Policy Provisions, Options And Other Features

Question 1

Insuring clause

Answer 1

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, and the amount of death benefit.

Question 2

Entire contract

Answer 2

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 3

Fee look

Answer 3

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 4

Owners rights

Answer 4

Naming and changing the beneficiary, receiving policy’s living benefits, selecting benefit payment options, and assigning the policy.

Question 5

Policy owner

Answer 5

Pay the premiums and must have an insurance interest in the insured at the time of the application.

Question 6

Third party ownership

Answer 6

When the owner and the insured are not the same person.

Question 7

Assignments

Answer 7

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

Question 8

Absolute assignment

Answer 8

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 9

Collateral assignment

Answer 9

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 10

Beneficiary designations

Answer 10

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 (e.g., foundation, charity, corporation, trustee of a trust).

Question 11

Estate

Answer 11

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 12

Class

Answer 12

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 state percentages.

Question 13

Per capita

Answer 13

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

Question 14

Per stirpes

Answer 14

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

Question 15

Primary beneficiary

Answer 15

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 16

Contingent beneficiary

Answer 16

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

Question 17

Revocable designation

Answer 17

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

Question 18

Irrevocable designation

Answer 18

May not be changed without the written consent of the beneficiary. Irrevocable beneficiaries have a vested interest in the policy. Policy owner may not exercise certain rights without the consent of the beneficiary.

Question 19

Common disaster

Answer 19

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 owner’s original intent.

Question 20

Expense

Answer 20

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

Question 21

Reinstatement

Answer 21

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 22

Incontestability

Answer 22

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

Question 23

Misstatement of age

Answer 23

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 24

Automatic premium loan

Answer 24

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.

Question 25

Exclusions

Answer 25

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.

Question 26

Suicide

Answer 26

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 27

Provisions

Answer 27

Explain the rights and characteristics of the contract.

Question 28

Riders

Answer 28

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

Question 29

Options

Answer 29

Are different ways the insured can invest or distribute an amount of money (e.g., dividends, income, or death benefit).

Question 30

Waiver of premium

Answer 30

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

Question 31

Total disability

Answer 31

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 32

Waiver of stipulated premium

Answer 32

Designed to waive a specific amount of premium and can be added to a universal life policy at an additional cost.

Question 33

Guaranteed insurability

Answer 33

Allows the insured to purchase additional coverage at specified future dates or events without evidence of insurability for an additional premium. Usually expires at age 40.

Question 34

Accidental death

Answer 34

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.

Question 35

Accidental death and dismemberment

Answer 35

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

Question 36

Term riders

Answer 36

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

Question 37

Other insured rider

Answer 37

Provides coverage for one or more family members (aka family rider, spouse term rider, children’s term rider, nonfamily insureds).

Question 38

Cost of living

Answer 38

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

Question 39

Waiver of cost

Answer 39

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 40

Disability income benefit rider

Answer 40

In the event of disability, the rider will waive policy premium and pay a monthly income.

Question 41

Payor benefit

Answer 41

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

Question 42

Nonforfeiture option

Answer 42

Certain guarantees are built into a policy that cannot be forfeited (e.g., cash surrender value, reduced paid up insurance, extended term).

Question 43

Dividends

Answer 43

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 44

Paid up additions

Answer 44

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

Question 45

Paid up option

Answer 45

Uses accumulated dividends and interest to pay up the policy early.

Question 46

One year term option

Answer 46

Dividends are used to purchase one year term insurance.

Question 47

Acceleration of Endowment

Answer 47

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

Question 48

Settlement options

Answer 48

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 49

Life income option

Answer 49

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

Question 50

Life income with period certain option

Answer 50

Payments guaranteed for a lifetime plus a number of years after death (e.g., 10 years, or 20 years).

Question 51

Interest only option

Answer 51

Insurer retains the proceeds and only pays the interest earned.