Required, Standard, or Common Policy Provisions Flashcards
What does the Title Page include and what is the Insuring Clause?
The Title page or Specifications page of the policy identifies the insurance company and the policyowner.
The Schedule of Benefits page (typically the first full page of the policy) contains the insuring clause (the company’s promise to pay the policy’s face amount.
A typical insuring clause reads as follows:
The Company will pay to the beneficiary, upon receipt of due proof of the death of the insured, the insurance in force at his or her death, subject to the provisions of this policy.
List 6 characteristics of the “Entire Contract” clause.
- The entire contract provision states that the insurance policy + completed (signed) application make up the entire contract.
- other agreements or promises not contained in the contract is invalid
- confirms that all statements the policyowner makes in the application are representations, not warranties.
- states that the producer cannot change the policy in any way
- executive officer of the insurance company must sign all changes.
- changes must be attached to the policy, at which point they become part of the contract.
List 7 Ownership Rights
A life insurance policy is property, and policyowners have certain rights regarding the policy.
may non-human entities (such as a trust or a business) as well as a natural person.
It establishes the rights of the policyowner and the conditions under which those rights can be exercised.
Policyowner rights in life insurance contracts include the right to:
- transfer ownership of the policy to another entity (without regard for insurable interest);
- assign (pledge) the cash values as loan collateral;
- select and change modes of premium payment;
- select and change beneficiaries (as long as the existing designation is not irrevocable);
- terminate the policy and elect settlement and nonforfeiture options;
- receive cash values and/or dividends; and
- borrow against cash value.
List 2 characteristics and 2 types of an Assignment
The method used to pledge or transfer ownership is known as an assignment.
- A policy may be assigned only if the beneficiary designation is revocable.
- Assignees also assume full responsibility for the policy, including premium payments.
The two types of assignments are:
- absolute assignment (permanently transfers all rights)
- collateral assignment (temporary assignment that uses the policy as collateral for a loan)
Consideration
What are the 3 elements of a legal contract?
What consideration is given by the policy owner and the insurance company?
As a legal contract, a life insurance policy requires three elements:
- offer
- acceptance
- consideration
- The applicant makes an offer when signing an application.
- The insurer accepts the offer when issuing a policy.
The consideration the policyowner gives is the signed application and the first premium.
The insurance company’s consideration is its promise to pay
The typical consideration provision in a life insurance policy reads as follows:
“This policy has been issued in consideration of the application and of the payment of premiums as provided herein.”
Contract Modifications
What is a contract of adhesion?
List 6 types of contract modifications.
As contracts of adhesion, insurance policies must be accepted “as is” by the applicant.
Contract modifications include
- beneficiary changes, if beneficiaries have not been named irrevocably;
- additional coverage;
- changes to the face amount (if the policy provides for this);
- changes to how the policy’s death benefit is paid out; and
- changes in the mode of premium payment (from monthly to quarterly or annually, for example).
- All changes to contract must be made in writing, and an insurance company officer must endorse the change document before it becomes effective.
As a general rule, producers do not have the right to endorse a contract modification.
Explain the Right to Examine (Free Look)
All insurance policies include a free-look provision, which gives new policyowners a period of time (usually 10 days) in which to review the policy and to decide whether to keep it.
Period begins when the policy is delivered to the owner.
Variable life insurance policies typically have a free-look period that is the later of
- 10 days from policy delivery or
- 45 days from application completion.
Most states require a 30-day free-look period for seniors (age 65 and older).
List 4 aspects of the Payment of Premiums Provision.
The manner in which policyowners may pay their policy premiums is outlined in the payment of premiums provision. This provision defines
- available modes of payment (the payment schedule),
- grace period,
- APL automatic premium loan to cover lapses, and
- whether the premium is level or flexible.
2 rules about the Grace Period, Policy Lapse, Renewal, and Nonrenewal
A modal premium is due on its due date.
- The grace period for paying a life insurance premium is generally 31 days. This means the policyowner has 31 days following the premium due date to pay the premium.
- Even if a life insurance policy lapses, the owner will not lose the nonforfeiture values in the policy, such as its cash value, paid-up insurance value, and extended term insurance value.
What is the typical Policy Reinstatement period?
When is reinstatement NOT possible?
What 3 things are needed to reinstate a lapsed policy?
a reinstatement provision that lets the policyowner place a lapsed policy back in force if done within a specified period of time.
This period is typically 3 years but may be longer depending on the case and the laws of the state that control the policy.
Reinstatement is not possible if the policy has been surrendered and the cash value has been paid out to the policyowner.
To reinstate a lapsed policy, the policyowner must provide
- a written request or application for reinstatement;
- proof of insurability; and
- payment of all back premiums plus interest.
The original issue age is retained in the reinstated policy. Future premiums are based on that age.
After how many years does the insurance policy become Incontestable?
The policy becomes incontestable after it has been in effect for two years.
Answers made by the applicant on the application are considered representations and not warranties.
What are the consequences of a Misstatement of Age or Sex?
Misstating the age or sex of the insured on a life insurance application is not considered a material misrepresentation.
It is not grounds for voiding the policy, even if the misstatement is discovered during the contestable period.
If such a misstatement occurs, the insurer has the right to adjust the policy’s benefits.
Payment of Claims + Policy Settlement Option
Payment of a claim requires what 4 things?
The policyowner has the right to choose which payout or settlement option to use.
However, he or she can defer that decision to the beneficiary when the proceeds are due.
Payment of a claim requires
- proof policy in force at the time of death;
- proof of death;
- no evidence that the insured died based on an activity excluded in the policy; and
- a living beneficiary (or designated beneficiary).
Claim payment provisions usually state that any death benefit proceeds left with the insurer, either while the claim is being settled or as part of a settlement option, will earn interest.
Define 4 aspects of Backdating
Backdating is the agreement to make a policy effective earlier than the application date.
- If the insurer backdates the policy to a date before the insured’s last birthday, the premium charged would be less.
- Most states allow a policy to be backdated only up to six months.
- The policyowner must agree to pay all premiums owed to the backdated date of issue.
- He or she also agrees to make this date the contract’s official anniversary date.
Some states prohibit backdating under any circumstances.
What is the right to Conversion?
the right to convert or exchange it for a whole life or permanent policy without having to prove insurability.
