Provisions
stipulate the rights and obligations of an insurance contract and are fairly universal from one policy to the next.
Riders
Modify provisions that already exist and are used to increase or decrease the policy benefits and premiums.
Options
offers insurers and insureds ways to invest or distribute a sum of money available in a life policy.
(NAIC) National Association of Insurance Commissioners
create uniformity among life insurance policies by creating standard policy provisions to be adopted.
Entire Contract Provision
stipulates that the POLICY AND A COPY OF THE APPLICATION, along any riders or amendments, constitute the _________ __________. No statements made before the contract was written can be used to alter the contract. Neither the insured or insurer may change
Right to Examine (Free Look)
this provision allows the policy owner 10 DAYS from receipt to look over the policy and if dissatisfied for any reason, return it for a full premium refund. Starts when the policyowner receives the policy (policy delivery), not when the insurer issues the
Premium Mode
is the manner or frequency that the policy owner pays the policy premium. Most policies allow for annual, semi-annual, quarterly, or monthly payments.
Grace Period
the insured is entitled to a _____ ______ of 1 month within which the payment of any premium, after the first year, may be made, subject to a maximum interest charge of 6% per year for the number of days of grace elapsing before the payment of the premium
Reinstatement Provision
allows a lapsed policy to be put back in force. The maximum time limit for reinstatement is usually 3 YEARS after the policy has lapsed. If policyowner elects to reinstate, then he/she must provide evidence of insurability. The policyowner is required to
Incontestability Clause
prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2YEARS, even if there has been a material misstatement of facts or concealment of a material fact. Does not apply in the event of non-paym
Misstatement of age
because the age of an insured affects the premium that will be charged for a life insurance policy, if the applicant has misstated his or her age on the application, in the event of a claim, the insurer has the right to adjust the benefit to an amount tha
Exclusions
are the types of risks the policy will not cover. The most common are aviation, hazardous occupation, and war and military service.
Representation
is a written response to questions or statements made on an application for insurance which the applicant indicates are correct to the best of his or her knowledge, and upon which the underwriter has the right to void the contract.
Warranty
is a statement that is guaranteed to be true.
Ownership Rights
naming and changing the beneficiary, receiving the policy's living benefits, selecting a benefit payment options, and assigning the policy.
- the policyowner has the responsibility of paying the policy premiums, and is also the person who must have insura
Assignment Provision
specifies the policyowner's rights to assign (transfer rights of ownership) the policy. The policyowner must advise the insurer in writing of the assignment. There are two types of policy assignment: Absolute Assignment, and Collateral Assignment
Absolute Assignment
involves transferring all rights of ownership to another person or entity. This is a permanent and total transfer of all policy rights. The new policyowner does not need to have an insurable interest in the insured.
Collateral Assignment
involves a transfer of partial rights to another person. It is usually done in order to secure a loan or some other transaction. A partial and temporary assignment of some of the policy rights. Once the debt or loan is repaid, the assigned rights are retu
Beneficiary
is the person or interest to which the policy proceeds will be paid upon the death of the insured. May be a person, class of persons, the insured's estate, or an institution or other entity such as a foundation.
Per Capita
meaning BY THE HEAD, evenly distributes benefits among the living named beneficiaries.
Per Stirpes
meaning BY THE BLOODLINE, distributes the benefits of a beneficiary who died before the insured to that beneficiary's heirs.
Estates
if none of the beneficiaries is alive at the time of the insured's death, or if no beneficiary has been named, the insured's _______ will automatically receive the proceeds of a life insurance policy. The death benefit of the policy may be included in the
Policy Loan Option
is found only in policies that contain cash value. The policyowner is entitled to borrow an amount equal to the available cash value. Any outstanding loans, and accrued interest, will be deducted from the policy proceeds upon the insured's death. The insu
Automatic Premium Loan Provision
is not required, but is commonly added to contracts with a cash value at no additional charge. This is a special type of loan that prevents the unintentional lapse of a policy due to nonpayment of the premium.
Partial withdrawal (partial surrender)
allowed by universal life policies to withdrawal part of the policy cash value. There may be a charge for each withdrawal and there are usually limits as to how much and how often a withdrawal may be made. During the withdrawal, the interest earned on the
Riders
are written modifications attached to a policy that may add or delete benefits. Sometimes result in additional premium being charged, but can just as easily result in a reduced premium.
Waiver of Premium
rider waives the premium for the policy if the insured becomes totally disabled. Most insurers impose a 6 MONTH WAITING PERIOD from the time of the disability until the first premium is waived. The rider usually expires when the insured reaches age 65.
Waiver of Cost of Insurance
rider is found in Universal Life Insurance. In the event of disability of the insured, this rider waives the cost of insurance and other expenses, but does not waive the cost of premiums necessary to accumulate cash values.
Disability Income Benefit
With this rider, in the event of a disability the insurer will waive the policy premiums and pay a monthly income to the insured. The amount paid is normally based on a percentage of the face amount of the policy to which it is attached.
Payor Benefit
rider is primarily used with juvenile policies; otherwise, it functions like the waiver of premium rider. If the payor (usually the parent/guardian) becomes disabled for at least 6 months or dies, the insurer will waive the premiums until the minor reache
Spouse/Other-insured Rider
provides coverage for one or more family members other than the insured. Is usually level term insurance, attached to the base policy covering the insured. Aka a family rider. If the rider covers just the spouse of the insured, it can be specified as a SP
Children's term rider
allows the 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 the minor reaches a certain age (18, 21). Most riders provide the minor with the optio
Family Term Rider
incorporates the spouse term along with the children's term rider in a single rider. When added to a whole life policy, the _______ _____ rider provides level term life insurance benefits covering the spouse and all of the children.
Family Term = Spouse T
Accidental Death Rider
pays some multiple of the face amount if death is the result of an accident as defined in the policy. Death must occur within 90 days of such an accident. (Double or Triple Indemnity). No additional cash value is accumulated with this rider, or to additio
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. When this option is exercised, the insured purchases the additio
Cost of Living Rider
addresses the inflation factor by automatically increasing the amount of insurance WITHOUT EVIDENCE OF INSURABILITY from the insured. The face value of the policy may be increased by a _____ ____ ______ factor tied to an inflation index such as the Consum
Return of Premium Rider
is implemented by using increasing term insurance. When added to a whole life policy, it provides that at death prior to a given age, not only is the original face value amount payable, but an equal amount to all premiums previously paid is also payable t
No Lapse Guarantee
is an agreement by the insurance company to keep a universal life policy in force - even if the policy's cash value becomes $0. For this ____ _____ __________ to take effect, a specified minimum continuation premium must be made.
Nonforfeiture Options
Cash surrender value, reduced paid-up insurance, or extended term
Cash Surrender Value
simply surrenders the policy for the current cash value at a time when coverage is no longer needed or affordable. Upon receipt of the cash surrender, if the cash value exceeds the premiums paid, the excess is taxable as ordinary income.
Surrender Charge
is a fee charged to the insured when a life policy or annuity is surrendered for its cash value.
Extended Term Option
the insurer uses the policy cash value to convert to term insurance for the SAME FACE AMOUNT as the former permanent policy. The duration of the new term coverage lasts for as long a period as the amount of cash value will purchase. Automatically selected
Reduced paid-up
The policy cash value is used by the insurer as a single premium to purchase a completely paid-up permanent policy that has a REDUCED FACE AMOUNT from that of the former policy. The new reduced policy builds its own cash value and will remain in force unt
Dividend Options
The first dividend could be paid as early as the 1st policy anniversary, but must occur no later than the end of the 3rd policy year. From then on dividends are usually paid on an annual basis. Policy owners have the option of taking their dividends in on
Cash Payment
is a dividend option that the insurer simply sends the policyowner a check for the amount of the dividend as it is declared, usually annually.
Reduction of Premium Payments
The insurer uses the dividend to reduce the next year's premium.
Accumulation at Interest (Dividend Option)
The insurance company keeps the dividend in an account where it accumulates interest. The policy owner is allowed to withdraw the funds at any time. The amount of interest is specified in the policy and compounds annually. Although dividends themselves ar
One-year term option
The insurance company uses the dividend to purchase additional insurance in the form of one year term insurance that increases the overall policy death benefit. The policy owner's choice is to use the dividend as a single premium on as much it will buy, o
Paid-Up additions
the 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; however, each of these small single premium patents will INCREASE THE DEATH BENEFIT of the original pol