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:
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Gross premium formula:
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Gross Premium long formula
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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