Unit 7 - Life Insurance Policy Provisions

Question 1

What is a Free Look?

Answer 1

The free look or right to examine, provision gives the policyowner a period of time to return a policy for any reason within 10 days of delivery and receive all premiums paid.

Question 2

What is an Insuring Clause?

Answer 2

The insuring clause or insuring agreement sets forth the insurer's promise to pay benefits upon the insured's death. 
Included:
- Company's promise to pay
- Death benefit amount
- Whom it will be paid

Question 3

What is an Assignment?

Answer 3

Assignment of life insurance is a transfer of the owner’s rights, in whole or part, to another individual or entity.

Question 4

What are two types of Assignment?

Answer 4

Collateral assignment

Absolute or Permanent assignment

Question 5

What is Collateral Assignment?

Answer 5

(temporary or conditional assignment) does not change ownership of the policy. The most common type of partial assignment is to pledge all or part of the death benefit as collateral for a loan.

Question 6

What is Absolute or Permanent assignment?

Answer 6

policy transfers all rights of ownership to another person or entity.
Example: a parent may transfer policyownership to a daughter when she reaches age 18.

Question 7

What constitutes the “entire contract”?

Answer 7

• life insurance policy
• a copy of the original application
• any riders or amendments (if any)

Question 8

What are Endorsements / Modification?

Answer 8

Any change made to the contract must be made in writing and agreed to by both the insurer and the policyowner.
Must be signed by an executive of the company, CANNOT be authorized by an agent/producer.

Question 9

What is a Consideration?

Answer 9

“MONEY”

• Insured’s consideration - premiums paid and truthful statements made on the application
• Insurer’s consideration - pay benefits at the time of claim.

Question 10

What is Payment of Premium?

Answer 10

This provision states that premiums are due in advance of the coverage period.

Question 11

What is a Grace Period?

Answer 11

If the insured does not pay the premium by the due date, the policy will stay in force for a limited time before coverage lapses. This usually lasts for 31 days.
If the insured dies during the grace period, the policy will pay the death benefit minus the premium past due.

Question 12

What is Reinstatement?

Answer 12

Reinstatement is the restoration of a lapsed policy as originally purchased.

• Up to 3 years to reinstate
• Policy cannot be surrendered for cash
• Must pay missed premiums + interest
• Prove insurability
• Saves original policy and issue date
• Premium will stay the same

Question 13

What is Incontestability?

Answer 13

This provision is that after a life insurance policy has been in effect for two years the company cannot claim that a statement made in the application for insurance was meant to defraud the insurer, even if material misrepresentation or fraud (concealment).
* Does not pertain to an insured’s misstatement of age.

Question 14

When is the Contestability period?

Answer 14

The first two years of a policy.

Question 15

What is the Suicide clause?

Answer 15

If the insured commits suicide in the first two years the company will pay only the premium paid by the insured.
After two years they will pay the full-face amount.
Suicide is excluded from accidental death benefits.

Question 16

What is Misstatement of Age or Gender?

Answer 16

• If insured is older than application states, death benefit is reduced to correct the premium amount
• If insured is younger than application states, death benefit is increased to correct premium amount.
• Premium is higher the older you are and for males.

Question 17

What is the Payment of Claims provision?

Answer 17

This provision says the insurer will pay the death benefit “promptly”.
- within 60 days after claim made, if longer than interest must be paid.

Question 18

What is Faculty of Payment Provision?

Answer 18

This allows the insurer to pay all or part of the policy’s death benefit to someone other than a designated bene if:

• the bene is a minor, is deceased or cannot be found.
• someone other than the bene incurred the insured’s final medical or funeral expenses.

Question 19

What is the Uniform Simultaneous Death Act?

Answer 19

This is if the insured and the bene die in the same accident (for example).
The primary bene is assumed to have died first.

Question 20

What is the Common Disaster Provision?

Answer 20

This is with the Uniform Simultaneous Death Act, it states that if the insured and primary bene die in a common accident then it is assumed the primary bene died first even if it is 30-90 days later. The policy will state the set amount of days.

Question 21

What is the Spendthrift Provision?

Answer 21

It states that the policy proceeds may be paid to the bene in installments of a defined amount and at set intervals.