Policy Provisions, Options And Other Features

Question 0

Insuring clause

Answer 0

States insurers promise to pay the death benefit upon insured's death
Located on policy face page
Defines who the parties are
Premium to be paid
How long coverage is for
The amount of death benefit

Question 1

Entire contract

Answer 1

Policy and a copy of the application along with any riders or amendments constitute the entire contract. Neither insurer or the insured can change the terms without mutual agreement and the change being affixed to the contract.

Question 2

Fee look

Answer 2

Allows policy owner 10 days from receipt to look over the policy and if dissatisfied for any reason may return it for a full refund. Free look begins at policy delivery.

Question 3

Owners rights

Answer 3

Naming and changing the beneficiary
Receiving policy’s living benefits
Selecting benefit payment options
Assigning the policy

Question 4

Policy owner

Answer 4

Pay the premiums

Must have an insurance interest in the insured at the time of the application

Question 5

Third party ownership

Answer 5

When the owner and the insured are not the same person

Question 6

Assignments

Answer 6

Ownership of a policy can change without the consent of the insurer
The policy owner must advise the insurer in writing

Question 7

Absolute assignment

Answer 7

Transfers all rights of ownership to another person or entity
Permanent and total transfer of rights to policy
New policy owner does not need to have insurable interest in the insured

Question 8

Collateral assignment

Answer 8

Transfers partial rights to another person
Usually to secure a loan
Partial or temporary assignment of some of the policy rights
Once debt or loan is repaid policy rights return to the original policy owner

Question 9

Beneficiary designations

Answer 9

Person or entity that will receive funds upon death of insured
Could be a person, class of persons
Insured’s estate
Institution or other entity ie foundation, charity, corp, trustee of a trust

Question 10

Estate

Answer 10

Insured’s estate will receive the proceeds of the life insurance policy, if none of the beneficiaries are alive at the time of the insured’s death.

Question 11

Class

Answer 11

Class of beneficiary such as my children is vague. It is recommended to be more specific just in case there are multiple marriages, adopted children, illegitimate children, etc.
it is prudent to name each child and sate percentages.

Question 12

Per capita

Answer 12

By the head…evenly distributes benefits among the living named beneficiaries.

Question 13

Per stirpes

Answer 13

By the bloodline….distributes benefits of a beneficiary who died before the insured to that beneficiary’s heirs.

Question 14

Primary beneficiary

Answer 14

Has first claim to the proceeds following the death of the insured
Policy owner may designate more than one beneficiary as well as how the proceeds are divided.

Question 15

Contingent beneficiary

Answer 15

Has second rights to the benefits in the event that the primary beneficiary dies before the insured does.

Question 16

Revocable designation

Answer 16

Policy owner can change a revocable designation at any time without consent or knowledge.

Question 17

Irrevocable designation

Answer 17

May not be changed without the written consent of the beneficiary
Irrevocable beneficiaries have a vested note rest in the policy
Policy owner may not exercise certain right without the consent of the beneficiary.
Policy owner cannot borrow against the cash value or assign the policy to another person without written consent as well

Question 18

Common disaster

Answer 18

If the beneficiary and the insured die simultaneously or within 0-90 days of each other, the uniform simultaneous death law states that the beneficiary will be designated as deceased first to protect the owners original intent. As long as the beneficiary dies with in a specified timeframe after the insured.

Question 19

Expense

Answer 19

Mortality charge - interest = net premium
Net premium + expenses (loading) = gross premium

Mortality - interest + expense (loading) = gross premium

Question 20

Reinstatement

Answer 20

Allows policy owner an opportunity to put a policy back in force subject to providing continued insurability.
Policy must be restored to its original value by paying any back premiums, loans, interest etc.

Question 21

Incontestability

Answer 21

Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years.

Question 22

Misstatement of age

Answer 22

If an applicant misstated their age, in the event of a claim, the insurer has the right to adjust the benefit amount to an amount that the premium at the correct age would have otherwise purchased.

Question 23

Automatic premium loan

Answer 23

Prevents unintentional lapse of a policy due to nonpayment of premium.
A loan for the premium due is automatically generated at the end of the grace period.
Loan requests for payment of due premiums must be honored immediately.

Question 24

Exclusions

Answer 24

Aviation: fare paying passenger/pilot on a regularly scheduled airline.
Hazardous occupations or hobbies:skydiving auto racing
War military service:status clause excludes all active duty military
Results clause excludes death as a result of an act of war

Question 25

Suicide

Answer 25

If insured commits suicide within 2 years of policy effective date the insurer’s liability is limited to premiums paid

After two years the insurer’s liability will include the entire proceeds to the beneficiary.

Question 26

Provisions

Answer 26

Explain the rights and characteristics of the contract

Question 27

Riders

Answer 27

Are amendments that “ride on” the provisions that already exist, so they modify the provisions

Question 28

Options

Answer 28

Are different ways the insured can invest or distribute an amount of money ie dividends, income, or death benefit.

Question 29

Waiver of premium

Answer 29

Waves the premium for the policy if insured becomes totally disabled. 6- month waiting period

Question 30

Total disability

Answer 30

Generally defined as the inability to engage in any work. The insured’s inability to perform duties in his/her own occupation for the first 2 years then any gainful work thereafter.

Question 31

Waiver of stipulated premium

Answer 31

(Universal life) designed to waive a specific amount of premium and can be added to a universal life policy at an additional cost.

Question 32

Guaranteed insurability

Answer 32

Allows the insured to purchase additional coverage at specified future dates or events with out evidence of insurability for an additional premium. Usually expires at 40

Question 33

Accidental death

Answer 33

Pays a multiple of the face amount if the death is a result of an accident as defined in the policy. Death must occur within 90 days of incident. Double indemnity. Triple indemnity.

Question 34

Accidental death and dismemberment

Answer 34

pay the principal for accidental death and a percentage of that amount, capital sum, for accidental dismemberment.

Question 35

Term riders

Answer 35

Allow for an additional amount of temporary insurance to be provided on the insured.

Question 36

Other insured rider

Answer 36

Provides coverage for one or more family members aka family rider, spouse term rider, Children’s term rider, nonfamily insureds,

Question 37

Cost of living

Answer 37

Addresses the inflation factor by automatically increasing the amount of the insurance without evidence of insurability from the insured.

Question 38

Waiver of cost

Answer 38

Universal life policies can include the ability to waive the cost of insurance. During this time the policy will not accumulate any cash value.

Question 39

Disability income benefit rider

Answer 39

In event if disability the rider will waive policy premium and pay a monthly income

Question 40

Payor benefit

Answer 40

Applies to juveniles…if adult pays the premium becomes disabled or dies the insurance company will waive premiums until the child reaches a specific age, usually 21

Question 41

Nonforfeiture option

Answer 41

Certain guarantees are built into a policy that cannot be forfeited.
Cash surrender value
Reduced paid up insurance
Extended term

Question 42

Dividends

Answer 42

Are a return of excess premiums. Not taxable. Not guaranteed.
Can be received as cash, reduce next year’s premiums, or kept to accumulate interest.

Question 43

Paid up additions

Answer 43

dividends are used to purchase a single premium policy (not a new separate policy) increasing the death benefit

Question 44

Paid up option

Answer 44

Uses accumulated dividends and interest to pay up the policy early

Question 45

One year term option

Answer 45

dividends are used to purchase one year term insurance

Question 46

Acceleration of Endowment

Answer 46

Dividends are accumulated with interest and used to shorten the endowment period or convert a whole life policy into an endowment.

Question 47

Settlement options

Answer 47

Lump sum
Fixed period installments:equal installments over a specific period of time until the entire face amount is paid
Fixed amount installments:pays a fixed amount until all funds are exhausted

Question 48

Life income option

Answer 48

Receive payments for life not guaranteed the face amount will be paid out

Question 49

Life income with period certain option

Answer 49

Payments guaranteed for a lifetime plus a number of years after death ie 10 years, or 20 years

Question 50

Interest only option

Answer 50

Insurer retains the proceeds and only pays the interest earned