Riders & Supplementary Benefits (Chapter 5) Flashcards
1
Q
REVIEW
Simplify Yearly Renewable Term (YRT)
A
The Cost of Insurance (COI) expressed as a dollar amount per $1,000 of risk.
(Ex. Pratik’s policy has a COI of $18.57.
The insurance company would make a mortality deduction of $6,908 from his
account, calculated as ($18.57 × $372,000 ÷ $1,000).
2
Q
REVIEW
What are the premium options for Whole Life? (3)
A
- Ongoing premiums
- Single premium
- Limited payment
3
Q
REVIEW
Explain “Extended Term Insurance”
A
- Non-forfeiture option that allows the policyholder to stop paying premiums entirely while keeping the same level of coverage in place in the form of a term insurance policy instead of a permanent policy.
- The duration of the term depends on the CSV of the whole life policy.
4
Q
REVIEW
What are the FOUR non-forfeiture Benefits in a Whole Life Policy?
A
(Easiest way to remember is “CARE”)
- C - Cash Surrender Value
- A - Automatic Premium Loan
- R - Reduced Paid-up Insurance
- E - Extended Term insurance
5
Q
TRUE OR FALSE?
Riders can be used to expand upon the death benefit offered by the base policy.
A
TRUE
6
Q
TRUE OR FALSE?
Riders provide additional benefits upon death and supplementary benefits provide benefits before the death of the life insured.
A
TRUE
7
Q
TRUE OR FALSE?
Most riders and supplementary benefits can only apply to permanent insurance policies.
A
Most riders and supplementary benefits can apply to both term insurance and permanent insurance policies.
8
Q
Name the 4 Riders that provide additional benefits upon death
A
- Paid-up additions (PUA) rider
- Term insurance riders
- Accidental death (AD) rider
- Guaranteed insurability benefit (GIB) rider
9
Q
What is a Paid-Up Addition rider? (PUAs)
A
Allows the policyholder of a whole life or UL policy to pay additional lump-sum premiums to buy small amounts of paid-up permanent life insurance during the lifetime of the base policy.
10
Q
TRUE OR FALSE?
PUAs increase the death benefit and the cash surrender value (CSV) of the policy.
A
TRUE
11
Q
The insurance contract usually places limits on the the PUA rider, name some.
A
The Limits are;
- The minimum PUA that can be purchased at any one time.
- The maximum PUAs that can be purchased in any one year.
- The cumulative maximum PUAs that can be purchased over the life of the policy.
- When the policyholder can purchase PUAs (Ex. on policy anniversary.)
- The maximum age of the life insured at the time of purchase.
12
Q
Explain the Term Insurance rider.
A
Provides additional coverage for death. The additional coverage could be over and above the base policy for a limited period of time.
13
Q
TRUE OR FALSE?
The amount of coverage on the term insurance rider is the same coverage provided by the base policy.
A
FALSE
The amount of coverage on the term insurance rider is independent of the coverage provided by the base policy, and can in fact be for a greater amount.
14
Q
TRUE OR FALSE?
A term insurance rider can have a term that exceeds the term of the underlying policy.
A
FALSE
A term insurance rider cannot have a term that exceeds the term of the underlying policy. Once the base policy expires, so does the rider.
15
Q
TRUE OR FALSE?
It is quite common for term insurance riders to be added to term insurance policies.
A
TRUE
16
Q
Why do agents usually recommend riders to be added on a base policy rather than purchasing two separate policies?
A
- Convenience and cost.
- By using a rider, the policyholder only has to manage a single policy, and pay one premium rather than having two separate policies.
17
Q
What is a family coverage rider?
A
- Rider for policyholders who have a spouse and children.
- They’re sold in units that cover all eligible family members. (Ex. a unit might provide coverage of $5,000 for the spouse and $1,000 for each child.)
18
Q
TRUE OR FALSE?
The number of children covered under the family coverage rider does not affect the premium.
A
TRUE
19
Q
TRUE OR FALSE?
When the family coverage rider is in place, every child in the family, including adopted children, is automatically covered once they reach 15 days of age without any increase in the premium.
A
TRUE
20
Q
TRUE OR FALSE?
Coverage in the family coverage rider continues to a specific age, such as
21 or 25.
A
TRUE
21
Q
Explain Child Coverage Rider
A
- Rider for the policyholder wants to obtain coverage for his children but he does not have a spouse (or does
not want to obtain coverage for his spouse). - Similar to Family coverage rider.
22
Q
TRUE OR FALSE?
A child who is covered under a child or family coverage rider doesn’t have the option of converting that coverage to individual permanent life insurance.
A
FALSE
- A child who is covered under a child or family coverage rider usually has the option of converting that coverage to individual permanent life insurance.
- The option is usually available at any time while the rider is in effect, up until coverage under the rider expires.
23
Q
Simplify Accidental Death (AD) Rider
A
Provides extra benefit over and
above the regular death benefit, if the life insured dies as a result of an accident.
24
Q
TRUE OR FALSE?
Depending on the insurance company, AD rider coverage may be offered as a return of premium.
A
FALSE
- Depending on the insurance company, AD rider coverage may be offered in units.
- It may also be a multiple of the death benefit (common multiple is 2x the death benefit)
25
AD rider is sometimes referred to
as...
Double Indemnity
26
*FILL IN THE BLANK*
To qualify for the AD benefit, the death must occur ___________.
a) within a fixed time
b) after the grace period
c) at the workplace
d) outside of work
- An accidental death is one that occurs as a result of an *unexpected violent or traumatic event.*
- To qualify for the AD benefit, the death must occur within a **fixed time after that event** (Ex. one year)
27
The AD rider typically excludes deaths resulting...
The AD rider typically excludes deaths resulting suicide, self-inflicted injuries, war, or the commission of a crime.
28
**TRUE OR FALSE?**
The AD rider covers deaths resulting from accidents **and** sudden illnesses.
FALSE
The AD rider covers deaths resulting from **accidents**; deaths resulting from sudden illnesses are **not** covered.
29
AD benefits are often packaged along with?
AD benefits are often packaged along with *accidental dismemberment benefits*
30
**Simplify** Guaranteed insurability benefit (GIB) rider
Gives the policyholder the option to buy **additional** life insurance coverage in the future **without** providing proof of insurability
31
How is a GIB Benefit or useful?
- A GIB rider is very useful for those who currently do not have a large insurance need, or who cannot currently afford a larger amount of insurance, but expect they will want to increase their coverage in the future.
- By adding a GIB rider to a term or permanent policy now, they are
guaranteed the right to increase their coverage even if their health declines.
32
Are there any **restrictions** to a GIB? if so what are they?
YES
GIB riders normally include a number of restrictions, such as:
- The **option to increase the coverage may only be permitted at certain times**, *(such as within one month of each policy anniversary.)*
- The **amount of each increase may be limited to a specific dollar amount** or percentage of the original face amount
- The **total increase may be limited to a specific dollar amount or percentage** of the original face amount
- The **number of times the option can be exercised may be limited** such as five times over the duration of the contract
- The **option to increase coverage may only be available until a certain age**, such as 50.
33
**Simplify** Supplementary Benefits
Riders that provide benefits before the death of the life insured.
34
There are **4 supplementary benefits**, what are they ?
- Accelerated death benefits;
- Accidental dismemberment benefit;
- Waiver of premium for total disability benefit;
- Parent/payor waiver benefit.
35
**Define** Accelerated death benefit
A benefit that pay out a portion of the death benefit prior to death of the life insured.
36
There are **two types** of Accelerated death benefits, name them
- Terminal illness (TI) benefit
- Dread disease (DD) benefit (a.k.a. critical illness or CI benefit
37
What's the difference between Terminal Illness benefit & Dead disease benefit ?
- A terminal illness (TI) benefit allows the policyholder to **apply for an advance** on the death benefit if the life insured has been diagnosed with a terminal illness that is expected to result in death.
- The dread disease (DD) benefit allows the policyholder to receive a benefit if the life insured is diagnosed with one of the conditions **specified by the contract**.
38
*TRUE OR FALSE*
The TI benefit is usually **restricted** to the cumulative premiums.
- The TI benefit is usually **restricted to a maximum amount.**
- The maximum amount may be expressed as percentage of the original face amount, ranging from 25% to 75%, and/or a dollar limit (Ex. 50% of the face
amount to a maximum of $50,000).
39
*TRUE OR FALSE?*
The TI benefit is payable to the policyholder, regardless of who is named as the beneficiary.
TRUE
40
*TRUE OR FALSE?*
TI benefits are **taxable** to the policyholder when received.
FALSE
Because it is an advance of the death benefit, and death benefits are generally not taxable, TI benefits received by the policyholder are **tax-free**.
41
*TRUE OR FALSE?*
The TI benefit doesn't **affect** the death benefit paid upon the death of the life insured.
FALSE
The TI benefit **reduces** the death benefit paid upon the death of the life insured
42
**Explain** the common term *"The Big 4"* in the Dread Disease benefit
- Heart attack
- Stroke
- Coronary bypass surgery
- Life-threatening cancer
43
*FILL IN THE BLANK*
The DD benefit is usually paid out as a lump sum, once the life insured has survived ______ after the diagnosis.
a) 90 days
b) 2 weeks
c) 30 days
d) 7 business days
The DD benefit is usually paid out as a lump sum, once the life insured has survived for a specified period of time after the diagnosis, such as 30 days.
44
*TRUE OR FALSE*
DD Benefit is **taxable** to the policyholder
FALSE
Because it is an acceleration of the death
benefit, it is **not** taxable.
45
*Simplify* Accidental Dismemberment
A lump sum benefit amount that will be paid if the life insured loses a specific body part or body function as a result of an accident.
46
*TRUE OR FALSE?*
The accidental dismemberment benefit will only be paid out if the loss occurs as a result of an unexpected violent or traumatic event, within a fixed time (Ex. one year) of that event.
TRUE
47
Name the benefit **exclusions** in Accidental Dismemberment
- Self-inflicted injuries
- War
- Commission of a crime
48
**Explain** The waiver of premiums for total disability benefit
The insurance company will waive the premiums on the life insurance policy, *(including premiums for any riders or supplementary benefits)*, if the life insured becomes totally disabled.
49
*TRUE OR FALSE?*
While premiums are being waived, dividends will continue to be paid (if it is a participating policy), cash values may continue to grow, and all riders and supplementary benefits remain in force.
TRUE
50
*FILL IN THE BLANK*
Premiums will only be waived once the life insured has been disabled for the waiting period _____________.
a) after 30 days
b) until recovered
c) recommended by the doctor
d) specified in the policy
Premiums will only be waived once the life insured has been disabled for the waiting period **specified in the policy.**
51
*TRUE OR FALSE?*
With the waiver of premium benefit applied, if the base policy is a renewable term, then the premiums will continue to be waived after renewal.
TRUE
52
*TRUE OR FALSE?*
With the waiver of premium for total disability applied, If the base policy is a convertible term insurance policy, at the end of the term the policy will be converted to a whole life policy.
TRUE
If the base policy is a convertible term insurance policy, at the end of the term the policy will be converted to a whole life policy and premiums will continue to be waived for life, or as long as the life insured is disabled.
53
What's the *difference* between the **waiver of premiums for total disability**, and the **parent / payor waiver benefit?**
- The PARENT WAIVER benefit is if the life insured is the policyholder’s child.
- PAYOR WAIVER benefit is if the life insured is someone **other than** the policyholder’s child.
- Premiums for parent payor / payor benefit may be waived upon the **policyholder’s death**, as well as upon his total disability.
- In addition, because the **policyholder** is **not** the same person as the life insured, the policyholder will have to provide proof of insurability for **himself** as well as for the **life insured**.
- Waiver of premium for total disability benefit waives the premiums if the life insured **becomes totally disabled.**
- The **insurance company** will **waive the premiums** on the *waiver of premiums for total disability benefit,* **including** premiums for any riders or supplementary benefits, **if** the life insured becomes totally disabled.
| [Ref.5.2.4]
54
Explain some **key points** within a parent / payor waiver benefit
- Depending on the policy, premiums may be waived upon the **policyholder’s death as well as upon his total disability**.
- Because the policyholder is not the same person as the life insured, the policyholder will have to provide proof of insurability for himself as well as for the life insured.
- If the life insured is a child, some policies will state that premiums will be waived until that child reaches a specified age (Ex.18, 21 or 25).
55
*TRUE OR FALSE?*
Term insurance rider or critical illness benefit are available as a *stand alone* product.
TRUE
- Usually the coverage via rider
or supplementary benefit will be cheaper than the stand-alone product because only one policy fee will be charged.
56
The policyholder should be aware of what conditions would trigger payments under a rider or supplementary benefit and if it is coverage he can count on.
What are **some** limitations under the rider and supplementary benefits?
- Under the accidental death (AD) rider, what is considered to be an accidental death, and what time limits are involved?
- Under a family coverage rider, when is a child eligible for coverage, and when does that coverage cease?
- Under a guaranteed insurability benefit (GIB), by how much can the coverage increase and when are those increases allowed?
- What is the maximum amount that can be added under a paid-up additions (PUA) rider?
- Which health conditions are covered under a critical illness (CI) benefit?
57
The policyholder should be aware of conditions under which payments would **not** be made under a rider or supplementary benefit.
What are the **exclusions** under the rider and supplementary benefits?
- Self-inflicted injuries
- Commission of a crime
- War
- These same exclusions often **apply** to the **disability income (DI) benefit, the waiver of premium for total disability benefit, and the payor/parent waiver benefit**.
58
Name **some** *ADVANTAGES* for riders and supplementary benefits.
- Can be used to customize coverage to meet policyholder’s unique needs
- Some benefits may be cheaper when acquired via rider or supplementary benefit than when acquired as a stand-alone policy
- Conversion to individual stand-alone coverage without proof of insurability may be possible for term insurance riders
- May give the policyholder access to higher coverage later, without providing proof of insurability (for GIB and PUA riders), while allowing him to pay for a lower amount of coverage now
59
What are **some** *DISADVANTAGES* for riders and supplementary benefits?
- Additional premiums are usually required
- There may be limitations and exclusions on coverage
- Coverage expires when the base policy
expires
- Depending on the benefit, separate
underwriting on the life insured and the
policyholder may be required
60
# Chapter 5
**Explain** Riders & Supplementary Benefits
Riders and supplementary benefits are the “extras” that can be added to customize a policy to better address a policyholder’s unique needs.
