Unit 7: Life Insurance Policy Provisions

Question 1

Free Look

Answer 1

right to examine
begins when the owner receives the policy
usually no fewer than 10 days
policy can be returned for a full refund

Question 2

insuring clause or agreement

Answer 2

usually found on the first page of the policy
insurers promise to pay upon death
includes the face amount
usually signed by an officer of the company

Question 3

ownership rights

Answer 3

name or change the beneficiary 
select settlement options
borrow or withdraw policy cash values 
receive policy dividends (participating policies)
surrender or cancel the policy
assign or transfer ownership
select/change the premium payment mode
select a nonforfeiture option

Question 4

collateral

Answer 4

a pledge for a loan

Question 5

absolute

Answer 5

permanent change of ownership

Question 6

policy assignement

Answer 6

collateral

absolute

Question 7

entire contract

Answer 7

includes:
the policy
a copy of the application
any riders or amendments

PAR

Question 8

endorsements (modifications)

Answer 8

can only be made by the company
must be in writing
owner can request a change
owner and insurer must sign the amendment

Question 9

Consideration

Answer 9

aka promises made (think money)

insured’s consideration-premiums and truthful statements on the application

insurer’s consideration-pay benefits at the time of the claim

Question 10

payment of premium

Answer 10

payment of premium
-due in advance of the coverage period

mode of premium payment

• annually
• semiannually
• quarterly
• monthly

payment amount

• level
• single payment
• graded
• flexible

Question 11

grace period

Answer 11

premium is not paid by the due date
usually 31 days following the due date
insurance is still in force
death benefit paid minus premiums due

Question 12

reinstatement

Answer 12

policy lapsed for nonpayment of premiums
up to 3 years to reinstate 
policy was not surrendered for cash
must pay missed premiums + interest 
prove insurability 
saves original policy + issue age

Question 13

incontestability

Answer 13

during the first two years, the policy can be contested (called contestable period)

usually after two years (incontestability provision) the policy can’t be taken away even if there is material misrepresentation or fraud

contestable ALWAYS:

• impersonation
• insurable interest
• intent to murder

Question 14

suicide clause

Answer 14

if the insured commits suicide prior to having a policy for two years, only the premium will be paid back

after two years, the full face amount will be paid

Question 15

misstatement of age or sex

Answer 15

if the insured is older than the application states:
-death benefit is reduced to the correct premium amount

if the insured is younger than the application states:
-death benefit is increased to the correct amount (doesn’t actually happen it usually reduces premium and refunds)

incontestability provision does not apply

Question 16

time payment of claims

Answer 16

• immediately

- usually no longer than 60 days

Question 17

life insurance policy provisions

Answer 17

free look

insuring clause

ownership rights

assignment

entire contract

modifications

consideration

payment of premium

grace period

reinstatement

incontestability provisions

misstatement of age or sex

payment of claims

Question 18

trust - grantor

Answer 18

the individual who sets up the trust, transfers property into it, and writes the instructions as to how the trust will operate

Question 19

trust - trustee

Answer 19

party that manages the property according to the grantor’s instructions.

The _____ may be an individual or another legal entity such as a bank

Question 20

trust - beneficiary

Answer 20

person who receives the benefits of the trust

Question 21

who can be a beneficiary

Answer 21

individuals

classes

trusts

minors

estates

charities

university/colleges

Question 22

per capita, per stirpes

Answer 22

multiple beneficiaries in the same class
per capita - by the head (not inheritable) aka Grandma and Grandpa
per stirpes - by branch (inheritable)

Question 23

Uniform Simultaneous Death Act

Answer 23

impossible to tell who died first

insured and primary beneficiary are in the same accident

both die in the accident

assumes the primary beneficiary dies first

proceeds paid to the contingent beneficiary

Question 24

common disaster provision

Answer 24

insured and primary beneficiary are in the same accident

both die within 30-90 days after the accident

proceeds are paid as if the primary beneficiary died first

proceeds are paid to the contingent beneficiary

Question 25

spendthrift provision

Answer 25

May be included in the policy:

• death benefit cannot be paid in a lump sum
• death benefits cannot be claimed by creditors before payment to the beneficiary
• death benefits cannot be pledged by the beneficiary to a creditor
• death benefits cannot be used by the beneficiary as collateral for a loan