Policy Provisions, Options, And Other Features

Provisons

define characteristics of an insurance contract and are fairly universal from one policy to the next

Riders

added to a policy to modify provisions that already exist

Options

offer insurers and insureds ways to invest or distribute a sum of money available in a life policy

Entire Contract provision

stipulates the policy and a copy of the application, along with riders & amendments, constitute the entire contract
-neither insure nor insured can change policy provisions once policy is in effect w/o both parties agreeing

Insuring clause provision

basic agreement b/w insurer & insured, states promise to pay death benefit upon the insureds death
-defines parties in contract, premium to be paid, how long coverage is in force, amount of death benefit

Free look provision

10 day provision to look over policy for a full refund
-starts when policyowner receives the policy (policy delivery)

Owner's Rights provision

policyowner has ownership rights & responsible for pay premiums

Assignment provision

policyowner has right to transfer partial/complete ownership of policy to another person w/o consent of insurer
-transfer to new ownership does not changes the insured or amount of coverage

Absolute assignment:

transfer ALL RIGHTS of ownership to another person/entity; permanent and total transfer of all policy rights

Collateral assignment:

transfer of partial rights to another person; partial & temporary assignment
-usually done to secure loan/some other transaction; once debt/loan is repaid, assigned rights are returned to policyowner

Per Capital

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

Trusts:

for minors, or to create scholarship fund. Also used for estate planning & can keep life insurance death proceeds out of the insured's taxable estate
-expensive to administer

Primary beneficiary

first claim on proceeds following death of insured
-policy owner may name more than one primary beneficiary & how proceeds are divided

Contingent beneficiary

second claim in the event that primary beneficiary dies before the insured

Revocable designation:

policy owner w/o consent or knowledge of beneficiary may change a revocable designation at any time

Irrevocable designation:

may not be changed w/o written consent of beneficiary; beneficiary have vested interest in policy so owner may not exercise certain rights w/o consent
-policy owner can not borrow against policy's cash value

Recording or Filing method (changing bene.)

policy owner completes a form with the change & submits to insurance company

Endorsement method (changing bene.)

policy owner required to send the request for change with the contract to the home office of the insurer

Common disaster

provided under the Uniform Simultaneous Death Law; protect original owner intent & protect contingent beneficiary if insured & primary beneficiary dies at approximately

Uniform Simultaneous Death Law:

will be assumed that the primary beneficiary died first in common disaster, intent is to fulfill wishes of the policy owner
-provides that proceeds will be paid to either contingent beneficiary or insured's estate

Premium mode

manner/frequency that the policyowner pays the policy premium

Nonpayment of premiums

may cause policy to be terminated, known as lapsed policy

Mortality

ratio of # of deaths in specific population over a certain amount of time versus the # of living people in that population
=(# of deaths)/(living people)

Interest:

primary factor in lowering premium rate

Net premium formula:

#NAME?

Gross premium formula:

#NAME?

Gross Premium long formula

#NAME?

Grace period

time after premium due date policy owners has to pay premium before policy lapses; usually 30 or 31 days
-purpose is to protect the policy holder against unintentional lapse of policy
-if insured dies during this period, death benefits is payable however,

Misstatement of Age or Gender:

provision which allows the insurer to adjust the policy at any time due to a misstatement of age or gender

Incontestability:

prevents insurer from denying a claim to statements in the application after the policy has been in force for 2 years, even if there is material misstatement of facts/concealment of material fact

Conversions:

allow owner to elect new policy prior to expiration of existing policy; exercised when owner converts the term policy to a cash value permanent policy
-proof of insurability not required

Automatic Premium Loans provision

not required, prevents unintentional lapse of policy, loan which insurer will charge interest

Exclusions:

types of risk the policy will not cover
Aviation
Hazardous Occupations or Hobbies
War or Military Service

Suicide exclusion

provision in life insurance policies protects insurers from individuals who purchase life insurance with intention of committing suicide
-if insured commits suicide within 2 years following policy effective date, insurers liability is limited to a refund

Nonforfeiture options

because of cash values, certain guarantees are built into the policy that cannot be forfeited by policy owner

Reduced paid-up insurance

policy cash value used by insurer as single premium to purchase completely paid up permanent policy that has a reduced face amount from former policy
-new reduced policy builds own cash value & will remain in force until death or maturity

Extended term

the insurer uses the policy cash value to convert to term insurance for the same face amount as the former permanent policy