an insurance policy is a
legal contract and contains provisions setting forth the rights and duties of parties to the contract.
Policy provisions identify the
rights and obligations of both the policy owner and the insurer under the insurance contract. Many states require certain provisions to be included in all life policies so the following provisions have become more or less standard
Insuring clause
The insuring agreement or insuring clause states that the insurer agrees to provide life insurance protection for the named insured which will be paid to a designated beneficiary when proof of death is received by the insurer.
The insuring clause states t
Entire contract clause
The entire contract provision is also referred to as the entire contract clause. This provision states that the policy and a copy of the application constitutes the entire contract between the insurer and the insured. A copy of the life insurance applicat
The basic purpose of the entire contract clause
is to provide assurance to the policy owner that he has in his possession all necessary documents with regard to his life insurance coverage
The clause also prevents the policy owner and the producer from unilaterally amending the policy (only an executiv
The consideration clause
This provision or clause in a life insurance policy provides that the insurance coverage is granted in consideration of the application and the payment of the initial premium. The payment of the initial premium is required to place the insurance coverage
Payment of premium
This provision specifies when, where and how premiums are to be paid. Usually premiums are to be paid in advance either at t he companys home office or to the agent. The various modes of paying the premium also are identified, such as monthly, quarterly,
The least expensive way to pay the premium
annually
Ownership rights
The owner of a life insurance contract is usually the applicant, the insured, or the premium payer. The owner of a policy has several stipulated rights in the contract. Some of these rights include
*changing the beneficiary
*receiving dividends if any are paid
*borrowing funds from the cash value if they exist
*assigning of some or all the rights of the contract to another party
Applicant Control or Ownership Clause
When the proposed insured is a minor, the applicant can be the minors parent or other relative or legal guardian. In such a situation, the applicant-lets say a parent who is applying for insurance on her sons life-will probably want to maintain control of
Grace period
Every life insurance contract contains a grace period. This is the period of time following the date that each premium is due during which the insurance policy remains in force and coverage is provided, even though the premium has not yet been paid.
The g
Automatic Premium Loan Provision
The automatic premium loan APL provision may be added to a cash value life insurance contract and protects the policy owner against the inadvertent lapsing of the contract. If the cash value is sufficient, a loan in the amount equal to the premium due is
Reinstatement
If a life insurance contract was not surrendered for the cash savings value, many contracts permit reinstatement of the policy if it is effected within three years of the policy lapse.
Proof of insurability may be requested by the insurer in addition, all
Policy Loan Provisions
A policy owner has the right to borrow from the cash value and there is no legal obligation to repay the loan. Interest is assessed by the insurer for these borrowed funds, and the interest rates are determined by each state. Currently, most life insuranc
death benefit formula
Face amount - outstanding loan - interest on
Withdrawals and partial surrenders
Partial cash value distributions may be classified as loans or withdrawals.
withdrawals/partial surrenders
A loan is just that a loan against ones own money. It is withdrawn with either the presumption that it will be repaid with accrued interest or the understanding that by not repaying it the amount of future benefits-including the death benefit-will be redu
Incontestability
The contestable clause of a life insurance policy states that after a specified period of time (two years), the insurer may not dispute or contest the validity of the contract or the statements. After the contract has been in effect for a specific length
The incontestable clause also assures
assures that a named beneficiary will not have to substantiate any statements that were made on the application several years after the policy has been issued. In this situation, it would be extremely difficult fo the named beneficiary and others to suppl
Suicide clause
When this clause is inserted in a life insurance contract, death by suicide is not covered during the policy's first two years.
If suicide occurs during this initial two-year period, premiums are refunded but no face amount (death benefit) is paid.
Follow
Assignment
An assignment of a life insurance contract involves the transfer of some or al of the policy owners legal rights under the contract to another party. The policy provisions concerning assignment do not usually grant the owner / insured any rights to assign
Collateral, Partial, Conditional Assignment
This involves the assignment of some but not all policy rights to an assignee. A lender may wish that a life contract be collaterally assigned so that it may draw upon the cash savings value if loan payments are not paid promptly. Collateral assignment tr
Absolutely voluntary, complete assignment
Sometimes the policyowner decides to sell or make a gift of a life insurance policy by assigning all rights in the policy to the assignee. This type of assignment is made voluntarily, so its sometimes called a voluntary assignment.
A voluntary assignment
Beneficiaries assignment rights
In some cases, the policys beneficiary can assign a portion of the proceeds. However, unless the beneficiary has been named irrevocably, there is actually little to assign.
A revocable beneficiary expects to receive the proceeds, unless the policy owner c
Misstatement of Age or Sex
Under this provision the policy provides for an adjustment of benefits payable if it is discovered that, after an insured's death, or at the time of claim, the insureds age was misstated on an nsinruance policy application. Specifically the benefit payabl
Medical examinations and autopsy
Some states require life insurance policies to include a provision that gives the insurer the right, at its own expense, to examine an insured hwile a claim is pending, and in the event of death to perform an autopsy, at its own expense and where not proh
Modifications
Modifications or changes in the policy or any agreement in connection with the policy, such as changes in the beneficiary, face amount, or additional coverage, must be endorsed on or attached to the policy in writing over the signature of a specified offi
Policy change provision (conversion option)
The policy may contain a provision that permits the insured to exchange a policy for another type of policy form permitted by the company.
If the exchange is to a policy with a higher premium the insured merely has to pay the higher premium and no proof o
Free Look
This policy provision permits the policy owner to take a specified number of days to examine the life insurance contract. If the new policy owner decides that the purchase was unnecessary or unwise the contract may be cancelled with the entire premium ref
_________________ loan provision allows the insured to borrow against the cash value in a whole life policy.
policy loan
the ___________ states the after a specified period the insurer can no longer void an insurance contract except for nonpayment.
incontestability clause
_____________ immediately after the premium is due in which the policy will not lapse is called the grace period .
the time period
____________ includes the company's promise to pay.
the insuring clause
_________________ spells out the obligations of both the insured and the insurer, as well as all parts of the contract.
the entire contract clause
The right of the policyowner are spelled out in the provision known as the ____________________
policy owners rights
_____________ identifies that the policyowner must pay something of value for the contract.
the consideration clause
After a policy lapses, the _______________ sets forth the requirement to bring the policy back up to date within a certain period of time.
reinstatement clause
_________ refers to the right to transfer rights in the policy.
assignment
The right to examine the policy and return it for a full refund is referred to as the ___________________
free look provision
Beneficiaries
Life insurance companies place few restrictions on who may be named the beneficiary of a life insurance policy. The decision rests solely with the owner of the policy. Only when the applicant for a policy is not the insured (third party) does the question
All of the following can be beneficiaries of a life insurance policy:
Individuals
Businesses
Trusts
Estates
Charities
Minors
Classes as beneficiaries-rather than specifying one or more beneficiaries by name, the policy owner can designate a class or group of beneficiaries. For example, "children of the insured" and "my chil
A revocable beneficiary
is one that may be changed by the policy owner the policy owner may change revocable beneficiaries without their knowledge or consent.
Irrevocable beneficiary
the policy owner may also designate an individual to be an irrevocable beneficiary. In this case, the beneficiary designation cannot be changed without the consent and signature of that named beneficiary. The policy owner is responsible for paying the pre
There are two methods for naming and changing beneficiaries: the
the filing method and the endorsement method.
Filing Method
This method of effecting a beneficiary change is also known as the recording method. The request must be filed in writing to the insurer and is made effective by the insurance company recording the change in its records
Endorsement Method
This method requires that the beneficiary change be typed or affixed directly to the policy. The insured must make a written request and mail the request along with the policy to the insurance company.
Succession of Beneficiaries
Primary beneficiary the primary beneficiary is the person designated by the applicant to receive the face amount of the proceeds upon the insured's death. In most cases a husband stipulates that his wife will be the primary beneficiary, and a wife usually
Changing beneficiaries
Careless wording of beneficiary designations can result in confusion, conflict, and litigation. For this reason, the life insurance producer should insist that the applicant word the beneficiary designation carefully.
Example-if the insured designates his
Designation Option
A minor as a beneficiary
A minor as a beneficiary
Naming a minor as the beneficiary of a life insurance policy present problems. The most immediate of these problems is that a minor would not be competent legally to receive payment of and provide receipt for the policy proceeds i
A trust as beneficiary
A trust is formed when the owner of property (the grantor) gives legal title of that property to another (the trustee) to be used for the benefit of a third individual (the trust beneficiary).
When a trust is designated as the beneficiary of a life insura
The insured's estate as beneficiary
proceeds be payable to his executors, administrators, or assignees to pay estate taxes, expenses of past illness, funeral expenses, and any other outstanding debts before the settlement of the estate. However, in general it is not desirable to name the es
In addition, estate costs usually are determined by the
the size of the probate estate. This means that adding life insurance policy proceeds to the probate estate increases the costs of settling the estate
Finally, when a policy owner leaves policy proceeds to a named beneficiary, there are ways to protect th
Class designations
Another way of designating beneficiaries of life insurance policies is by group or by class, rather than by individual name. an example of such a designation would be "all my children" or "my brothers and sisters still living."
This designation saves the
Per capita and per stirpes
When life insurance proceeds are to be distributed to a person's descendants, a per stirpes or a per capita approach approach generally is used.
Per stirpes means by the root or by way of branches. A per stirpes distribution means that a beneficiary's sha
Uniform simultaneous death act
The law stipulates that if the insured and the primary beneficiary are killed in the same accident and there is insufficient evidence to show who died first, the policy proceeds are to be distributed as if the insured died last. This law allows the insura
Common Disaster Provision
Common disaster clause this clause states that in case of death in a common accident (disaster), the insured will be presumed to have survivied the beneficiary. This prevents the payment of the insurance proceeds to the estate of the beneficiary and thus
Spendthrift Clause
A person who spends money extravagantly is known as a spendthrift. The insured can protect the proceeds of an insurance policy from the actions of a spendthrift beneficiary through the use of a spendthrift clause. This clause in a life insurance policy pr
The proceeds will be paid in some way other than a lump sum.
The proceeds or payments to be made to the beneficiary are protected from the beneficiary's creditors while they are still held by the insurance company
The proceeds will be paid in some way other than a lump sum.
The proceeds or payments to be made to the beneficiary are protected from the beneficiary's creditors while they are still held by the insurance company
The spendthrift clause also prevents the beneficiary from:
*transferring the proceeds assigning payments to a creditor
*commuting the proceeds-taking the present value of future payments in a lump sum
*encumbering the proceeds-borrowing money on the strength of the proceeds of the policy.
The insured normally ele
Facility of Payment Provision
This provision allows the insurer to select a beneficiary if the named beneficiary is a minor, is decreased, or cannot be found. This provision is found most commonly in group life insurance contracts and industrial life policies. Normally the insurer wou
Exclusions and limitations
Most life insurance contracts contain exclusions, or defined circumstances, that would not be covered if death occurs. Some of the more common exclusions are as follows
Aviation exclusion
This exclusion restricts coverage in the event of death from aviation activities, except when the insured is a fare-paying passenger. This exclusion is generally found in double indemnity (accidental death) provisions as well.
This exclusion generally res
War or military service exclusion
This exclusion normally provides for the return of premium with interest in the event that death occurs under conditions excluded in the policy. This clause is generally included in a life insurance contract that is issued during wartime or in time of imp
Status-type clause if this clause
clause is included in a life insurance contract, the policy will not pay in the event of death while the insured is in the military, regardless of the cause of the death. This would hold true even if the insured were home on leave and the death had nothin
Results-type clause this type
type of clause is much less restrictive than the status type clause. A contract that includes this clause would not provide coverage for a member of the military if the member was killed as a result of military exercises or service in general. However, if
Hazardous occupation or hobby exclusion
Few applicants are declined life insurance because of their occupations. Firefighters and police personnel generally can purchase life insurance at standard rates.
Instead, underwriters focus on the applicant's
avocations or hobbies. If an applicant participates in a hazardous hobby such as auto racing, sky diving, or scuba diving, the amount of insurance that may be purchased may be limited or an extra premium may be charged because of the additional risk. Also
Prohibited provisions
By law in most states, life insurance policies are not permitted to contain the following provisions:
*a provision that limits the time for bringing any lawsuit against the insurance company to less than one year after the reason for the lawsuit occurs
*a provision that allows a settlement at maturity of less than the face amount plus any dividend additio
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Insurable, consideration, entire contract clause, assigning the policy when an irrevocable beneficiary has been named, 31 days, the policy owner must pay all back dividends due plus interest on the amount, it keeps the policy in force when it would otherw
Which clause identifies the components of the contract?
entire contract clause
Carol has a policy on her ex-husband that she wants to give to their daughter. Carol no longer wants any control over this policy. What type of assignment will carol probably use to accomplish this?
voluntary assignment
carl purchased a life insurance policy when he was 44. The insurer accidently recorded his age as 42. When the accident is discovered in a review of the files 5 years later
carl will be charged the difference in premium between his actual age and his stated age, along with the interest on the back payments.
steve is the beneficiary on his wife's life insurance policy. When they divorce his wife cannot remove him as beneficiary on the policy without his written permission because
steve is an irrevocable beneficiary
which of the following is allowed when policy proceeds are being paid through a spendthrift clause?
the proceeds are paid directly to the beneficiary in monthly installments.
according to the entire contract provision, the entire contract includes all of the following except
the premium payment
a revocable beneficiary
may be changed without the beneficiarys consent
when waive of the premium applies
the premium payment generally resumes when the insured is no longer disabled