Provisions
-terms of a life insurance policy. Describe how certain common situations will be handled, as well as the rights and the obligations of the policyowner and the insurer.
Free loos
� gives the policyowner a period of time to return a policy for any reason within ten days of delivery and receive all premiums paid
Insuring clause
� insuring agreement sets forth the insurers promise to pay benefits upon the insured's death. Found on the first page. Usually signed by an officer of the company.
Ownership rights
� name or change the beneficiary, select settlement options, borrow or withdraw policy cash value, receive policy dividends (participating policies), surrender or cancel the policy, assign or transfer ownership, select/change the premium payment mode, sel
Policy assignment
� transfer of owners rights. Two types: collateral - pledge for a loan, absolute - permanent change
Entire contract
policy plus, copy of the application plus, any riders or amendments (if any)
Endorsements (modifications)
� any change to a policy. Can only be made by the company. Owner can request a change
Consideration
� think MONEY. Insured's consideration - premiums and truthful statements made on the application. Insurer's consideration - pay benefits at time of claim
Payment of premium
� - due in advance of the coverage period
Grace period
� premium not paid by due date. Usually 31 days following due date. Insurance still in force. Death benefit paid minus premiums due.
Reinstatement
� premium will stay the same. Policy lapsed for nonpayment of premiums. Up to three years to reinstate. Policy was not surrendered for cash. Must pay missed premiums+interest. Prove insurability. Saves original policy+issue age.
Incontestability
� usually after two years. Policy can't be taken away even if material misrepresentation or fraud (concealment)
Suicide clause
� if 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.
Misstatement of age (gender)
� insured older then application states, death benefit will be reduced to correct premium amount. Insured younger than application states, death benefit increased to correct premium amount. Incontestability provision does not apply.
Payment of claims
� immediately, no longer than 60 days
Beneficiary
� the person who will get the death benefit
o Any person or other legal entity can be the beneficiary of a life insurance policy.
o Individual or class of persons
Classes
my children, my siblings
Trust
o legal entity which can hold title to property while it is managed for the benefit of others. There are three parties to a trust
� The grantor is the individual who sets up the trust, transfers property into it, and writes the instructions as to how the
Minor
o cannot take ownership of life insurance proceeds. Will pay the proceeds to a trustee or guardian who is legally entitled to receive the funds on behalf the minor. May be instructed to provide funds upon legal age.
Other beneficiaries
o Estate
o Charities
o University/college
Multiple beneficiaries in the same class
� per capita - by the head (not inheritable). Per stirpes - by branch (inheritable)
� Levels of beneficiaries
o Primary-first
o Contingent or secondary - second (if no primary alive)
o Tertiary-third (if no primary or contingent alive)
o Estate of insured - if no beneficiary named or alive
Revocable
can be changed by the owner at any time
Irrevocable
� cannot be changed without beneficiary consent
o Loan or withdrawal from cash values requires permission of beneficiary
o Usually becomes revocable upon death of irrevocable beneficiary
Changes
policyowner can change the beneficiary. Must notify insurer with written request.
Facility of payment provision
insurer can pay someone other than beneficiary
Uniform simultaneous death
� - insured and primary beneficiary are in the same accident and both die. Assumes primary beneficiary dies first. Proceeds paid to contingent beneficiary.
Common disaster provision
� insured and primary beneficiary are in common accident. Both die within 30-90 days after accident. Proceeds paid as if the primary beneficiary died first, to contingent beneficiary.
Spendthrift provision
� 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 fo
� Exclusions
o Suicide exclusion - death by suicide is not covered for a certain period of time after the policy goes into effect
o Aviation exclusion - eliminates coverage only for certain types of aviation activities
o War or military service exclusion
� Status type