Provisions
specify the rights and obligations of an insurance contract
-fairly universal from one policy to the next
Options
offer insurers & insureds ways to invest or distribute a sum of money available in a life policy
Riders
modify provisions that already exist & are used to increase or decrease policy benefits and premium
Usually are purchased at the time of application
Have to pay an extra premium for them
They provide extra coverage
Standard Provisions:
Ownership
The policyholder is the owner, all the owner's rights (naming & changing the beneficiary, receiving the polices living benefits, selecting a benefit payment option, assigning a policy) accrue ONLY to them
Absolute Assignment
A permanent transfer of ownership rights
Irrevocably transfers all of your rights of ownership to the insured
Insured now has to pay premiums
NOT binding upon the insurance company unless it is notified in writing
Collateral Assignment
Designation of a policy's death benefit or its cash-surrender value to a creditor as security for a loan. If the loan is not repaid, the creditor receives the policy proceeds up to the balance of the outstanding loan, and the beneficiary receives the rema
Right to Examine (Free Look)
Refund provision
This provision allows the policyowner a specified number of days (10 days) from receipt to look over the policy and if dissatisfied for any reason, return it for a full refund of premium. The free look period starts when the policyowner r
Entire Contract
The policy, when it is issued, plus whatever is attached, including the application is contestable in court if it ever goes to court
The application and anything else that's relevant have to be attached when the policy is issued
Premium Payment Mode
How frequently you pay your premium
the more frequently you pay your premium, the higher your cost will be
Modifications
Once issued, the policy may not be modified (changed) in any way without the mutual
consent of the parties
-policyowner requests changes, but ONLY an executive officer can make the changes to the contract
- NO AGENT has the right to waive policy provision
Grace period
A period of time after the premium due date that the policy owner has to pay the premium before the policy lapses
Grace period starts the day your premium is due and you don't pay it
If you have a claim during your grace period, they will pay your claim m
3 Grace periods
28 days - Industrial Life
30 days - all other types of life insurance (including annuities)
31 days - Group Life and Group Health
Advantages of Reinstatement
1) Age--since you get your original policy back, you will still be paying future premiums based on your original age
2) Your original policy may have had loan interest rates much lower than a new policy may currently offer
Reinstatement
Reinstatement allows a lapsed policy to resume active coverage
-max limit for reinstatement is 3 years after the policy has lapsed
MUST PROVIDE EVIDENCE OF INSURABILITY
1) You must take a physical exam,
2) Meet all company underwriting requirements
3) Pay
Misstatement of Age
This clause protects the insurance company against an applicant who lies about his age
The insurance company has the right to adjust your benefits to an amount that the premium at the correct age or gender would have purchased.
This is a separate clause f
Incontestability
New life-insurance policies are contestable for the first two years of the policy--the insurance company may "contest" the claim and void or rescind the contract--no coverage would exist
After two years, regardless of any false answers the applicant may h
Policy settlements & proceeds
...
payment of claims
...
Limitations of liability
...
Exclusions
Types of risks the policy will NOT cover, i.e. aviation, war or military service, intentional acts, terrorism, dangerous hobbies or occupations, etc.
certain exclusions are standard for all policies while others are attached to the policy as an exclusion
Suicide Exclusion
Most states permit insurers to exclude death by suicide up to two years from the inception of the policy
However, after two years, suicide is covered
Insurance companies will refund premiums paid to the beneficiary if within 2 yrs of eff date
BENEFICIARIES
...
Designation Options:
Classes
Should be used when you want a specific group to share the proceeds equally, such as "all my children," rather than naming them individually
Designation Options:
Estates
If you fail to name anyone or if all of your named beneficiaries have died before you do, your final beneficiary is considered to be your estate
If no primary or contingent beneficiary is named, the policy
proceeds will automatically go to the insured's e
Designation Options:
Minors
A minor may be named as beneficiary as long as a guardian is appointed to receive the funds on his behalf
Designation Options:
Trusts
A trust, either
inter vivos
(that is, set up while the insured is still alive), or
testamentary
(created upon the insured's death according to his will), may also be designated as beneficiary
A trustee (often a bank) will administer the funds in accordanc
Per Capita designation (by the head)
evenly distributes benefits among the living named beneficiaries
Per Stirpes designation
distributes the benefits of a beneficiary who died before the insured to that beneficiaries heirs
Designation Options:
Individuals (Per Capita and Per Stirpes)
Under a Per Capita designation (individual), each child shares equally in the death benefit
Under a per stripes
Each child, grandchild, etc., moves up as necessary to replace beneficiaries ahead of them who have died
Succession
A life insurance policy can have up to three categories of beneficiaries
Primary Beneficiary
The first one named by the policy owner to receive the policy proceeds in the event of the insured's death
Contingent Beneficiary
The second one named to receive the policy proceeds in the event that the primary beneficiary has predeceased the insured
Final Beneficiary
The insured's estate
Revocable (does NOT need beneficiaries consent )
These are additions you put on your designations
The policyholder has the right to designate any
beneficiary he wants and to change it anytime he wishes
Irrevocable (needs beneficiaries consent)
This means the beneficiary can NEVER be
changed without her consent, nor could a policy loan be taken without her consent, since it would affect the amount payable in the event of the insured's death
Common Disaster Clause
Only goes into effect if the primary beneficiary dies within a certain number of days
Uniform Simultaneous Death provision
states that if both the insured and the primary beneficiary die as a result of the same accident, then it is always assumed that the insured died last
This provision ensures that the insured's contingent beneficiary would receive the policy proceeds, rath
Spendthrift Clause
A clause that prevents the debtors of a beneficiary from collecting the benefits before he/she receives them
does NOT apply to proceeds that are payable in one lump sum
This keeps the beneficiary from losing the proceeds to his creditors or from spending
Test question
Which of the following policies does not have forfeiture provisions? any
term
policy
Cash Loans
Policyholder can borrow on cash value at any time
Insurance company has up to 6 months to defer a loan request
Insurance Company can charge interest on loan amount - up to 8% fixed
Insurance company can limit percentage of cash value loan
At your death, a
Automatic Premium Loans
Usually free
Policy owner must select this option by checking the proper
block on the application
If you do not pay your premium when due, on the last day of the grace period the policy will automatically borrow from its own cash value to pay it for you
T
Withdrawals (partial surrender)
Clients with cash-value policies may withdraw their
money at any time
Most companies have the right to defer a request for a loan or a cash surrender up to six months
Partial Surrenders
Many companies selling Annuities, Universal, or Variable Life will charge you a penalty for early surrender, usually during the first seven years of a policy
Penalty charges must be stated clearly in the policy and/or the prospectus
Usually written on a d
Disability Rider
some riders provide benefits in the event of the insureds disability while others provide for partial payment of the seat benefit prior to the insureds death, called accelerated or living benefits riders
Waiver of Premium Rider
A form of disability insurance attached to a life-insurance
policy to pay the premium on behalf of the insured in case he becomes totally disabled
The insured's sickness or disability must last for at least six months, during which time the insured must p
Waiver of cost of insurance
in the event of disability of the insured, this rider waives the cost of the insurance & other expenses, but DOES NOT Waive the cost of premiums necessary to accumulate cash values
Disability Income Benefit Rider
If purchased, this rider will pay your loss of net earned income if you are totally disabled as per the definition in the rider
There is usually a short waiting period before monthly benefits start
* waives the policy premium
* also allows insured to rece
Payor Benefit Life/Disability
similar to Waiver of Premium rider
It will pay the premium on the childs policy if the payor (usually a parent) becomes disabled or dies
Premiums will be paid by the insurer until the child reaches either age 18 or age 21, depending upon the company, at w
RIDERS COVERING ADDITIONAL INSUREDS
...
Family policy
Combination of Whole Life on the breadwinner and a Level Term Rider on the spouse and children
The term coverage for both the spouse and children is renewable up to a certain age and convertible to Whole Life
Spouse/Other Insured Term rider
provides coverage for one of more family members other than the insured
- aka family rider
- If the rider covers just the spouse of the insured it can be specified as a SPOUSE TERM RIDER
Childrens Term Rider
allows children of the insured ( natural, adopted, or stepchildren) to be added to coverage for a limited period of time for a specified amount
-usually expires when minor reached age 18 or 21
-most riders provide the minor the option of converting to a p
Family Term Rider
incorporates the spouse term rider along with the chidrens term rider in a single rider
RIDERS AFFECTING THE DEATH BENEFIT AMOUNT
...
Accidental Death
It will pay your beneficiary double or triple only in the event you die as a result of an accident
You must die within 90 days of the accident or the insurance company does not consider it to be accidental death
Guaranteed Insurability Rider
allows the insured to purchase additional coverage at specified future dates (usually every 3 years) or events (such as marriage or birth of a child) without evidence of insurability, for an additional premium
The extra premium does not go toward cash val
Cost of Living rider
addresses the inflation factor by automatically increasing the amount of insurance without evidence f insurability from the insured
Return of Premium Rider
*whole life policies
-when added, it provides that death prior to a given age, not only is the original face amount payable, but an amount equal to all premiums previously paid is also payable to beneficiary
Accelerated (Living) Benefit Provision Rider
This rider allows a policy owner to "accelerate" receipt of a portion of the policy's death benefit upon the insureds occurrence of a terminal illness, a catastrophic illness, or eligibility for long-term care
-remainder of policy precedes are payable to
Conditions for payment - accelerated death benefit
-a terminal illness
-a medical condition that requires an extraordinary medical intervention for the insured to survive
-a medical condition that without extensive treatment drastically limits the insureds life time
-inability to perform activities of dai
Living Needs Rider
provides the insured with the necessary finds to take care of necessary medical and nursing home expenses that incur as a result of the terminal illness
NONFORFEITURE OPTIONS
.......
Three non-forfeiture options
Cash Surrender Value
Extended Term
Reduced Paid-Up
These options required by law
Apply to cash value policies only
If you do not pay your premium when due and your policy does lapse, the company will wait 60 days from your due date to hear from you regard
Cash Surrender Value
You surrender your original policy and the company must send your accumulated cash value to you within six months of your request
Extended Term
An automatic option
If the company does not hear from you within 60 days of your due date, it must automatically give you this option
The company will give you a new Term insurance policy with the same face amount as your original policy had
The Term poli
An insured stops making payments on a loan taken from his cash value policy. what will most likely happen?
the policy will terminate when the loan amount with interest equals or exceeds the cash value
Reduced Paid-Up
....Present cash value is used to buy a single premium,
permanent paid-up policy of a reduced face amount, the longest period of coverage provided by a nonforfeiture option
Immediate cash value will approximate the cash value you gave up
This option is de
DIVIDEND OPTIONS
..........
Cash Payments
Company sends check to policy owner
Reduction of Premium Payments
the insurer uses the dividend t reduce the next years premium
Accumulation at Interest
insurance company keeps the dividend in an account where it accumulates interest
- interest on the dividends is taxable to the policy owner when credited to the policy
Paid-Up Additions
dividends are used to purchase a single premium policy in addition to the face amount of the permanent policy
- no new separate policies are issued
-each of these single premium payments will INCREASE the death benefit
- each of these paid-up policies wil
Paid-Up Insurance
the insurer accumulates the dividends at interest & the uses the accumulated dividends+interest and the policy cash value to pay the policy up early
One-Year Term Option
Company uses dividend to purchase addtl insurance in the form of one-year Term policy that increases total death benefit
Settlement Options:
Cash
Most beneficiaries select this option and receive a lump-sum payment from the insurance company
Life Income (straight life)
provides recipient with an income that he or she cannot outlive
- installment payments are guaranteed for as long as the recipient lives
Single Life: provides a SINGLE beneficiary income for the rest of their life
Joint & Survivor: guarantees an income fo
Settlement Options:
Interest Only
If the beneficiary selects this option, the money remains with the insurance company to accumulate additional interest over a period of time--pays the beneficiary interest at least annually
The beneficiary can change her mind and elect to take the money a
Settlement Options:
Fixed-Period Installment
The beneficiary advises the company to pay out the policy proceeds to her over a set period of time, say 10 or 20 years
The unpaid balance continues to earn interest during this fixed period
*Both the principal and interest are liquidated together over th
Settlement Options:
Fixed-Amount Installments
If the beneficiary wants a certain amount to be paid to her
monthly
However, payment of a fixed amount to the beneficiary
over a period of time will eventually deplete the principal balance, if the amount paid exceeds the interest earned on the unpaid bal
Settlement Options:
Annuity
A financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time
If the beneficiary wants a lifetime incom