Policy Provisions, Riders, Options Flashcards
a persons essential activities that include bathing, dressing, eating, transferring, toileting, continence
Activities of daily living (ADL)
transfer of rights of policy ownership
assignment
something of value that each party gives to the other
consideration
reimbursement in the event of a loss
Indemnity
payment of entire benefit in one sum
lump sum
organization composed of insurance commissioners from all states and jurisdictions formed to resolve insurance regulatory issues
NAIC
The face value of the policy : original amount invested before the earnings
Principal
What constitutes an Entire Contract?
Policy, application, and any riders or amendments
Sets forth the basic agreement between the insurer and the insured
insuring clause
Allows the policy owner 10 days from the receipt to look over the policy and if disatisfied for any reason, return for a full refund
free look
When does the free look period begin?
when the policy owner receives the policy / policy delivery
transferring all rights of ownership to another person
absolute assignment
involves a transfer of partial rights to another person
collateral assignment
has first claim to the policy proceeds following the death of the insured
primary beneficiary
has second claim in the event that the primary beneficiary dies before the insured
contingent beneficiary
policy owner can make beneficiary changes without the consent or knowledge of beneficiary
revocable
policy owner cannot make beneficiary changes without the written consent of the beneficiary
irrevocable
assumes the primary beneficiary dies first in a disaster
Uniform Simultaneous Death Law under Common Disaster Clause
manner or frequency that the policy owner pays the policy premium
premium mode
If the insured dies during a time which the premium has been paid, the insurer must ….
refund any unearned premium
period of time after the premium due date that the policy owner has to pay the premium before the policy lapses
grace period (30-31) days
provision that allows a lapsed policy to be put back in force
reinstatement
Maximum time limit for reinstatement
3 years
A policy cannot be reinstated if it was …
surrendered
prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years
incontestability
states that the policy owner is entitled to borrow an amount equal to the available cash value
policy loan
policy loan option is found only in what policies?
Policies that contain cash value
The insurers must provide the policyowner with how much notice before the lapse of a policy?
30 days written notice
How long can an insurer defer requests for other loans?
up to 6 months
types of risks that the policy will not cover
exclusions
excludes all causes of death while insured is on active duty in the military
status clause
only excludes the death benefit if the insured is killed as a result of an act of war
results clause
within how many years inside a policy will the insurance agency only give back premiums and not pay death benefit for suicide ?
2 years
written modifications attached to a policy that provide benefits not found in the original policy
policy riders
rider waves the premium for the policy if the insured becomes totally disabled
waiver of premium
Most insurers impose a —– waiting period from the time of diability until the first premium is waived. If still disabled, they will then be …
6 month, refunded
rider pays all monthly deductions while the insured is disabled, after a 6 month waiting period
waiver of monthly deductions
Waiver of monthly deductions rider is usually found in what policies ?
universal life and variable universal life
rider is primarily used with juvenile policies - if the payor gets disabled, they will waive the premiums until the minor turns 21
payor benefit
provides coverage for one or more family members other than the insured
other insured rider
allows the spouse to be added to coverage for a specific amount of time
spouse term rider
allows children of the insured to be added to coverage for a limited amount of time
childrens term rider
incorporates the spouse term rider along with the childrens term rider in one benefit
family term rider
insuring someone who is not part of the insureds family (like with employees)
nonfamily insureds
pays some multiple of the face amount if death is the result of an accident as defined by the policy
accidental death rider
face amount
principle
pays the principal for accidental death
accidental death and dismemberment rider
percentage of amount
capital sum
rider allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events without proof of insurability for an additional premium
guaranteed insurability
rider is implemented by using increasing term insurance . when added to a whole life policy, it provides that death at a certain age will grant benefits to beneficiary and the return of all premiums to them
return of premium
allow for an additional amount of temporary insurance to be provided to the the insured without a need for another policy
term rider
Allow the early payment of a portion of the death benefits if the insured has certain conditions
accelerated death benefits
provides for the payment of part of the policy death benefit if the insured is diagnosed with a terminal illness that will result in death within two years
living needs rider
provide for the payment of part of the death benefit (called accelerated benefits) in order to take care of the insureds health care expenses
long term care rider
certain guarantees built into the policy that cannot be forfeited by the policy owner
non forfeiture options
fee charges to the insured when a life policy or annuity is surrendered for its cash value
surrender charge
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
reduced paid up insurance
insurer uses policy cash value to convert to term insurance for the same face amount as the former permanent policy
extended term
paid only on participating policies
dividends
higher premium charged as a safety margin will result in what being returned
dividend
4 ways the dividends can be returned
cash, reduction of premium, accumulation of interest, paid up additions
using this option with dividends , the policy owner is able to pay up the policy early
paid up option
methods used to pay the death benefits to the beneficiary after the insureds death
settlement options
upon the death of the insured, or at the point of endowment , the contract is designed to pay the proceeds in cash called what?
lump sum
also known as straight life, provides the recipient with an income that he or she cannot outlive
life income options
What are life income options based on?
the recipients life expectancy and the amount of principle
recipient is provided with the “best of both worlds” in terms of a lifetime income and a guaranteed installment period
life income with period certain option
guarantees an income for two or more recipients for as long as they live
life income joint and survivor
insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals
interest only option
a specified period of year is selected, and equal installments are paid to the recipient
fixed period installment options (period certain)
pays a fixed, specified amount in installments until the proceeds are exhausted
fixed amount installments option
the ownership provision does not entitle the policy owner to
set premium rates
an insured has chosen joint and 2/3 survivor as the settlement option . What does this mean for the beneficiary?
the surviving beneficiary will continue to receive 2/3 fo the benefit paid when both beneficiaries were alive
Which is true about the cash surrender non forfeiture option?
Funds exceeding the premium paid are taxable as ordinary income
the insured had his wife named as the beneficiary of his life insurance policy. To ensure that his wife had income for life after the insureds death, he chose th income settlement option . the amount of payments will not be determined by …
the insureds age of death
the policy owner wants to make sure that upon his death, the life policy will pay a portion of the proceeds annually to his spouse, but that the principle will be paid to their children when they reach a certain age. Which settlement option should the policy owner choose?
interest only option
the paid up option uses the dividend
to purchase a smaller amount of the same type of insurance as the original policy
what type of insurance would be used for a return of premium rider ?
increasing term
which of the following is not typically excluded from life policies
death due to plane crash for a fare paying passenger
which of the following is true about the premium on the childrens rider in a life insurance policy
it remains the same no matter how many children are added to the policy
all of the following are nonforfeiture options except
interest only
when attached to a permanent life insurance policy, allows the policy owner to customize the policy to provide an additional amount of temporary insurance on the insured, or allows amounts of temporary insurance to cover other family members
term rider
the paid up option uses the dividend to
purchase a smaller amount of the same type of insurance as the original policy
4 rules for contributions to traditional IRA plans
tax deductable based on income, must be in cash to be deductable, excess is taxed 6%, tax deferred earnings are not taxed
from an IRA is subject to income taxation in the year the withdrawal is made
distribution
tax free distribution of cash from one retirement plan to another
rollover
how many days do you have to perform a rollover and what % must be held if it doesnt go straight to the trustee?
60 days and 20%
rollover is made directly from first plan to the trustee or administrator of the new IRA plan
direct rollover
refers to a tax free transfer of funds from one retirement program to a traditional IRA or a transfer of interest in a traditional IRA from one trustee directly to another
transfer or direct transfer
make it possible for self employeed persons to be covered under an IRS qualified retirement plan
HR-10 or Keogh plans
type of qualified plan suited for the small employer or for the self-employed
simplified employee pension plan
available to small businesses that employ no more than 100 employees who receive at least $5000 in compensation from the employer during the previous year
SIMPLE
qualified plans where a portion of the companys profit is contributed to the plan and shared with employees
profit sharing plans
Qualified retirement plan that allows employees to take a reduction in their current salaries by deferring amounts into a retirement plan
401K
Qualified plan available to employees o certain nonprofit organizations under the Section 501(C)(3) of the Internal Revenue Code, and to the employees of public school systems
403(b) plan or tax sheltered annuity
provides the necessary funds for the survivors of the insured to be able to maintain their lifestyle in the event of the insureds death
survivor protection
when life insurance is used to accumulate specific amounts of monies for specific needs with guarantees that the money will be available when needed
cash accumulation
policies cash values can be borrowed against at any time and used or immediate needs
liquidity
The purchase of life insurance creates what?
immediate estate
the most common use of life insurance by businesses
employee benefit
the person who knows everything about the business is the insured
key person insurance
legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled
buy-sell agreement or business continuation agreement
Four types of buy sell agreements
cross purchase, entity purchase, stock purchase, stock redemption
arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee
Executive bonus
If the money is take in a lump sum it is _____ and if taken in installments it is _____
tax free and taxed
3 ways policy loans can be paid back
by the owner, at the surrender of policy and taken out of cash amount, at the death of insured and taken out of benefit
when the beneficiary receives payments consisting of both principal and interest, the interest portion of the payments received is taxable as income
settlement options
Any life insurance policy that fails a 7 pay test is classified as
Modified Endowment contract
the cummulative premiums paid during the first 7 years of the policy exceed the total amount of net level premiums that would be required to pay the policy up using guaranteed mortality costs and interest
modified endowment contract
fully insured refers to someone who has earned ___ quarters of coverage (how many years)
40 and 10
What is not true about tax-qualified annuities?
Employer contributions are not tax deductible
Partners in a business enter into a buy-sell agreement to purchase life insurance, which states that should one of them die prematurely, the other would be financially able to buy the interest of the deceased partner. What type of insurance policy may be used to fund this agreement?
any form of life insurance
What is not a use of business life insurance
funding against general company financial loss
What is true regarding taxation of accelerated benefits under a life insurance policy
they are tax free to terminally ill insured
executive bonus policies are owned by who?
the employee
What is the same in qualified and nonqualified plans
taxation on accumulation
premiums paid by the employer in a business life insurance policy are
tax deductible by the employer
exercised when an immediate annuity is purchased with the face amount at death or with the cash value at surrender
settlement option
traditional IRA contributions are
tax deductable
An individual has been diagnosed with Alzheimers disease. He is injured under a life insurance policy with the accelerated benefits rider. Which of the following is true regarding taxation of the accelerated benefits?
A portion of the benefit up to a limit is tax free… the rest is taxable income
In a direct rollover, how is the money transferred from one plan to another one
from trustee to trustee
