Flashcards in Chapter 8 Deck (40):
All types of insurance policies typically include a list of provisions. Name 6.
1. free-look provision
2. entire contract provision
3. incontestability provision,
4. grace period provision
5. reinstatement provision
6. misstatement of age or sex provision
what is the purpose of a provision, which vairies in structure but typically is included in all or most insurance policies.
they are designed to protect policy owners and beneficiaries. Insurers generally have the right to include provisions that are more favourable to the policy owner than those required by law
Define the free-look provision, and its purpose
gives a policyowner a stated period of time (usually 10 days) after the policy is delivered (in hand) in which to examine the policy. This allows the owner to to cancel and have full refund. Coverage is available throughout this period or until the policy owner rejects it.
What is the entire contract provision define?
defines the documents that constitute the contract. This limits the terms of the contract to specific written documents.
what would an entire contract provision be used? And how does it vary between a closed and open contract?
helps prevent controversies from developing regarding the terms of the contractual agreement.
-closed: only those terms and conditions that are printed in the contract are part of the contract.
-open: identifies the document are not necessarily attached to contracts. (fraternal insurers and memberships)
what is a declaration of insurability?
a form in which a proposed insured answers specific questions about his medical history.
the entire contact provision usually states 3 regulations, what are they?
1. only specific individuals such as certain officers of the insurer can change the contract
2. no change is effective unless made in writing.
3. no change will be made unless the policy owner agrees to it in writing.
insurance laws in many jurisdictions impose two important loimits on an insurer's right to avoid an insurance contract on the basis of misrepresentation. What are they?
1. only certain misrepresentations (material misrepresentation) give the insurer the right to avoid an insurance contract
2. the insurer has only a limited amount of time in which to avoid an insurance contract
what is an incontestability provision?
describes the time limit within which the insurer has the right to avoid the contract on the ground of material misrepresentation in the application.
what is material misrepresentation
a misrepresentation that is relevant to the insurance company's evaluation of the proposed insured. ITs considered material, if had the truth been known the insurer would not have issued the policy or would have issued on different basis.
what is the incontestability provision, and how is it worded in the states?
the terms usually determine whether the insuere can avoid the contract
- states: policy is incontestable afger it has been in force during the lifetime of the insured for two years from the date the policy was issued.
what is the maximum contestable period permitted by law in most states?
two-year contestable period
what happens after the contestable period has ended? is there an exception to this rule?
the insurer cannot avoid the contract
exception is that an insurer may contest a cpolicy at any time if the application for insurance contained a fraudulent misrepresentation.
what is a fraudulent misrepresentation ?
misreprensentation that was made with the intent to induce the other party to enter into a contract and that did induce the innocent party to enter into the contract.
What is the grace period provision ?
specifies a length of time following each renewal premium due date within which the premium may be paid without loss of coverage?
how long is a typical grace period?
30-31 dats, and the coverage remains in force throughout that period.
what happens when a required renewal premium is not paid by the end of its grace period?
usually lapses, however cash value policies contain a nonforfeiture provision, that usually allows policy-owners to continue coverage under specific circumstances even if the premium is not paid.
What does the reinstatement provision describe?
the conditions that the policy-owner must meet to reinstate a policy?
what is the reinstatemnt process?
the company puts back into force a life insurance policy that was either terminated d/t no payment or has been continued eder the extended term or reduced paid-ip insurance nonforfeiture option
What 4 typical conditions need to be met to reinstate a policy?
1. complete reinstatement application within time frame (2-5 yrs. usually)
2. provide insurance company with satisfactory evidence of the insured continued insruability
3. pay a specified amount of money
4. may need to pay outstanding policy loan or have the policy loan including any additional accrued interest reinstated with the policy.
the specific amount of money required to reinstate a policy depends on the type of policy. Explain./
fixed premium policies: pay back all premiums plus interrest.
flexible premium policies: pay an amount sufficient to cover policies mortality and expense charges for at least two months, i addition maybe mortality and expense charges for the period between the date of lapse and reinstatement
what are 2 advantages to reintating a fixed premium policy?
1. The premium rate for the original policy is based on the insured's age at the time the policy was purchased.
2. original cash value is reinstated
what does the misstatement of age or sex provision define?
actions the insurer will take to adjust the amount of the policy benefit in the event that the age or sex of the insureds is incorrectly stated. Usually the insurer will adjust the face amount of the policy to the amount the premiums actually paid would have purchased if the information was correct.
what is the purpose of the policy loan provision ?
it specifies the terms on which the policy-owner of a cash value insurance policy can obtain a loan against the policies cash value.
- a policy loan is an advance payment of part of the amount that the insurer eventually must payout under the policy.
how is a commercial loan different from a policy loan from a leading institution (bank)?
1.policy owner is not legally obligated to repay a policy loan, or right away. (can later be deducted from benefit)
2. a commercial loan creates a debt or creditor relationship between the borrower and the lender. The borrower is legally obligated to repay a commercial loan.
3. insurance loans do not do credit checks, for policy loans.
what is a policy withdraw provision with is usually included in a universal life insurance policy?
permits the policyowner to reduce the amount of the policy's cash value by withdrawing up to the amount of the cash value in cash.
there is typically an administrative fee for each withdrawal and limit the number of times you can do it in a year.
What is the nonforfeiture provision?
give the policyowner the right to select from several nonforfeiture options if a renewal premium is unpaid when the grace period expires. usually includes
1. cash payment nonforfeiture option
2. two continued coverage options ( reduced paid-up insurance and extended term insurance)
2, automatic premium loan option
which nonforfeiture benefit is most commonly attached to poilicies
automatic nonforfeiture benefit, which becomes effective automatically when a renewal premium for a cash value insurance policy is not paid byt the end of the grace period and the policy owner has not elected another options
- its usually extended term insurance benefit.
what is the cash payment nonforfeiture option?
it states that a policy-owner who discontinues premium payments can elect to surrender the policy and receive the policy's cash surrender value in a lump-sum payment.
what is the term given to the amount the policyonwer actually receives after adjustments have been made to the addition and subtractions of the cash surrender value (amount payable to policy owner following subtactstions of the amount of oustanding policy loans and interrests) ?
net cash value
what happens under the reduced paid-up insurance nonforfeiture option?
the policy's net cash surrender value is used as a net single premium to purchase paid-up life insurance of the same plan as the original policy.
what is the face amount that can be purchased under the reduced paid-up insurance nonforfeiture option?
- the amount that can be purchased under this option is smaller than the face amount of the originally policy.
- usually these policies contain a chart listing the amount available each year for the first 20 years. the value is based on the cash value listed in the policy of that year
what happens to a policy under the extended term insurance nonforfeiture option?
The insurance company uses the policies net cash surrender value to purchase term insurance for the full coverage amount provided under the original policy, for as a long as a term as the net cash surrender value can provide.
can a policy owner who has elected the extended term nonforfeiture option exercise the policy loan privilege or receive policy dividends?
however they can cancel it and surrender the policy for its remaining cash value.
do universal life insurance policies include an extended term insurance nonforfeiture option?
what happens under the automatic premium loan option?
an insurer will automatically pay an overdue premium for the policyowner by making a loan agasint the policies cash value as long as the cash value equals or exceeds the amount of the premium due.
what is an exclusion provision?
it describes circumstances under which the insurer will not pay the policy proceeds following the death of the insured.
give an example of a exclusion provision usually included in life insurance policies?
suicide excusion provision.
the usual maxium allowable length of suicide exculsion period is stated (2 years)
What are some other common exlusion causes that one may find? (they do vary from insurer to insurer and country to country)
1. war exclusion - death from acts of war
2. hazardous acitvities- dies during activities
3. aviation exlusion- dies if flying, military, experimental aircraft, ext.