chapter 6 summary

Question 1

entire contract

Answer 1

the entire contract clause or provision is found at the beginning of the policy

Question 2

privilege of change clause

Answer 2

(or policy change provision) outlines the conditions under which the company will allow the policy owner to change the policy’s coverage

Question 3

insuring clause or agreement

Answer 3

sets forth the company’s basic promise to pay benefits upon the insured’s death and specifies the amount and frequency of premium payments.

Question 4

execution clause or provision

Answer 4

specifies that, after a certain period has elapsed (typically 2 years from the issue date) the insurer no longer has the right to contest the validity of the insurance policy so long as the contract continues in force.

Question 5

incontestable clause

Answer 5

allows an insurer to contest a claim during the contestable period. However, statements related to age, sex, or gender can be contested at any time. The company reserves the right to adjust the premium if the age of the insured is misstated.

Question 6

suicide rules

Answer 6

death caused by suicide is excluded during the initial period after the policy becomes effective

Question 7

owners provision or rights of policy ownership

Answer 7

states that the policy owner possesses all of the rights contained in the policy. The primary rights of a policy owner include:

the right to assign and change beneficiaries

the right to determine how proceeds will be paid (settlement options)

the right to terminate the policy and select a non-forfeiture option

the right to determine and change the premium payment schedule

the right to assign ownership of the policy to another person

the right to decide what happens with dividends that are paid out from a participating policy

the right to cnvert or renew a term policy if such option exists within the contract

Question 8

absolute assignment

Answer 8

absolute assignment of a policy involves a complete transfer of the policy to another

Question 9

beneficiaries

Answer 9

and assignees are entitled to the proceeds upon the death of the insured before any claims of the insured’s creditors

Question 10

irrevocable beneficiary

Answer 10

beneficiary cannot be changed

Question 11

two types of assignments

Answer 11

absolute and collateral

Question 12

mode of premium

Answer 12

premiums must be paid to an insurer or its representative in order for coverage to be provided and allows the policy owner to select the mode of premium.

Question 13

free-look provision

Answer 13

allows the policy owner to return the policy for a full premium refund without providing the issuer with a reason

Question 14

the grace period

Answer 14

meant to protect the policy owner against the unintentional lapse of the policy

Question 15

reinstatement period

Answer 15

allows an insured to reinstate a lapsed insurance policy. typically, this must be done within 3 years of the policy lapse. however in some states reinstatement may be allowed for as long as 7 years. if the insurer doesn’t accept or reject the reinstatement within 45 days, coverage will be automatically reinstated as if it had never lapsed.

Question 16

non-forfeiture options prevent the policy owner from forfeiting a policy’s cash value if he decides to terminate the policy. The three non-forfeiture options are

Answer 16

1. cash surrender
2. reduced paid-up option
3. extended term option

Question 17

cost recovery rule

Answer 17

when a life policy is surrendered for its cash value, the cost basis (total premiums paid) is exempt from taxation.

Question 18

extended term insurance option

Answer 18

provides the insured with the most life insurance protection in the event of a voluntary policy surrender or non-payment of premium

Question 19

policy loan

Answer 19

the main advantage of a policy loan is that it provides ready cash for the policy owner without needing to apply or qualify for the loan.

Question 20

automatic premium loan provision

Answer 20

allows the insurance company to automatically take a loan against the policy’s cash value to pay the premium due if the required premium is not paid by the end of the grace period.

Question 21

spendthrift clause

Answer 21

stipulates that a settlement option may be selected by the policy owner at the time of application. additionally, it protects the monies, left on account with the insurer to the named beneficiary from creditors

Question 22

accelerated benefits provision

Answer 22

referred to as the living benefits or terminal illness rider, allows a policy owner to “accelerate” the death benefit of a life insurance policy if certain conditions are met.

Question 23

catastrophic illness

Answer 23

covers only identified or listed diseases in the policy such as cancer, heart disease, renal failure, stroke, etc.

Question 24

long term care rider

Answer 24

will generally pay benefits when the insured cannot perform at least two activities of daily living (ADLs)

Question 25

ADLs include

Answer 25

eating, dressing, bathing, toileting/continence, walking/ambulation, transferring, taking medication

Question 26

two ways a long term care rider can be designed

Answer 26

generalized or indepenent approach integrated approach

Question 27

insurance dividend

Answer 27

not considered a taxable income. a policy that provides a choice of dividend options must incude the statement that dividends are not guaranteed.

Question 28

dividend options

Answer 28

cash, reduced, reduction, or suspension of premiums, paid up permanent additions, one year term insurance, and accumulate at interest.

Question 29

waiver of cost insurance rider

Answer 29

reffered to as waiver of monthly deductions, typically reserved for universal whole life policies

Question 30

disability income benefit rider

Answer 30

provides an income benefit if the insured is totally and permanently disabled as defined by the policy

Question 31

double indemnity

Answer 31

policies that pay a multiple of 2 times the policy face amount

Question 32

principal sum

Answer 32

the death benefit that's paid under accidental death coverage

Question 33

capital sum

Answer 33

generally hald of the principal sum, it is the severance benefit that's paid under accidental dismemberment

Question 34

guaranteed insurability option

Answer 34

allows a policy owner to purchase additional life insurance coverage at specified dates without providing evidence of insurability

Question 35

payor rider

Answer 35

also referred to as the payor benefit provision or payor clause-is only added to a policy than an adult purchases to cover the life of a child.

Question 36

term insurance riders

Answer 36

created to give an insured an inexpensive option to add additional temporary coverage to a permanent policy

Question 37

level term rider

Answer 37

adds an additional fixed, level death benefit to the existing face value of a prmanent policy for a predetermined period and at a predetermined cost

Question 38

decreasing term rider

Answer 38

adds an additional decreasing death benefit to the existing face value of a permanent policy for a predetermined period and at a predetermined cost

Question 39

increasing term rider

Answer 39

will allow for a greater amount of coverage each year. increasing term riders provide an additional term insurance face amount at death that's equal to either all of the premiums paid or the amount of cash value.

Question 40

cost of living rider

Answer 40

automatically increases the face amount of the policy at specified intervals based on increases in the consumer price index (CPI)

Question 41

additional insurance rider

Answer 41

can be added to a life insurance policy to provide term insurance coverage for a spouse, children, or an entire family.

Question 42

exchange privelage rider/ substitute or change of insured rider

Answer 42

outlines the conditions and processes for changing the insured of an insurance policy

Question 43

war exclusion

Answer 43

prevents an insurer's financial catastrophe and typically applies to declared and undeclared wars

Question 44

status war clause

Answer 44

a restrictive-type clause which states that the insured will not possess coverage under an individual life insurance policy while he's in the military even if he's killed while away on furlough

Question 45

results clause

Answer 45

states that an individual policy doesn't provide coverage if the insured dies while participating in military activities or during military maneuvers of some sort

Question 46

aviation activities

Answer 46

most life insurance policies exclude deaths that result from certain types of high risk activities such as aviation activities