Unit 7 - Life Insurance Policy Provisions

Question 1

What is the free look period?

Answer 1

Begins when the owner receives the policy, usually 10 days, and allows the policy to be returned for a full refund

The free look period provides a chance for the policyholder to review the policy details and decide if it meets their needs.

Question 2

What is typically found in the insuring clause or agreement?

Answer 2

Insurers promise to pay upon death, includes the face amount, and is usually signed by an officer of the company

The insuring clause is essential as it outlines the insurer’s obligation.

Question 3

List ownership rights of a policyholder.

Answer 3

• Name or change the beneficiary
• Select how the death benefits will be paid
• Borrow or withdraw from the policy cash values (if any)
• Receive policy dividends if a participating policy
• Surrender or cancel the policy
• Decide what to do with the policy cash values (if any)
• Assign the policy values or ownership
• Decide the premium payment mode

Ownership rights provide the policyholder with significant control over the policy.

Question 4

What are the two types of assignment by the policyowner?

Answer 4

• Collateral—pledging the policy as collateral for a loan
• Absolute—complete change of ownership

These assignments affect the control and benefits of the policy.

Question 5

What constitutes the entire contract?

Answer 5

Policy plus copy of the application plus any riders or amendments (if any)

The entire contract ensures that all documents related to the policy are considered part of the agreement.

Question 6

Who can make modifications to the policy?

Answer 6

Modifications can only be made by the company, although the owner can request a change

This restriction maintains the integrity and terms of the insurance policy.

Question 7

What is the consideration in an insurance policy?

Answer 7

Value given by the policyowner, including information in the application and premium

Consideration is a fundamental element of contracts, ensuring both parties provide something of value.

Question 8

When are premiums due?

Answer 8

Premiums are due in advance

This requirement ensures that coverage is maintained and prevents lapses in the policy.

Question 9

What is the grace period in life insurance?

Answer 9

Usually 31 days following due date

Premium not paid by due date; insurance still in force during this period

Question 10

What happens to the death benefit during the grace period?

Answer 10

Paid minus premiums due

Insurance remains active despite missed premium payments

Question 11

What is reinstatement in life insurance?

Answer 11

Policy has lapsed for nonpayment of premiums

Can occur up to three years following lapse if policy was not surrendered

Question 12

What conditions must be met for reinstatement?

Answer 12

Pay all missed premiums plus interest, prove insured still insurable

Done to save terms of original policy (issue age)

Question 13

What is the incontestability provision?

Answer 13

Policy can’t be taken away usually after two years

Protects against material misrepresentation and fraud

Question 14

What happens if there is a misstatement of age or gender?

Answer 14

Death benefit amount adjusted to correct amount premium would have purchased

Under payment if insured is older; over payment if younger

Question 15

What is the time frame for payment of claims?

Answer 15

Immediately, usually no longer than 60 days

Ensures prompt payment of claims

Question 16

What are some life insurance policy provisions?

Answer 16

• Free look
• Insuring clause
• Ownership rights
• Assignment
• Entire contract
• Modifications
• Consideration
• Payment of premium
• Grace Period
• Reinstatement
• Incontestability
• Suicide
• Misstatement of age or sex
• Payment of claims

These provisions outline the rights and responsibilities of both insurer and insured

Question 17

Who can be a beneficiary in a life insurance policy?

Answer 17

• Individuals
• Classes
• Trusts
• Minors
• Estates

A variety of entities can be designated as beneficiaries

Question 18

What are the two types of beneficiary classifications?

Answer 18

Per capita and per stirpes

Per capita means ‘by the head’ and is not inheritable; per stirpes means ‘by branch’ and is inheritable.

Question 19

What is the primary level of beneficiaries?

Answer 19

First

The primary beneficiary is the first in line to receive proceeds.

Question 20

What is the contingent or secondary level of beneficiaries?

Answer 20

Second

The contingent beneficiary receives proceeds if no primary beneficiary is alive.

Question 21

What is the tertiary level of beneficiaries?

Answer 21

Third

The tertiary beneficiary receives proceeds if no primary or contingent beneficiaries are alive.

Question 22

What happens to the estate of the insured if no beneficiary is named or alive?

Answer 22

Proceeds go to the estate of the insured

This means the insurance proceeds will be distributed according to the deceased’s will or state law.

Question 23

What is a revocable beneficiary?

Answer 23

Can be changed by the owner at any time

This allows the policy owner to modify the beneficiary designation without needing consent.

Question 24

What is an irrevocable beneficiary?

Answer 24

Cannot be changed without beneficiary consent

The policy owner must obtain permission from the irrevocable beneficiary to make any changes.

Question 25

What is required for a loan or withdrawal from cash values?

Answer 25

Permission of the beneficiary ## Footnote This ensures that the beneficiary is aware and agrees to the transaction.

Question 26

What usually happens to an irrevocable beneficiary upon their death?

Answer 26

Becomes revocable ## Footnote The policy owner can then change the beneficiary designation without needing consent.

Question 27

How must changes to a beneficiary be submitted?

Answer 27

In writing ## Footnote Written requests are necessary to document the change formally.

Question 28

What is the facility of payment provision?

Answer 28

Insurer can pay someone other than beneficiary ## Footnote This provision allows insurers discretion in paying benefits under certain circumstances.

Question 29

What is a common disaster provision?

Answer 29

Applies if insured and primary beneficiary die in a common accident ## Footnote This provision ensures that proceeds are paid as if the primary beneficiary died first.

Question 30

What is the time frame for both the insured and primary beneficiary to die for the common disaster provision to apply?

Answer 30

30-90 days ## Footnote This time frame is critical for determining the payout structure.

Question 31

What happens to proceeds if both the insured and primary beneficiary die in a common disaster?

Answer 31

Paid to contingent beneficiary ## Footnote If the primary beneficiary is deceased, the contingent beneficiary will receive the proceeds.

Question 32

What is the Uniform Simultaneous Death provision?

Answer 32

Insured and primary beneficiary die in the same accident; assumes primary beneficiary dies first. ## Footnote Proceeds are paid to the contingent beneficiary.

Question 33

What happens to the proceeds if both the insured and primary beneficiary die in the same accident?

Answer 33

Proceeds are paid to the contingent beneficiary. ## Footnote This follows the assumption that the primary beneficiary dies first.

Question 34

What is a spendthrift provision?

Answer 34

A clause that may be included in the policy to protect death benefits from creditors. ## Footnote It prevents lump sum payments and restricts the beneficiary's ability to pledge benefits.

Question 35

What are the restrictions imposed by a spendthrift provision?

Answer 35

* Death benefit cannot be paid in a lump sum * Death benefits cannot be claimed by creditors before payment to 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

Question 36

What is one exclusion related to suicide in life insurance policies?

Answer 36

Death by suicide is not covered before 2 years. ## Footnote The time frame may vary by policy.

Question 37

What is the aviation exclusion in life insurance?

Answer 37

Death due to an airplane accident is excluded unless the insured is a passenger or crew member of a commercial airline.

Question 38

What are the exclusions related to war or military service in life insurance?

Answer 38

* Status type-death occurs while in the military, regardless of the reason * Results type-death occurs related to military service.