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Life Insurance Notes > Chapter 7 > Flashcards

Chapter 7 Flashcards

(101 cards)

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1
Q

THe terms of life insurance policies are spelled out where/how?

A

In provisions/clauses

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2
Q

What do provisions/clauses describe?

A

How certain situations will be handled - as well as the rights and obligations of the policyowner and issuer

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3
Q

What is the “free look” or “right to examine” provisions

A

The free look/right to examine provision gives the policyowner a period of time to return the policy for any reason within 10 days of delivery and receive all premiums paid. THe policy will be null and void

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4
Q

What is the “free-look” period length?

A

10 days

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5
Q

What is the insuring clause?

A

The :”insuring clause” or “insuring agreement” sets forth the insurer’s promise to pay benefits upon the insured’s death - includes what the company will pay, death benefit amount, and to whom it will be paid

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6
Q

Who signs the insuring clause?

A

An authorized officer of the company

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7
Q

Where is the insuring clause usually found?

A

On the first page of the policy (face amount - promise to pay upon death)

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8
Q

THE owner of a policy has many rights and privileges that can be performed without the consent of a beneficiary - including what?

A
  1. Change beneficiary (unless irrevocable)
  2. Select settlement, conversion, and non-forfeiture options
  3. Receive or borrow any cash values or dividends that have accumulated
  4. Assign or Transfer ownership of policy
  5. Premium Payment Mode
  6. Receive policy proceeds upon maturity or endowment
  7. Cancel the policy
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9
Q

What is assignment?

A

Transfer of owner’s rights, in whole or in part, to another individual or entity

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10
Q

What are the two common types of assignment?

A
  1. Collateral Assignment

2. Absolute or Permanent

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11
Q

What is collateral assignment?

A

Temporary or conditional - does not change ownership of the policy. Most common partial assignment is to pledge all or part of the death benefit as collateral for a loan

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12
Q

What is absolute or permanent assignment?

A

Assignment of a policy transnfers all rights of ownership to another person or entity. Examples: a parent may transfer policyownership to a daughter when she reaches the age of 18

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13
Q

The entire contract is constituted of what?

A

The life insurance contract and a copy of the original application (plus any riders or amendments)

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14
Q

May an insurer refer to documents other than the contract and the original application when denying or paying a claim?

A

No, a provision states “no statement shall void this policy or be used in defense of a claim under it unless contained in the application”

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15
Q

What are endorsements?

A

Any change made (amendments) - must be signed by an executive officer of the company and cannot be authorized by an agent/producer

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16
Q

Who must sign endorsements (amendments/changes)

A

Executive officer of company - cannot be authorized by an agent/producer

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17
Q

Can an owner request a change to a policy?

A

Yes

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18
Q

What is the “consideration” in a life insurance contract?

A

From Owner: Premium + Representations

From Insurer: Promise to pay face value to beneficiary upon the death of the insured

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19
Q

What is the “payment of premium” provision?

A

States that premiums are due in advance - that is, before the date on which the next period of coverage begins

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20
Q

Mode of payment is what?

A

Frequency of payments

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21
Q

Premium payments can either be level, single payment, graded, or flexible

A

Note

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22
Q

What is the “grace period” of a policy?

A

Insured does not pay on date when due, the policy will stay in force for a limited time before the coverage actually lapses. This is known as the policy’s “grace period”

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23
Q

How long is the grace period generally?

A

31 days

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24
Q

If the insured dies during the grace period, what occurs?

A

They policy will pay the death benefit minus the amount of the past due premium as of the date of death

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25
What is "reinstatement"
The restoration of a lapsed policy as originally purchased
26
Do permanent life policies permit reinstatement?
Yes - in nearly all cases - the insured will receive the protection of the original policy.
27
How does reinstatement generally work if the policy has not been surrendered in cash?
1. Submit an application within 3 years of lapse 2. Pay all past due premiums + interest 3. provides satisfactory evidence of insurability (medical examination)
28
The premium for a reinstated policy will be the same as the original - t/f?
True
29
Does a reinstated policy generally start a new contestability period (two years)
Yes
30
Does a reinstated policy generally require a new suicide period?
No (only the new contestability period)
31
How many years after lapse can you reinstate?
3 years (generally)
32
Does reinstatement require that the policy was not surrendered in cash?
Yes
33
What is the "incontestability provision"
Protects the insured - states that after the policy has been in effect for 2 years, the company cannot claim that a statement made in the application was meant to defraud the insurer
34
What is and how long is the "contestable period"
The first 2 years of a policy are known as the contestable period - during this period, the insured might be required to substantiate statements
35
If a policy has been reinstated after a lapse, does the contestable period start again?
A new contestability period starts again - but it only applies to information given in the reinstatement application - not the information from when the policy was originally purchased
36
What is a suicide clause?
The clause states that, whether sane or insane, if an insured commits suicide during the first two years after a life insurance contract has been issued, the company will pay only the premium paid to the insured - not the face amount of the policy
37
How long are suicide clauses?
2 years (generally)
38
Is suicide excluded from accidental death benefits?
Yes
39
Does the incontestability clause pertain to an insured's misstatement regarding age?
No
40
With respect to misstatement regarding age, if a deceased insured misrepresents their age, what happens?
The face amount of the policy will be adjusted to an amount the premium would have purchased at the insured's correct age, at the time of purchase of the policy
41
If a misstatement regarding age was actually in a favorable direction (said that you were 30 when you were actually 20) would the policy result in a higher face value
Yes
42
Are misstatements regarding sex similarly handled to misstatements regarding age?
Yes
43
If a misstatement regarding age is discovered while the insured is alive, will the mistake be rectified at the insured's option?
Yes
44
What is the "payment of claims" provision?
Says that the insurer will pay the death benefit promptly
45
Insurance companies are generally required to pay a death claim with how many days after receiving notification of a claim?
60 days after receiving notification of a claim
46
If a claim payment is made more than 60 days after notification of a claim, what must be paid?
Interest
47
What are the 13 life insurance policy provisions?
1. Free Look 2. Insuring Clause 3. Ownership RIghts 4. Assignment 5. Entire Contract 6. Modifications 7. Consideration 8. Payment of Premium 9. Grace Period 10. Reinstatement 11. Incontestability Provision 12. Misstatement of age or sex 13. Payment of claims
48
What is the "entire contract" clause?
Clause identifying all the components of the contract
49
Who is the "beneficiary"
THe person or entity who will get the death benefit
50
Must a beneficiary have an insurable interest in the insured when the policy is created?
Yes
51
If two or more beneficiaries are named, must the policyowner define how the benefits are to be shared among them?
Yes (if no provision given, paid in equal shares)
52
Can life insurance beneficiaries be named by class?
Yes
53
What is a "class" for the sake of naming beneficiaries?
For example, "my children" or "my siblings" would be class designations.
54
Do CLass beneficiaries need to be identified by name?
No
55
What is a trust?
A legal entity that can hold title to property while it is managed for the benefit of others
56
There are 3 parties to a trust - what are they?
1. Grantor 2. Trustee 3. Beneficiary
57
Who is the grantor in a trust?
Individual who sets up a trust, transfers property into it, and writes the instructions as to how the trust will operate
58
Who is the "trustee" in a trust?
The party that manages the property according to the grantor's instructions. The trustee may be an individual or another legal entity such as a bank
59
Who is the "beneficiary" in a trust
The person who receives the benefits of a trust
60
In the context of life insurance, why are trusts generally set up?
Generally designated to receive insurance proceeds in order to allow someone to enjoy the benefits of those proceeds without giving them ownership. This is commonly done when the beneficiary may not be capable of managing a large sum of money
61
What is a minor?
Someone under the age of 18 - legally deemed "incompetent"
62
Can a minor take ownership of life insurance proceeds? What are some reasonable solutions?
No - paying the proceeds to a trustee or guardian who is legally entitled to receive and manage such funds on behalf of the minor is a valid beneficiary arrangement - however the insurer may be instructed to hold the death proceeds and credit interest until the minor attains legal/majority age
63
May an insured's estate be designated as a beneficiary in a trust?
Yes - in which case, the death benefit would be used to pay debts and costs of legally closing the estate - after the debts are paid, the remaining proceeds will be distributed to the insured's heirs along with the estate's other assets
64
How are life insurance proceeds paid to an estate treated for tax purposed?
Life insurance proceeds paid to an estate are counted toward the total value of the estate for estate tax purposes
65
Who can be a beneficiary? (7 things)
1. individuals 2. Classes 3. Trusts 4. Minors 5. Estates 6. Charities 7. University/Colleges
66
What is the distinction between per capita and per stirpes?
1. Per Capita: By the head (If two children, split 50-50, if one dies, all goes to one) 2. Per Stirpe: By the Branch (if two children, split 50-50, if one dies, proceeds of 5 go to that child's brand - e.g. grandchildren)
67
What is the "primary beneficiary"
The first in line to receive the policies death benefit
68
What is the "contingent beneficiary?
The next in line to receive the death benefit
69
What is the "secondary/contingent beneficiary"
The next in line if the primary beneficiary has died,
70
What is the "tertiary beneficiary"
THe next in line after the secondary/contingent benefiary has died
71
Do secondary/contingent beneficiaries have any right to proceeds if the primary beneficiary is still alive?
No - contingent beneficiaries only get proceeds if all the beneficiaries on the level above them have died before the insured
72
Can beneficiary designations be changed or revoked without their consent?
Yes
73
What are revocable beneficiaries?
Designations can be changed without knowledge or consent of the beneficiary
74
Can policyowners given up their right to change the beneficiary?
Yes
75
What are irrevocable beneficiaries?
Beneficiary can only be changed with the written consent of the beneficiary
76
If an irrevocable beneficiary dies before the policyowner, what happens?
the policyowner usually has the right to name a new beneficiary
77
With irrevocable beneficiaries, does a loan or withdrawal from cash value usually require permission of the irrevocable beneficiary?
Yes
78
Can policyowners generally change primary and contingent beneficiaries?
Yes - often as desired, during the lifetime of the beneficiary
79
When do changes in beneficiaries generally take effect?
As of the date on the written request
80
To change beneficiaries, must policyowners notify the insurer?
Yes
81
What is a "facility of payment" provision?
The facility of payment provision allows the insurer to pay all or part of the policy's death benefit to someone other than the designated beneficiary
82
What conditions need to be satisfied for a facility of payment provision?
1. The beneficiary is a minor, is decease or cannot be found | 2. Someone other than the beneficiary incurred the insured's final medical bill or funeral expenses
83
If there is no beneficiary, where do proceeds go?
To the insured's estate
84
What is the uniform simultaneous death act?
If the insured and the primary beneficiary die as a result of the same accident, the policy proceeds will not be paid to the primary beneficiary since that person just died. Instead, proceeds are paid to the contingent beneficiary or to the insured's estate if no contingent beneficiary is listed
85
What is the common disaster provision?
Expands on the Uniform Simultaneous death act - providing a more lenient timespan between the death of the insured and the primary beneficiary when by a common accident. Many times, one person could live several hours or days beyond the accident but ultimately die due to the accident - the language of a "common disaster provision" effectively assumes that the primary beneficiary dies first
86
How long is the common disaster provision typically?
30 to 90 days of the accident. This prevents the life insurance proceeds from being paid to the estate of the primary beneficiary
87
For the common disaster provision to work, does it need to be the same accident/disaster?
Yes (recall, generally 30 to 90 days)
88
What is a spendthrift clause?
Clause that may be included in a life insurance policy - requires that the proceeds be paid to the beneficiary in installments of a defined amount and at set intervals
89
When there is a spendthrift clause, does the beneficiary have the right to elect a different settlement?
No
90
WIth a sprendthrift clause, is the beneficiary allowed to borrow from the policy or assign any of the proceeds?
No
91
With a spendthrift clause, can death benefits be claimed by creditors before payment to the beneficiary?
No
92
With a spendthrift clause, can death benefits be pledged to a creditor?
No
93
THe uniform simultaneous death Act states that the primary beneficiary is assumed to have died first in the event of a common death during accident unless what?
There is evidence to the contrary
94
What are exclusions?
Many life insurance policies contain exclusions - or exceptions that apply when coverage does not apply
95
What is the suicide exclusion?
Death by suicide is not covered for a period of time after the policy goes into effect (period of one or two years)
96
If an insured commits suicide during the suicide exclusion period, what occurs?
The policy's death benefit is not payable, but all premiums for the policy are refunded
97
What is the aviation exclusion?
Eliminates coverage for certain types of aviation activities. Does not apply to commercial flight.
98
Does the aviation exclusion apply to individuals who are fare paying airline passengers?
No
99
There are two types of "war or military service exclusions" - what are they?
1. Status type - eliminates coverage for the entire period which the insured is in the military, regardless of how the insured dies 2. Results type - coverage is eliminated only if the cause of death was related to military service
100
What is the hazardous occupation or hobby exclusion?
May be included if the insured engages in activities such as auto racing, sky diving, or scuba diving, either for pay or recreation - as opposed to excluding coverage entirely in this case might charge additional premium or limit the amount of coverage it would issue
101
If the named beneficiaries cannot be found, the facility of payments provision does what?
Allows the insurer to select a beneficiary

Life Insurance Notes (12 decks)

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