Reinstatement
this provision allows the policy an opportunity to put a lapsed ploicy back in force subject to proving insurability. The maximum time limit is usually 3 years after the policy has lapsed
The policy owner must pay all premiums plus interest not to exceed
Incontestability
clause stating that once a policy is in effect for two years, company cannot deny payment of a claim or cancel due to fraud
Misstatement of age
Clause In a life policy, provides that if misstatement of age is discovered after policy issue, the insurer may, if the insured is living, adjust the amount of future premiums and request payment of the additional premium the policyowner should have paid;
exclusions
provisions written into the insurance contract denying coverage or limiting the scope of coverage, for certain conditions or services
ex: aviation, hazardous occupation, war or military
Aviation exclusion
Either attached by rider or included in standard policy language excepting from coverage certain deaths or disablities due to aviation, such as "other than a fare-paying passenger" 117
Right to examine
free look allows the policy owner 10 days to look over policy and if for any reason, return it for a full refund
replacements 20 days and 45 days for intercompany replacements
Modification clause
requires that any changes made to must be endorsed and attached to the ploicy over the signature of an authorized officer of the insurer
Payment of premiums
policy stipulates when the premiums are due and how often they are paid
grace period
30 or 31 day period in which late premium may be paid without policy lapsing.
entire contract
provision simply stipulates that the policy and a copy of the application, along with any riders or amendments
payment of claims
Upon receipt of a written proof of loss, the insurer must pay death claims immediately. (Most states interpret this to be within 30 days.) If there is no beneficiary named in the policy, the death proceeds are paid to the estate of the insured. (An insure
prohibited provisions including backdating
Life insurance policies cannot be delivered in Pennsylvania if they contain a provision for any of the following: forfeiture of the policy for failure to pay any policy loan or interest while the total indebtedness on the policy is less than the cash valu
backdating
Making the effective date of a policy earlier than 6 months before the application date.
Beneficiary
person or interest to who policy proceeds will be paid upon the death of the insured
Beneficiary classes
per capita - by the head
per stirpes - by the bloodline
Estate Beneficiary
if none of the beneficiaries are alive at the time of insureds death, or none has been named, the insured's estate (assets and liabilities left by the insured at death) will automatically receive the proceeds of a life insurance policy. Death benefit may
Minor Beneficiary
need to be given to a guardian or a trustee of the minor or placed in trust for the minor. The trustee is accountable for assets but the guardian may not be. Not a good practice.
Trusts
can be used for minors, create scholarship fund or support college, estate planning, keeps death proceeds out of the insured's taxable estate. Expensive to administer
Primary beneficiary
The beneficiary who is first entitled to receive the policy proceeds on the insured's death. may be more than 1 person and benefits divided
Contingent beneficiary
The person named in a life insurance policy to become the beneficiary if the original beneficiary dies before the insured; The designated person to whom property will go, upon the death of someone else if the beneficiary is not living." can be more than
Tertiary beneficiary
3rd in line after Primary and Contingent Beneficiaries
revocable designation
a policyowner without consent or knowledge of the beneficiary may change the beneficiary designation
irrevocable designation
designation may not be changed without the written consent of the beneficiary. policyowner may not borrow against the policy or assign the policy to another person without the beneficiary's agreement.
Spendthrift Clause
prevents the beneficiary's reckless spending of benefits by requiring that the benefits be paid in a fixed period or fixed amount installments. protects the benefits from claims of creditors of the beneficiary or policyowner.
common disaster
A provision in a Life contract that provides that the Primary Beneficiary
must outlive the insured by a specified period of time in order to receive the proceeds. If not, then the
Contingent Beneficiary receives the proceeds. The provision is designed to
Settlement Options
-Lump Sum Cash Payment
-Interest Only
-Fixed Time
-Fixed Amount
-Life Income
lump sum settlement
pays entire death benefit, tax-free, to beneficiary at one time there is no accumulated interest under this disrtibution choice
Interest only settlement
insurer retains proceeds and paying periodic payments of the interest earned by the principal (the death benefit) usually a temporary use
ex: SPOUSE receives interest and children receive principal when they reach legal age. interest is taxable
Fixed period option
The proceeds (both interest and principal) of a life insurance policy are paid over a specified period or term also called period certain. size of installment is determined by amount of principal, guaranteed interest and the length of period selected. lon
Fixed amount Option
selection of a smaller payment will increase the payment periods. Interest rates do not affect the payment amount on a fixed-amount option. Instead, they affect the length of the payment period. If there is excess interest to be paid, it will lengthen the
Life income option
A life insurance policy settlement option under which the insurance company agrees to pay the policy proceeds in period installments over the payee's lifetime. The amount of payments is based upon the value of the contract and the life expectancy of the r
Single life option
single beneficiary receives a specified amount of money periodically for life until death
Life income Joint and survivor
guarantees an income for two or more recipients forong as they live most contracts provide that the surviving recipient will recieve a reduced payment after the 1st recipient dies. Most commonly joint and 1/2 survivor or joint and 2/3 survivor
This option
Nonforfeiture values
provide help when the insured no longer wants to pay premiums., Those benefits in a life insurance policy that by law, the policyowner does not forfeit even if he or she discontinues premium payments; usually cash value, loan value, paid-up insurance valu
Reduced paid up insurance
A nonforfeiture option contained in most life insurance policies providing for the insured to elect to have the cash surrender cash value of the policy used to purchase a paid-up policy for amount of insurance
Extended term option
nonforfeiture option providing for the insured to use the policies cash value to purchase in a single premium a term policy that is equal to the original policies face value using nonforfeiture table of guaranteed values.
Cash Surrender Value
the amount that the insurance company will pay on a given life insurance policy if the policy is cancelled prior to the death of the insured If the cash value exceeds the premiums paid the excess is taxable as ordinary income. Insured no longer covered.
Policy Loan
it is when the policyholder can obtain a large portion of the cash value of the policy without surrendering the policy by borrowing against the cause value in the form a loan.
Loan value = cash value - (unpaid loans and interest)
Any outstanding loans at
Automatic Premium Loans
Allows the company to pay premium from the cash value so it dont lapse policy - no additional charge
Cash value withdrawals or partial surrenders
Universal Life Policies allow the partial withdrawal or surrender of the policy cash value. However there may be a charge and usually limits of how often and how much
Dividend options
1: Cash (tax-free); 2: Apply to future premiums; 3: Retained by Insurer @ interest; 4: Buy Paid-up WL policy add-ons; 5: Pay-up existing policy; 6: Buy 1-yr. Term policy.
Cash dividend option
A dividend option under which the policyholder receives the dividends in cash.
Not subject to tax. Mutual insurers issue participating policies, which might pay dividends, but they are
not guaranteed. Usually annually
Reduction of premium payments
insurer uses dividend to reduce the next years premium
dividend
higher premiums are charge by participating insurer "grossed up" i the extra amount charged is not needed because mortality experience improves or interest earned by the company exceeds assumptions the dividend will be be paid to the policyowner called re
Accumulation at Interest
insurance company keeps the dividend and it accumulates interest. The policyowner is allowed to withdrawal dividends at any time. interest on dividends are taxable to the ploicyowner as they are credited to the policy whether the policy owner actually rec
One year term option
A dividend option under which the insured has the company purchase
one-year Term insurance with the dividend. For example, your dividend is $100, which you could have
taken as cash. Instead, you have the insurer use the money to buy you an additional 1 ye
Paid up additions
Additional single-premium Life insurance paid for by policy dividends and added to
the face amount. For example, your mutual insurer declares a $100 dividend, which you could have taken
as cash. Instead, you ask them to use the money to buy you an additio
Paid up insurance
Paid Up Insurance: uses value to provide the largest possible policy that would be "paid up" with "no further payments required", this would be the same plan but with REDUCED coverage, provides coverage FOR LIFE
The insurer accumulates the dividends at in
Disability Income Rider
provides a specified benefit includes waive the policy premiums and pay a monthly income to the insured if disabled. amount is based on percentage of face amount of the policy to which the rider is attached
Waiver of Premium Rider
In the event an insured becomes totally disabled, after 6 months this rider takes effect. The insurer pays the premiums for the duration of the disability. Cash values are not affected, and dividends are paid if the policy is participating. Usually expire
Total disabilty
inability to perform the duties of any occupation for payment as the result of injury or sickness
Waiver of Cost insurance Rider
Found in Universal Life policy
If in the event of disability waives premium for cost of insurance but does not waive the cost of premiums necessary to accumulate cash values.
Payor benefit rider
A rider or provision, usually found in Juvenile policies, under which premiums are waived
if the Payor of the premium (usually a parent) becomes disabled or dies while the child is still a minor.
until minor reaches age 21
Accelerated benefit
A supplemental benefit that gives a policyowner-insured the right to receive all or part of the policy's death benefit before her death if certain conditions are met. Also known as a living benefit in the US.
Conditions for payment of Accelerated benefit
if insured is faced with terminal illness or in some cases a nursing home and the policy includes this rider they may be able to immediately request payment of a portion of the death benefit for financial relief. THIS IS A NON TAXABLE BENEFIT there may be
Effect on Accelerated Death benefit
Payable Death benefit = Face amount - amount withdrawn - earnings lost by insurer in interest.
Exclusions to Accelerated Benefits rider
war, active duty as a memeber of armed forces, committing assault or felony, participating in a riot or insurrection, a fight in which the insured is a voluntary participant, suicide, intentionally self inflicted injury, engaging in an illegal occupation,
spouse rider
spouse to be added to coverage for a limited per of time and for a specified amount;usually ends when spouse turns 65
children's rider
children to be added to coverage for a limited period of time for a specified amount; can include step children expires when minor reaches 18 and usually provides the minor with the option of converting to a permanent policy at this time.
Family rider
family term= spouse term + childrens term in a single rider
Accidental death rider
doubles or triples the face value payment if death results from an accident and other conditions are met. Death must usually occur withing 90 days of an accident
Usually expires at age 65 no cash value accumulated
Accidental death and dismemberment
principal sum is paid for accidental death, capital sum is paid for accidental dismemberment
guaranteed insurability
allows the insured to purchase additional coverage at specified future dates or events, such as marriage, birth of a newborn child, etc. without evidence of insurability; usually expires at age 40
cost of living rider
(COLA) - Provides for an automatic increase in benefits (typically tied to the CPI), offsetting the effects of inflation.
return of premium
acheived by using increasing term insurance. death prior to a given age not only is face amount payable but also premiums previously paid are payable to the beneficiary. this rider usually expires at age 60