Chapter 4 Life Insurance Provisions, Exclusions And Riders

Question 1

Third Party Contract

Answer 1

WHen someone other than the insured owns the policy. This person retains all the rights so long as the “insured” is alive.

Question 2

Third party policy owner has the right to:

Answer 2

1. Choose and change the beneficiary
2. Select and change the mode of payment
3. Select the settlement option for payment of death benefits
4. Cancel the policy
5. Exercise to exchange a term policy for a whole life
6. Select a forfeiture provision if a premium is not paid
7. Request a policy loan if there is a cash value
8. Select a dividend option and receive dividends
9. Assign ownership of the policy to another party

Question 3

Title Page

Answer 3

Shows the:

Type of policy
Identify the policy owner and the insured
Term of policy and premium payment period
Optional Provisions and riders

Question 4

Insurance Clause

Answer 4

Contains the promise to pay.(the consideration on the part of the insurer)

Question 5

Conditions

Answer 5

This outlines the rights and restrictions for both parties involved in the contract

Question 6

Modification

Answer 6

This clause states that any contract changes must be:

1. Made in writing
2. Approved and signed by an officer of the company
3. Attached to or endorsed on the policy
4. No agent may amend, alter, change, waive provisions or extend the time of premium payment on the contract

Question 7

Incontestibility Clause

Answer 7

A company cannot contest the validity of a policy after it has been in force, except non payment of premiums, (2 years in Cali)

Question 8

Assignment of policy

Answer 8

To be binding, the assignment should be completed in writing and filed with insurer.

Question 9

Absolute Assignment

Answer 9

Complete and irrevocable transfer of policy rights and incidents of ownership to another party

Question 10

Conditional Assignment

Answer 10

Also called “partial” or “collateral assignment” the transfer of a limited and specified amount of benefits or cash value.

Question 11

Grace Period

Answer 11

Initial premium is paid and policy is in force, usually there is a period of time after the due date of subsequent premiums (usually 31 days) when the insurance remains in force even if the premium has not been paid. If death occurs during this period, death benefit is paid out but minus premium due.

Question 12

Unearned premium stipulations

Answer 12

1. 25 days- for unearned premium created when insurer endorses, rejects, declines cancels or surrenders a policy
2. 15 days- if unearned premium is sent to agent of record, the agent must pay interest if premium is kept after 15 days
3. 120 days- After policy coverage ends due to cancellation

Question 13

If a lapse happens, the same policy can be reinstated during a specific period of time(usually 3 years0 if policy owner:

Answer 13

1. Submits an application for reinstatement
2. Proves insurability
3. Repays any policy loans that were outstanding when the policy lapsed

Benefit is reinstating keeps premium the same

Question 14

Renewal

Answer 14

Different from reinstatement in that there is no lapse and insurability does not need to be proven again

Question 15

Revocable Beneficiary

Answer 15

This is a named beneficiary who the insured or policy owner may change without his or her consent

Question 16

Irrevocable Beneficiary

Answer 16

Designation gives the insured or policy owner no power to change the beneficiary, appoint further ones, assign the policy or borrow against the loan of the policy w/out consent of the beneficiary. They have VESTED INTEREST in the policy, the policy owner cannot exercise his or her rights of ownership without the beneficiary’s consent

Question 17

Per Capita

Answer 17

Benefits are paid equally to all surviving individuals

Question 18

Per Stirpes

Answer 18

Benefits paid in line. If first person dies, next up moves to receive benefits

Question 19

Tertiary Beneficiary

Answer 19

Business, Organization or estate that is third in line to receive benefits after primary and contingent benef

Question 20

Common Disaster Clause(survivorship clause)

Answer 20

Protects contingent benies by presuming that the insured was the last person to die when the insured and primary benies are killed in a common disaster and the order of death cannot be determined

Question 21

Automatic Premium Loan

Answer 21

When a premium remains unpaid by end of grace period, and there is sufficient cash value in the policy to cover the amount, the insurer may withdraw the premium.

It’s loan against policy and interest may be charged at stated amount.

Question 22

Non Forfeiture

Answer 22

These provisions protect insured individuals from having to lose the cash value of a policy for non payment of premiums

Question 23

Cash Surrender Value

Answer 23

A portion of the excess premiums paid above the mortality costs of a policy

Question 24

Extended Term Insurance

Answer 24

If insured has not selected another non-forfeiture provision and has no outstanding policy loans, the death benefit stays same. Cash value of policy is used to purchase single premium term insurance to extend coverage as long as possible.

Question 25

Reduced Paid up Insurance

Answer 25

This reduces the amount the amount of paid-up insurance from the original amount to an amount equal to what the existing cash value of the policy can purchase.

Question 26

Life Income

Answer 26

Provides a guaranteed monthly, quarterly, semi-annual or annual payment so long as benie lives.

If benie dies, no refunds or further payments made.

If benie lives, this option will provide most income

Question 27

Dividends

Answer 27

“ a return of excess premium paid” are not taxable in year they are declared