Chapter 9

Question 1

what is the definition of property in terms of legal terminology?

Answer 1

defined as a bundle of rights a person has with respect to something.

Question 2

what is the difference between real and personal property?

Answer 2

real- is land and anything growing on or attached to it

personal- is all other property

Question 3

personal property can be classified as tangible or intangible. Define these terms.

Answer 3

tangible- property that hass physical form,

intangible- property that represents ownership of a legal right

Question 4

is an insurance company a tangible or intangible property?

Answer 4

intangible.

Question 5

what is ownership property?

Answer 5

the sum of all the legal rights that exist in that property.

Question 6

who can be a beneficiary?

Answer 6

individual
group of persons
executor of an estate
corporation
charitable organization.

Question 7

give an example of a class designation beneficiary

Answer 7

my children

Question 8

who is the primary beneficiary

Answer 8

party designated to receive the policy proceeds following the death of the insured. If more than one, the proceeds are evenly divided unless indicated otherwise.
- to receive the policy proceeds the primary beneficaries must survive the insured.

Question 9

what is a contingent beneficiary

Answer 9

this is a desginated peron that can receive the policy proceeds only if all desginated primary beneficiaries have predeceased the insured.

Question 10

what is the term used for the right to change the beneficiary designation?

Answer 10

right of revocation

Question 11

what is the term used when a beneficiary is assigned to a policy and can be changed at any time by the insurer, and what is the term given to the beneficiary when a change can only be process with the consent of the beneficiary?

Answer 11

1. revocable

2. irrevocable

Question 12

define premium payment mode in terms of insurance premiums

Answer 12

the frequency at which renewal premiums are payable. Some insurance companies may charge fees or additional administration charges if a cliehnt chooses to make more frequent payments over smaller ones

Question 13

policies are issued on either a participating or nonparticipating basis. Define these terms

Answer 13

participating (par)- where the policyowners shares the insurances company’s divisble surplus
nonparticipating (nonpar)- policyowner does not share the insurer’s surplus.

Question 14

what is the divisible surplus?

Answer 14

the surplus set aside by some insurancef copanies, for the distribution to owners of partivipating policies.

Question 15

What is a policy dividend?

Answer 15

a policyowners’ share of the divisible surplus. This is considered a a refund of part of the premiums a partivipating policy owner paid in a policy year.

Question 16

in 2007, approx 79% of policies were (participating/nonparticipating)

Answer 16

nonparticipating

Question 17

do mutual insurance offer only participating or nonparticipating?

Answer 17

before, only participating, but now both.

Question 18

are premiums lower for participating policies?

Answer 18

non, they are higher, because insurers issuing non-participating policies often use less conservative assumptions regarding mortality investment earnings, and expenses.

Question 19

the owner of a participating policy may receive dividents in a number of ways called dividend options. Name 6.

Answer 19

1. cash
2. premium reduction option
3. policy loan repayment option
4. accumulation at interest option
5. the paid-up additional insurance option
6. additional term insurance option

Question 20

each participating life insurance policy also specified an automatic divident option.; What is it?

Answer 20

the option that the insurer will apply if the policy owner does not choose an option of dividend at time of application.

Question 21

what is an accumulation at interest dividend option?

Answer 21

this is where the policy dividends are left on deposit with the insure to accumulate at interest. The insurer specific the rate annyal based on current economic conditions. the policyowner has the right to withdraw part of all of these dividends and accumulated interest at any time.

Question 22

what is the paid-up additional insurance dividend option?

Answer 22

the insuere used any declared policy dividend to purchase paid-up additional insurance on the insureds life. The paid up is issues on the same plan of the basic policy and in whatever face amount the dividend can provide at the insures’ attained age.

Question 23

what happens under the additional term insurance dividend option?

Answer 23

the insurer uses each policy dividend to purchase one-year term insurance on the insured’s life. Limited option under two respects.

Question 24

what are the two respects for additional term insurance dividend option?

Answer 24

1. insures limit the amount og cash value the maximum ammount of one-tear term insurance that can be purchased each year.
2. before changing from another divident option to this one, insurers usually require evidence of insuribility.

Question 25

what are the two ways in which a policyownder may transfer owndership rights?

Answer 25

assignments and by endorsement

Question 26

what is assignment in terms of transferring the ownership of a policy? And name the 3 restrictions associated to this process

Answer 26

is the agreement under which the policy owner transfers some or all of his ownership rights of the policy to another party. 1. policy must have contractual capacity 2. the assignemnt cant infringe on the vested rights of an irrevocable beneficiary. 3. cannot be made for illegal puposes.

Question 27

an Assignment (in terms of transferring) may take two forms. what are they (just name them)

Answer 27

1. absolute | 2. collateral

Question 28

define an absolute assignment.

Answer 28

assignment under which a policy-owner transfers all of his policy ownership rights to the assignee.

Question 29

define collateral assignment of a life insurance policy in terms of transferring ownership

Answer 29

this is a temporary assignment of the monetary value of a life insurance policy as a collateral or security for a loan.

Question 30

how is a collateral assignment different from an absolute assignment?

Answer 30

1. collateral assignee's right are limited to those ownership rights that directly concern the monetary value of the policy. 2. the collateral assignee has a vested right to the policy monetary values, but that right is limited to the amount of the assignors' indebtedness to the assignee- the rest goes to the beneficiary. 3. the collateral assignee's rights to the policy values are temporary.

Question 31

what is assignment provision?

Answer 31

describes the roles of the insurer and the policyowner when the policy is assigned. the assignment is the agreement between the assignor and the assignee. The insurance company is not a party to the agreement.

Question 32

does the insurance company have control over the validity of the assignment?

Answer 32

no. and it usually cannot be held liable for having acted in accordance with an assignment that is later determined to be in value.

Question 33

define the endorsement method, in terms of transferring the ownership of a policy.

Answer 33

the policy ownership is completely transferred without requiring the policy owner to enter into a separate assignment agreement.

Question 34

when is the endorsement method of transferring ownership typically used?

Answer 34

used when policy is typically given as a gift, such as from parent to child

Question 35

what must be done (typically) to transfer the ownerhip of a policy?

Answer 35

policy owner must notify the insurer in writing. or by sending the policy to the company and the insurer adds to the policy an endorsement that states the name of the new owner.

Question 36

who usually receives the payout when there is no surviving beneficiary?

Answer 36

usually paid to policyowner, if there is none, it goes to the policyowners estate.

Question 37

what is a preference beneficiary clause (succession beneficiary clause)?

Answer 37

states that if the policy owner does not name a beneficiary then the insurer will pay the policy proceeds in a stated order of preference. - spouse - children - parents - estate

Question 38

what is a common disaster (in terms of insured and beneficaries)

Answer 38

when both the insurer and beneficiary die (together).

Question 39

what is the simultaneous death act.

Answer 39

this governs how insurance companies are to evaluate common-disaster situations. Usually if they die at the same time, (or in situations where its impossible to tell who died first) the insured is deemed to have survived the beneficiary and the policy proceeds are payable as if the insured outlive the beneficiary.

Question 40

what happens if the beneficary dies following the insure? (even just a few minutes)

Answer 40

the benefits are payable to the beneficiary's estate. Some policy owners do not want this, and therefore insruance companies have created a survivorship clause

Question 41

define thr survivorship clause

Answer 41

states that the beneficiary must suivive the insured by a specified period (30-60 days) to be entitled to receive the policy proceeds. if they do not survive, the policy proceeds are paid as if the beneficiary pre-deceased the insured.

Question 42

what is added/included when calculating the amount of the benefit payable? (6)

Answer 42

1. amount of the basic deathy benefit payable 2. amount of any accidental death benefits payable 3. amount of any declared but unpaid policy dividends 4. amount of accumuylated policy dividends, including interest 5. face amount of any paid-up additions 6. amount of any unearned premiums paid in advance.

Question 43

what is subtracted when calculating the amount of the benefit payable? (2)

Answer 43

1. amount of any outstanding policy loans | 2. any premiums due and unpaid.

Question 44

besides being paid in a lump sum, what other alternative methods of receiving the proceeds of a life insurance policy is there? (called settlement options)

Answer 44

settlement options provision (which can be changed at any time, or be revocable/ irrevocable) have 4 kinds 1. interest option- invest policy proceeds and periodically pays interest on those proceeds to payee. 2. fixed period option- company pays policy proceeds in equal installments to the payee for a period of time. (has interrest earnings- amounts are determined at the time of settlement) 3. fixed amount option- company pays euqal installments of a stated amount until proceeds, and interrest are exhausted;. 4. life income option- pays the policy proceeds in period installements over the payye's lifetime. policy proceeds are used to puchase a life annuity to the payee

Question 45

what is a life annuity?

Answer 45

the annuity that provides period income payments for at least the lifetime of a names individual.