long can an insurer delay paying a surrendered policy?

Answer 2

When a policy is surrendered

• the insurer simply pays the cash value in a lump sum
• surrendered policies cannot be reinstated

At that point, the policy is canceled, and the insurer’s responsibility under the terms of the contract ends.

Most states allow insurers to delay paying the cash surrender value for up to six months. However, few companies elect to defer payment.

Question 3

When is an Extended Term Nonforfeiture Insurance Option exercised?

5 characteristics of Extended Term Nonforfeiture Insurance Option

Answer 3

Extended Term Option tells the insurer to apply the cash value of lapsed policy

• to buy a term insurance equal to face value of lapsed policy
• The term (no. of yrs) = whatever the cash value buys
• no further premium payments required (like the reduced paid-up option)
• not eligible to receive dividends even if the original policy was a participating policy
• Not available for substandard ratings

If insured fails to elect a nonforfeiture option, insurer automatically applies extended term (automatic option).

Question 4

Reduced Paid-Up Insurance Option

List 5 characteristics of RUP options?

Answer 4

Under the reduced paid-up insurance (RPU) option, the

1. paid-up death benefit is the amount the cash value buys as a single premium at the insured’s age
2. applied as a single premium and no further premiums are due
3. replacement is the same policy type as the lapsed policy
4. the RPU policy does retain a cash value which will continue to grow but at a sharply reduced rate when compared to the policy during the period that premiums were being paid.
5. can elect the RPU nonforfeiture option whether lapsed or not.

Question 5

Explain the relationship between Nonforfeiture Options and UL Insurance

Answer 5

UL policies don’t need a nonforfeiture option because the UL policy remains in force as long as their cash value is sufficient to cover fees such as the policy’s fees.