Chapter 9: Life Insurance Policy Provisions

Question 1

Policy Declaration Pages Include:

Answer 1

• the name of the insurance company
• details specific to the policy.
• a general description of the type of insurance the policy contract provides.
• a statement about the policy’s free-look provision.
• the insurer’s promise to pay.

Question 2

standard policy provisions laws

Answer 2

The standard policy provisions laws of the various states require that life and health insurance policies include certain provisions but allow the insurance companies to select the actual wording as long as it is at least as favorable to the policyowner as the statutory
language.

Question 3

Late Remittance Offers

Answer 3

Such an offer is made solely at the insurer’s option. It is not a right of the policyowner or an obligation of
the insurer included in the insurance contract under the requirements of the law.

Question 4

Grace Period

Answer 4

The grace period provision grants the policyowner an additional period of time to pay any premium after it has become due.
The standard length of the grace period is 30 or 31 days in fixed-premium policies. In flexible-premium policies, such as universal life insurance, a grace period of 60 or 61 days is common.

Question 5

Policy Loans

Answer 5

The law requires that a life insurance contract permit policy loans if the policy generates a cash value.

Question 6

Policy Loan Provisions

Answer 6

• No credit questions asked
• Policyowner may borrow up to 90 percent to 100 percent of cash value
• Technically, insurer can delay lending for up to 6 months
• Fixed or variable interest rates charged
• Unpaid interest added to the loan balance
• No repayment schedule or requirement
• Indebtedness repaid when policy is surrendered or matures as a claim
• May include automatic premium loan feature

Question 7

Incontestable Clause

Answer 7

An incontestability clause is a clause in most life insurance policies that prevents the provider from voiding coverage due to a misstatement by the insured after a specific amount of time has passed. State laws differ as to the form of the clause prescribed, but no state permits a clause that would make the policy contestable for more than 2 years.

Question 8

Divisible Surplus

Answer 8

An insurer’s divisible surplus is that portion of an insurer’s surplus declared as a dividend to be distributed to the owners of participating policies.

Question 9

Entire Contract Provision

Answer 9

Entire contract statutes ensure that the policyowner receives all documents that constitute the contract, and they also protect the policyowner against changes in the contract after the contract has been issued.

Question 10

Reinstatement

Answer 10

Reinstatement provisions allow a policyowner to reacquire coverage under a policy that
has lapsed.

Question 11

Misrepresentation

Answer 11

A representation is a statement in an insurance application that is substantially true to the best of the applicant’s knowledge and belief. A false representation of a material fact is a misrepresentation.

Question 12

Nonforfeiture Provisions

Answer 12

A nonforfeiture provision in a cash value life insurance policy provides alternative ways in which the policy’s cash value can be taken out or utilized if the contract is terminated during the insured’s lifetime.

Question 13

Nonforfeiture Options

Answer 13

Nonforfeiture laws require that a life insurance policy must make certain options available regarding how a policyowner can use the policy’s cash
value.
(1) paid-up insurance at a reduced death benefit amount.
(2) extended term insurance for the net face amount of the policy.

Question 14

Cash Surrender Options

Answer 14

Under the cash surrender option the policyowner may surrender the policy at any time for its cash value, minus any policy indebtedness, plus accumulated dividends.

Question 15

Reduced Paid-up Insurance Option

Answer 15

The reduced paid-up insurance option permits the policyowner to take a reduced amount of paid-up whole life insurance, payable upon the same conditions as the original policy.

Question 16

Extended Term Insurance Option

Answer 16

The extended term option provides term insurance in an amount equal to the original face amount of the policy, increased by any dividend additions or deposits, and decreased by any policy indebtedness.

Question 17

Annuity Alternative

Answer 17

Surrender values may also be used to purchase an annuity for retirement income. If the life
insurance policy does not specifically give the policyowner the right to take the cash value
in the form of a life income, purchased at net rates, the insurer will usually grant the privilege
on request.

Question 18

Suicide Provision

Answer 18

An insurer can elect to cover suicide from the day it issues the policy. However, this is unusual, and most insurance contracts do not provide coverage for a death by suicide within the first 1 or 2 years after the policy issue date.

Question 19

Ownership Provision

Answer 19

The provision
usually states that the policyowner may change the beneficiary, assign the policy
to another party, and exercise other ownership rights.

Question 20

Assignment Provision

Answer 20

As with most contracts and most interests in property, the policyowner has, as a matter of law, the right to assign some or all of his or her rights to another person or an entity.

Question 21

Plan Change Provision

Answer 21

This provision acknowledges that the parties may agree to change the terms of the contract.

Question 22

Accelerated Benefits Provision

Answer 22

Some insurers have added a provision that permits the policyowner to withdraw a portion of death benefits under certain circumstances. These accelerated benefits or living benefits provisions state that if
the insured becomes terminally ill, then the policyowner may withdraw a portion of the policy’s death benefit.

Question 23

Incontestable clause application to age or gender

Answer 23

Does not pertain to age or gender. The company would lower death benefits to the amount that the premium paid would have purchased at the correct age or gender.

Question 24

Does an accidental death benefit rider pay for death by disease?

Answer 24

no