Policy provisions, options, and riders Flashcards
Provisions
stipulate the rights and obligations of an insurance contract
Riders
modify provisions that already exist and are used to increase or decrease policy benefits and premiums.
Options
offer insurers and insureds ways to invest or distribute a sum of money available in a life policy.
Activities of daily living (ADLs)
a person’s essential activities that include bathing, dressing, eating, transferring, toileting, continence
Assignment
transfer of rights of policy ownership
Contingent beneficiary
a beneficiary who has second claim to the policy proceeds after the death of the insured
NAIC
National Association of Insurance Commissioners | an organization composed of Insurance commissioners from all 50 states, the district of columbia and the 5 US territories, formed to resolve insurance regulatory issues.
Primary beneficiary
a beneficiary who has the first claim to the policy proceeds after the death of the insured
Principal amount
the face value of the policy; the original amount invested before the earnings
Trust
an arrangement in which funds or property are held by a person or corporation for the benefits of another person (trust beneficiary)
Ownership
Provision - only the policyowner has the ownership rights under the policy, and not the insured or the beneficiary.
Assignment
Provision - specifies the policyowner’s right to assign (transfer rights of ownership) the policy. The policyowner must advise the insurer in writing of the assignment.
Absolute Assignment
is the complete and permanent transfer of ownership rights
The new policyowner does not need to have an insurable interest in the insured.
Collateral Assignment
is the partial and temporary transfer of rights.
It is usually done in order to secure a loan or some other transaction.
Entire Contract
Provision-
Entire contract = policy + copy of application + any riders or amendments
Right to Examine (Free Look)
Provision
allows the policyowner a specified number of days from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium.
In New York, the minimum free-look period is 10 days. If the policy was sold by mail order, however, it must contain a 30-day free-look provision.
Payment of Premiums
Provision
stipulates when the premiums are due, how often they are to be paid (monthly, quarterly, semiannually, or annually) and to whom.
Grace Period
Provision
protect policyholders from losing insurance coverage if they are late on a premium payment. (usually 30 or 31 days, or one month).
Reinstatement
Provision
allows a lapsed policy to be put back in force.
maximum time limit for reinstatement is 3 years after its been lapsed.
if policy owner reistates, he/she will have to provide evidence of insurability.
Incontestability
Provision
prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years
Misstatement of Age
Provision
Misstatement of age on the application will result in adjustment of premiums or benefits.
Statements of the Applicant
Provision
all statements made by the applicant/insured are considered representations and not warranties, except in the case of fraud.
Proof of Death
Provision
copy of a death certificate and a form provided by the insurer to be completed by the claimant.
If no beneficiary then proceeds are paid to the estate of the insured.
Exclusions
Provision
types of risks the policy will not cover
Aviation | Hazardous Occupations or Hobbies | War or Military Service | Suicide
Individual Beneficiary
The owner of a life insurance policy may name any individual as a beneficiary for the policy proceeds.
The owner may name more than one individual
Class Beneficiary
Two class designations:
Per capita - evenly distributes benefits among the living named beneficiaries
Per stirpes - distributes the benefits of a beneficiary who died before the insured to that beneficiary’s heirs.
Estates beneficiary
If NO beneficiary is named, policy proceeds go to the insured’s estate.
Trusts beneficiary
commonly established for minors, or to create a scholarship fund.
can be used for estate planning purposes
Succession beneficiary
primary beneficiary has first claim to the policy proceeds following the death of the insured.
The contingent beneficiary has second claim in the event that the primary beneficiary dies before the insured.
revocable designation
beneficiary
The policyowner, without the consent or knowledge of the beneficiary, may change the beneficiary at any time
irrevocable designation
the beneficiary may not be changed without the written consent of the beneficiary.
Common Disaster Clause
stipulates that if the insured and the primary beneficiary died in the same accident and there is no sufficient evidence to show who died first, the policy proceeds are to be distributed as if the primary beneficiary died first
Common disaster clause protects the contingent beneficiary.
Cash Loans
Whenever a policy has cash value, it has loan value
Loan value = Cash value – (unpaid loans + interest)
Automatic Premium Loans
prevents the unintentional lapse of a policy due to nonpayment of the premium.
Withdrawals or Partial Surrenders
Universal life policies allow the partial withdrawal of the policy cash value.
Waiver of Premium
Rider
waives the premium for the policy if the insured becomes totally disabled.
Coverage remains in force until the insured is able to return to work.
If the insured cant return to work, the premiums will continue to be waived by the insurance company.
Waiver of Cost of Insurance
Rider
found in Universal Life Insurance
In the event of disability, waives the cost of the insurance and other expenses
but NOT the cost of premiums necessary to accumulate cash values.
Disability Income
Rider
in the event of disability the insurer will waive the policy premiums and pay a monthly income to the insured
Payor Benefit
Rider
primarily used with juvenile policies
it functions like the waiver of premium rider
If the payor (usually a parent or guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reaches a certain age, such as 21.
also used when the owner and the insured are two different individuals.
Accelerated benefit
early payment of portion of death benefit
Early payment if insured is diagnosed with a specified catastrophic illness
Death benefit is reduced by the amount paid plus earnings lost by the insurer
Spouse/other insured
term rider (limited time, limited coverage);
usually expires when spouse turns age 65
children’s term
rider
covers all children of the insured (limited time, limited coverage);
can be converted to a permanent policy
Family term
spouse and children covered under one rider
Family Term = Spouse Term + Children’s Term
accidental death
rider
pays double or triple indemnity if accidental death occurs as defined in the policy;
death must occur within 90 days of accident
Guaranteed insurability
rider
allows for purchase of additional insurance at specified times without evidence of insurability, at the insured’s attained age
cost of living
rider
increases the face amount by a cost of living factor died to inflation
Return of premium
Rider
increasing term is added to a whole life policy that provides that if death occurs prior to a given age, not only is the death benefit payable to the beneficiary, but all premiums paid as well
Term rider
allow for an additional amount of temporary insurance to be provided on the insured, without the need to issue another policy.
Disability Riders ( name them)
Waiver of Premium
waiver of cost of insurance
diability income
payor benefit
Riders Covering Additional Insureds
*Spouse
*Children
*Family
Riders Affecting Death Benefit
*Accidental Death
*Guaranteed Insurability
*Cost of Living
*Return of Premium
*Accelerated (Living) Benefit
Reduced Paid-up Insurance
Nonforfeiture option
the policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a reduced face amount from that of the former policy
Extended Term
is the automatic nonforfeiture option:
same face amount, shorter term of coverage.
Cash Surrender Value(Net Cash Value)
The policyowner simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable.
Dividends
are a return of excess premiums;
not taxable when paid to the policyowner.
Cash Payment(dividend)
Dividend
The insurer simply sends the policyowner a check for the amount of the dividend as it is declared, usually annually.
Reduction of Premium
Dividend
The insurer uses the dividend to reduce the next year’s premium.
Accumulation at Interest
Dividend
The insurance company keeps the dividend in an account where it accumulates interest.
The policyowner is allowed to withdraw the dividends at any time
Paid-up Additions
The dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy.
If the policyowner did not chose the dividend option, the insurer will
automatically use paid-up additions
Paid-up Insurance
Dividend
the insurer first accumulates the dividends at interest , then uses the accumulated dividends, interest, and policy cash value to pay the policy up early.
One-year Term
Dividend
The insurance company uses the dividend to purchase additional insurance in the form of one-year term insurance that increases the overall policy death benefit.
Settlement options
the methods used to pay the death benefits to a beneficiary upon the insured’s death
to pay the endowment benefit if the insured lives to the endowment date
Settlement options are triggered by the insured’s death or age 100.
Cash Payment(settlement)
lump-sum payment; usually not taxable
Interest only(settlement)
insurer retains the principal and only pays out interest
Fixed period(settlement)
payments for a specified time period until all the proceeds are paid out
Fixed amount(settlement)
*payments in specified amounts until all the proceeds are paid out
Life income(settlement)
provides an income the beneficiary cannot outlive;
no guarantee that the principal will be paid out(if the beneficiary dies too soon);
available as single life or as joint and survivor
Single Life(settlement)
can provide a single beneficiary income for the rest of his/her life.
Upon the death of the beneficiary, the payments stop.
Joint and Survivor(settlement)
guarantees an income for two or more recipients for as long as they live.
Life Refund
comes in either a cash refund form or an installment refund form.
Both options guarantee that the total annuity fund will be paid out
Life with Period Certain
the recipient is provided with the “best of both worlds” in terms of a lifetime income and a guaranteed
installment period.
Spendthrift Clause
protects beneficiaries from the claims of their creditors, as well as prevents the beneficiary’s reckless spending of benefits
