Unit 6: Policy Provisions Flashcards
one of the provisions contained in every policy states what?
that the insurance policy itself and the application, when attached to the policy, make up the entire contract between the parties. No company rules, no oral understandings, or the like have any bearing on the contract unless they are included in the policy or the attached application.
On occasion, it’s necessary to amend a life insurance policy after it has been issued. This occurs when ….?
when a customer wants to make changes to a policy
changes or additions to the policy are called what?
riders, endorsements, or simply amendments.
Who can make chanegs to a policy?
only authorized company officers. never an agent
Many states today require that life insurance companies provide an examination period. Commonly ten days. If they decide to return it during this time. What happens?
must receive a full refund of all premiums paid. If the insured dies during this 10-day period, the beneficiary receives the policy proceeds, unless the policy has been returned for refund. 10 DAYS EXTEND TO 30 WHEN POLICY REPLACEMENT IS INVOLVED
What are the 8 policy owner rights
- The policy owner can name the beneficiary (person or person to receive the policy benefits)
- the initial right to select how the policy proceeds are to be paid out
- The policy owner also has the right to assign the policy.
- the policy owner may use his or her policy to obtain a loan or cash.
- the policy owner is entitled to the policy’s cash . surrender value.
- the policy owner has the right to establish the policy’s premium payment schedule.
Once the policyowner and the company have established the payment (annually, semiannually, quarterly, or monthly.) - the policyowner has the right to decide how to use any dividends paid by the company.
- Convert the policy: With convertible term life insurance, the policyowner can change coverage to permanent protection. That is, he can CONVERT THE POLICY.
What does it mean for owners rights that the policy owner also has the rights to assign the policy?
example, the policyowner could borrow funds from a bank and assign the policy to the bank as collateral security for the loan. When the loan is fully repaid, the policy would be reassigned back to the policyowner.
What is the most primary beneficiary?
The word primary means first or most important. Therefore, if Jane is named the primary beneficiary, she is the first person in line to receive the proceeds of the life insurance
Can you name more than one orimary beneficiary? If so, how is it possible
So if Jane and her brother Bob are both named primary beneficiaries, they will both receive their shares of the proceeds before any others.
Because there’s no guarantee that a beneficiary will outlive the insured, it may be wise to name a contingent beneficiary as well. Why is that and what is it?
Whether the contingent beneficiary receives anything depends upon—or is contingent upon-some-thing happening to the primary beneficiary that keeps her from receiving the proceeds. Thus, a contingent beneficiary will receive the proceeds of the policy only if the primary beneficiary dies before the insured.
Beneficiary designations that are selected by the policy owner may later be changed if the policyowner wishes to do so.
Beneficiary designations that are selected by the policy owner may later be changed if the policyowner wishes to do so.
When an irrevocable beneficiary is named, the policy owner gives up what?
the usual ownership rights to the policy and cannot exercise them without the consent of the beneficiary
Can minors be beneficiaries?
a minor would not be competent legally to receive payment of and provide receipt for the policy proceeds should the insured die before the minor comes of age.
What is the work around for giving minors the death benefits from life policies?
To avoid this, insurance companies may hold the proceeds, paying interest on them until the beneficiary reaches legal age. Or the company may insist that a trustee or guardian be appointed for the minor, someone who is legally entitled to receive and manage the policy
can you point beneficiaries by group?
yes
What are the two types of designations?
Per capita and per stirpes
What is per capita design?
per capita is derived from the latin language and means per head
Under a per capita beneficiary designation, if one of the named beneficiaries is already dead when the policy matures, what happens?
the remaining beneficiary or beneficiaries divide the share of the one who passed, in addition to receiving their own original share
Under a per stirpes designation, what would happen to the proceeds?
The proceeds belonging to the deceased brother would no go to the other beneficiaries.
How does the situation work if one of the 3 brothers dies in a per stirpes designation?
In this case, the deceased brother is the root-
-that is, if he has heirs of his own. To those heirs-usually his children—he is their root, and the proceeds of the father’s policy pass through the root to his children.
ex. So, if we have three brothers named primary beneficiaries per stipes of a $150,000 policy, but one of them has died, followed by the death of the fa-ther, each surviving brother would receive $50,000 with the deceased brother’s $50,000 share passing on to his heirs.
What does per stirpes designation mean?
through the root
Can trusts be beneficiaries?
yes. If a person wants to, he can name his estate as the beneficiary of his policy. The same is true of a company or a trust. All of these may be named as a beneficiary, as can the surviving stockholders of a closely held corporation.
What is the common disaster provision?
This provision simply writes into a policy that the primary beneficiary must outlive the insured a specified length of time in cases of simultaneous (or nearly simul-taneous) death, or the proceeds are paid to the contingent beneficiary.
How many days does the policy owner get to request in the common disaster provision?
The policyowner requests this provision in the policy. It states that the primary beneficiary must outlive the insured a specified period of time, usually 10, 15, or 30 days, in order to receive the proceeds.
never more than 30 days
What is a spendthrift?
someone who spends a lot of money
How can an insured protect the money of a life policy from a spendthrift? how does the clause work?
with a spendthrift clause. the clause
1. will cause the proceeds to be paid in some way other than. a lump sum
2. The proceeds or payments to be made to the beneficiary are protected from the beneficiary’s creditors while they are still held by the insurance company.
What does the spendthrift clause also protect?
- transferring the proceeds assigning payments to a creditor;
- commuting the proceeds taking the present value of future payments in a lump sum; or
- encumbering the proceeds-borrowing money on the strength of the proceeds of the
What is the incontestable clause?
The incontestable clause states that after the policy (term as well as per-manent) has been in force a certain length of time, the company can no longer contest it, or void it, except for nonpayment of premiums. The length of time varies, but it’s usually one or two years
If the company discovers some reason to void the policy during the contestable period
—the first year or two the policy is in, what can they do?
take action. Once the policy has been in force for the specified period, even if fraud is discovered, the company cannot void the
What does the misstatement of age clause in an insurance policy provide?
when a discrepancy in age exists, if the insured is alive the company must adjust the amount of future premiums and request payment of the additional premium the policyowner should have paid. If the insured has died, the company must compute the amount of insurance that the actual premium paid would have purchased at the insured’s correct age and pay the beneficiary that amount.
what is the suicide clause designed to do?
The suicide clause is designed to prevent people who are contemplating suicide from obtaining life insurance.
What is the suicide clause?
the clause states that if the insured commits suicide within a specified period of time, the policy will be voided. The length of time varies, but it’s usually the same as the incontestable clause time limit: one or two years.
What happens to the money if an insured does commit suicide within one yeear or two years of the policy creation?
If suicide occurs within the time limit, however, the company usually refunds any amount the policyowner has paid for the coverage.
What happens if the insured commits suicide after the one or two year period
Once the period of time specified in the policy has elapsed, the company will pay the claim even if the insured commits
When refunding premiums in the case of suicide occurring within the specified time limit of the suicide does the company usually pay interest the premium has earned?
no
does it matter of an insured is sane or insane at the time he commits suicide with the suicide clause?
no
With the reinstatement clause, what 3 conditions must be met?
- The policyowner must pay all back premiums due plus interest on this amount.
- The insured must show proof of insurability.
- Less than three years must have lapsed
as a general rule, a life insurance company will allow a change to a policy that calls for a higher premium than the original, usually without wht?
medical examination?
when the policyowner is requesting a change to a policy that calls for a lower premium payment, or one that increases the risk borne by the company, the company can do what?
require proof of insurability. ebcause they could’ve gotten fat or things like that
Privilege of change clause is in regards to what?
Changing policy type not amount
The automatic loan provision, when included, allows what?
the company to use, automatically, whatever portion of the cash value is needed to pay premiums as they fall due.
What does the automatic loan provision when included do?
It keeps the policy in force when it would otherwise lapse as a result of nonpayment of premiums
how is the money let to the policyowner under the automatic premium loan provision treated? and what does it mean?
- it is treated just like any other loan of the policy’s cash value.
- this means that interest is charged on the loan, and the cash value payable on surrender or death is reduced by the loam amount outstanding,
the automatic premium loan provision must be what?
reuquested and written into the policy
When a policyowner assigns a policy, she transfers what?
rights in the policy— either all of them or a stipulated portion-to another party.
The assignment clause in a policy stats what?
that any assignment the policyowner decides to make must be filed in writing with the company or it will not be valid when the claim is paid.
What are the two bullets about policy assignment?
- When a policyowner assigns a policy, she transfers rights in the policy— either all of them or a stipulated portion-to another party. The assignment clause in a policy states that any assignment the policyowner decides to make must be filed in writing with the company or it will not be valid when the claim is paid.
- The company will expend no effort to determine it’s validity or legality
What does Collateral, Partial, or Conditional Assignment refer to?
temporary
what is collateral assignment?
Because the policyowner is using his policy as collateral for a
we call collateral assignment or partial assignment because?
Because just part of the proceeds are assigned, we sometimes call
In Collateral, Partial, or Conditional Assignment, the assignee is to receive a portion of the proceeds only under certain conditions, what is the main one? and because this condition exists? this collateral or partial assignment is reffered to as?
the main one being that a balance remains on the loan when the insured dies. part 2: conditional assignment
In Collateral, Partial, or Conditional Assignment
Regardless of the exact title given to this kind of agreement, it occurs when the insured (policyowner) assigns all or part of the policy’s proceeds as collateral for a loan.
absolute, voluntary, complete assignment refer to what type of action?
permament
What is voluntary assignment?
It sometimes happens that the policyowner decides to sell or make a gift of a life insurance policy by assigning all rights in the policy to the assignee. For in-Stance, a man might want to give a policy on his life to his son. This type of instance, is made be voluntarily so it sometimes called a voluntary assement,
In a voluntary assignmenthy can a voluntary assignment sometimes be call an absolute or complete assignment?
A veis made volumaly usually involves turning all rights, including the
When an absolute assignment is made, on the other hand, the original policyowner usually has no means of recovering surrendered rights. In effect, he has done what?
designated another policyowner to take over—a change in policy ownership is taking place. This type of assignment is usually permanent. IT USUALLY IS A GIFT!
With the exception of the suicide clause, which we studied earlier and which can be considered a kind of exclusion, these exclusions are no longer found in policies being issued today. Companies may charge higher premiums for persons in situations such as those described, but the policy proceeds will be guaranteed to the
With the exception of the suicide clause, which we studied earlier and which can be considered a kind of exclusion, these exclusions are no longer found in policies being issued today. Companies may charge higher premiums for persons in situations such as those described, but the policy proceeds will be guaranteed to the
