Unit 7 Life Insurance Policy Provisions

Question 1

The terms of a life insurance policy are spelled out in its ____ or clauses. They describe how certain common situations will be handled, as well as the rights and obligations of the policyowner and the insurer.

Answer 1

Provisions

Question 2

The ____, or right to examine, provision gives the policyowner a period of time to return a policy for any reason within ____ days of delivery and receive all premiums paid. The policy will be considered null and void.

Answer 2

Free look

10 days

Question 3

The ____ clause or insuring agreement sets forth the insurer’s promise to pay benefits upon the insured’s death. It includes what the company will pay, the death benefit amount, and to whom it will be paid. An authorized ____ of the company signs this clause.

Answer 3

Insuring clause

Officer

Question 4

____ of life insurance is a transfer of the owner’s rights, in whole or part, to another individual or entity. 2 types:

1. ____ - (temporary or conditional) does not change ownership of the policy. The most common type of partial ____ is to pledge all or part of the death benefit as collateral for a loan.
2. ____ or permanent ____ of a policy transfers all rights of ownership to another person or entity. For example - a parent may transfer policyownership to a child when they reach 18.

Answer 4

Assignment

Collateral assignement

Absolute or permanent assignment

Question 5

The life insurance policy and a copy of the original application constitute the ____.

The ____ provision states “no statement shall void this policy or be used in defense of a claim under it unless contained in the application.”

The insurer may not refer to documents other than these when ____ or paying a claim.

Answer 5

Entire contract

Denying

Question 6

____ (modifications) or any change made to the contract must be made in writing and agreed to by both the insurer and the policyowner. This amendment must be signed by an ____ of the company and cannot be authorized by an agent/producer.

Answer 6

Endorsements

Executive officer

Question 7

____ is a legal term meaning something of value. An exchange of value is necessary to form a valid contract. The premium paid represents the value from the insured.

Answer 7

Consideration

Question 8

The ____ provision states that premiums are due in advance - that is, on or before the date on which the next period of coverage begins.

Answer 8

Payment of premium provision

Question 9

If the insured does not pay the premium on date when due, the policy will stay in force for a limited time before the coverage actually lapses. This is the policy’s ____ and lasts for a period of up to ____ days.

Answer 9

Grace period

31 days

Question 10

…if the insured dies during the grace period, the policy will pay the death benefit minus the amount of ____ as of the date of death.

Answer 10

the past due premium

Question 11

____ is the restoration of a lapsed policy as originally purchased. Permanent life policies permit this ____. The insured will receive the protection of the original policy if ____.

Answer 11

Reinstatement

In nearly all cases

The policy has not been surrendered for cash

Question 12

The ____ provision is provided to protect the insured. It states that after the life insurance policy has been in effect for ____ years the company cannot claim that a statement made in the application for insurance was meant to defraud the insurer.

The policy cannot be taken away even if the insured made ____ or committed ____.

Answer 12

Incontestability provision

2 years

Material misrepresentations

Fraud

Question 13

Incontestability Provision - the first 2 years are known as the ____ period. The insured might be required to substantiate statements in the application during this period.

If a policy has been reinstated after a lapse, a new contestability period begins but it only applies to information given on ____, not the information given when the policy was originally purchased.

Answer 13

Contestability period

The reinstatement application

Question 14

The suicide clause states that if a na insured, whether sane or insane, commits suicide during the first ____ years after a life insurance contract has been issued, the company will pay only the premium paid by the insured, not the face amount of the policy. Once the policy has been in effect for ____ years, an insured’s suicide will result in payment of the full-face amount of the policy. Suicide is excluded from ____ benefits.

Answer 14

2 years, 2 years

Accidental death benefits

Question 15

The incontestability clause does not pertain to an insured’s ____ age. If a deceased insured misrepresented their age, the face amount of the policy will be adjusted to an amount the premium would have been purchased at the insured’s correct age, at the time of purchase of the policy.

When a ____ occurs, the face amount of a policy will be adjusted in a similar way.

Answer 15

Misstatement regarding age

Misstatement of sex

Question 16

The ____ provision says the insurer will pay the death benefit promptly. The insurance company is generally required to pay a death claim within ____ days after receiving notification of the claim. If the claim is made more than ____ days after notification of the claim, ____ must be paid.

Answer 16

Payment of claims

60 days, 60 days

Interest

Question 17

Life insurance beneficiaries can be designated by ____. For example, “my children” or “my siblings.” These beneficiaries need not be identified by name.

Answer 17

Classes

Question 18

A trust is a legal entity that can hold title to property while it is managed for the benefit of others. There are 3 parties to a trust. Name them

1. The ____ - is the individual who sets up the trust, transfers property into it, and writes instructions as to how the trust will operate.
2. The ____ - is the party tha manages the property according to the grantor’s instructions. The trustee may be an individual or another legal entity such as a bank.
3. The ____ - is the person who receives the benefits of the trust.

Answer 18

1. Grantor
2. Trustee
3. Beneficiary

Question 19

The insured’s ____ may be designated as beneficiary and used to pay debts and the costs of legally closing the estate. After the estate’s debts are paid, the remaining proceeds will be distributed to the insured’s heirs along with the estate’s other assets.

Life insurance proceeds paid into an estate are counted toward the total value of the estate for estate ____ purposes.

Answer 19

Estate

Tax

Question 20

____ means “by the head” and it divides the policy’s death benefit equally among the surviving members of the class. This does not transfer proceeds below a ____ level.

Answer 20

Per capita

Generational

Question 21

____ means “by the branch” and it signifies that the children of a deceased class beneficiary are entitled to that beneficiary’s share of the proceeds.

Answer 21

Per stirpes

Question 22

The ____ beneficiary is the first in line to receive the policy’s death benefit. The ____ beneficiary is the next in line to receive the policy’s death benefit if the primary dies before the insured. There can be more than one level of this beneficiary.

The ____ beneficiary is third in line if the secondary beneficiary has died.

Answer 22

Primary

Secondary/contingent

Tertiary

Question 23

Beneficiary designations can be changed or revoked without notice and without their knowledge or consent. Such designations are called ____ beneficiaries.

Policyowners can give up their right to change a beneficiary designation. Such designations are called ____ beneficiaries. If the beneficiary dies before the insured, the policyowner usually has the right to name a new beneficiary.

Answer 23

Revocable beneficiaries

Irrevocable beneficiaries

Question 24

The ____ provision allows the insurer to pay all or part of the policy’s death benefit to someone other than a designated beneficiary if:
1. The beneficiary is ____, is ____, or cannot ____
2. Someone other than the beneficiary incurred the insured’s final ____ or ____ expenses

Answer 24

Facility of payment provision

1. Minor, deceased, or cannot be found
2. Medical and funeral expenses

Question 25

The ____ Act states that the primary beneficiary is assumed to have died first in cases of an accident when both the insured and primary beneficiary are involved. Policy proceeds will not be paid to the primary beneficiary as this person just died. Instead, proceeds are paid to the ____ beneficiary or to the insured’s estate in no contingent beneficiary is listed.

Answer 25

Uniform Simultaneous Death Act

Question 26

The ____ provision expands on the intent of the Uniform Simultaneous Death Act. This provision presumes that the primary beneficiary dies first with most insurance policies defining this time frame as death within ____ to ____ days of the accident. This prevents the life insurance proceeds to be paid to the estate of the primary beneficiary.

Answer 26

Common Disaster Provision

30-90 days

Question 27

A ____ provision may be included in a life insurance policy requiring that the policy proceeds be paid to the beneficiary in installments of a defined amount and at set intervals. The beneficiary has no right to elect a different settlement, can’t borrow from the policy, and cannot use the policy cash value as collateral.

Answer 27

Spendthrift provision

Question 28

Under the ____ exclusion, death by suicide is not covered for a certain period of time after the policy goes into effect. Depending on the policy, the period may be ____ to ____ years. If the insured commits suicide during this initial period, the policy’s death benefit is not payable, but all ____ paid for the policy are refunded. After the policy has been in force for the stated period, suicide is covered and the full death benefit is payable

Answer 28

Suicide Exclusion

1 to 2 years

Premiums

Question 29

The ____ exclusion eliminates coverage for certain types of aviation activities. It does not apply to ____ flight. Coverage still exists for insureds who are ____ or ____ pilots or crew. The exclusion applies only to individuals such as private pilots, test pilots, military pilots, and crew.

Answer 29

Aviation exclusion

Commercial flights

Fare-paying airline passengers OR Commerical

Question 30

There are two versions of the ____ exclusion
1. ____ type - this version eliminates coverage for the entire period during which the insured is in the military, regardless of how the insured dies. No death benefit would be paid even if the insured were home on leave and died driving to the golf course.

2. ____ type - under this version, coverage is eliminated only if the cause of death was related to military service.

Answer 30

War or Military Service Exclusion

1. Status-type
2. Results-type

Question 31

The ____ exclusion may be included if the insured engages in activities such as mountain climbing, auto racing, sky diving, or scuba diving, either for pay or recreation.

Alternatively, instead of excluding coverage, the insurer may just charge a higher premium or limit the amount of coverage it would issue.

Answer 31

Hazardous Occupation or Hobby Exclusion