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Life Insurance: Policy Provisions Flashcards

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1
Q

Definition:
Life Insurance Policy Provisions

2 Parts

Life Insurance: Policy Provisions

A

(a.k.a. “Life Insurance Policy Clauses”)

  1. Describe how certain situations will be handle
  2. List out the rights and obligations for the policyowner and the insurer
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2
Q

Name the 14 Life Insurance Policy Provisions

Life Insurance: Policy Provisions

A
  1. Free Look Period
  2. Insuring Clause
  3. Ownership Rights
  4. Assignment
  5. Entire Contract
  6. Endorsements/Modifications
  7. Consideration
  8. Payment of Premium
  9. Grace Period
  10. Reinstatement
  11. Incontestability
  12. Suicide
  13. Misstatement of Age/Sex (Gender)
  14. Payment of Claims
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3
Q

Definition:
Free Look

3 Parts

Life Insurance: Policy Provisions

A

(The Right to Examine)

  1. Begins when the owner receives the policy
  2. Usually (no less than) 10 days
  3. Policy can be returned for a full refund

Allows the Policyowner to return a policy (for any reason) and receive a refund for all premiums paid

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4
Q

Definition:
Insuring Clause

3 Parts / 3 Sub-Parts

Life Insurance: Policy Provisions

A

(a.k.a. Insuring Agreement)

  1. The insurer’s promise to pay benefits upon the insured’s death
  2. Usually found on the first page of the policy
  3. Usually signed by an officer of the company

Information Included:
* What the company will pay
* The death benefit amount
* Who will receive the benefit (i.e. The Beneficiary)

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5
Q

Definition:
Ownership Rights

8 Examples

Life Insurance: Policy Provisions

A

The Policyowner may exercise all policy rights/privileges with the consent of the beneficiary

Examples:
1. Naming/Changing the Beneficiary
2. Selecting Settlement Options
3. Borrowing/Withdrawing Cash Values
4. Receiving Dividends (Participating Policies)
5. Surrendering/Canceling the policy
6. Assigning/Transfering Ownership
7. Selecting/Changing the Premium Payment Mode
8. Selecting a Non-Forfeiture Option

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6
Q

Definition:
Assignment

Life Insurance: Policy Provisions

A

A transfer of the Owner’s rights (in whole or part) to another individual/entity

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7
Q

What are the 2 Types of Assignment?

Life Insurance: Policy Provisions

A
  1. Collateral Assignment
  2. Absolute/Permanent Assignment
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8
Q

Definition:
Collateral Assignment

Life Insurance: Types of Assignment

A

(Temporary or Conditional Assignment)

Does not change ownership of the policy

Example:
* Pledging all/part of the Death Benefit as collateral for a loan
(Most Common Type of Partial Assignment)

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9
Q

Definition:
Absolute/Permanent Assignment

Life Insurance: Types of Assignment

A

Transfers all rights of ownership to another person/entity

Example:
* A parent transfering ownership to their adult child

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10
Q

Definition:
Entire Contract

Life Insurance: Policy Provisions

A

The Policy and a Copy of Original Application constitute the “Entire Contract”
(including any riders or amendments)

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11
Q

Definition:
Endorsements

5 Parts

Life Insurance: Policy Provisions

A
  1. Changes/Modifications to the current/existing contract
  2. Must be in writing
  3. Must be agreed to by the insurer and the policyowner
  4. Must be signed by an executive officer of the company
  5. Cannot be authorized by an agent/producer
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12
Q

Definition:
Consideration

2 Parts

Life Insurance: Policy Provisions

A

(Consideration = Money)

  • Insured’s Consideration = Premiums and Statements on application
  • Insurer’s Consideration = Paying benefits at time of claim
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13
Q

Definition:
Payment of Premium

Life Insurance: Policy Provisions

A

Premiums are due in advance of the coverage period
(on/before date when the next coverage period begins)

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14
Q

Definition:
Grace Period

2 Parts / 2 Sub-Parts

Life Insurance: Policy Provisions

A

If a Premium Payment is not paid on time, the Policy will stay in force for a limited time before lapsing.
* Usually 31 days following due date

If Policyholder dies during the Grace Period, the Death benefit will be paid
* (Minus the missed premium)

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15
Q

Definition:
Reinstatement

2 Parts

Life Insurance: Policy Provisions

A
  • Restoring a lapsed policy (as it was originally purchased)
    (Saves original policy + issue age)
  • Permanent life policies permit Reinstatement in nearly all cases
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16
Q

Key Points:
Reinstatement

7 Parts

Life Insurance: Policy Provisions

Study These Flashcards
A

Reinstatement allowed if:
1. The Policy lapsed due to nonpayment of premiums
2. A new application must be submitted within 3 years (to reinstate)
3. The Policy was not surrendered for cash
4. Policyholder must pay all missed Premiums (plus interest)
5. Policyholder must prove insurability (another medical exam)

  • “Suicide Period” - None
  • “Contestability Period” - 2 Years
    (Only for new information provided on the new application)
17
Q

Definition:
Incontestability

4 Parts

Life Insurance: Policy Provisions

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A

After a life insurance policy has been in effect for 2 years the Insurer cannot claim that a statement (on the application) was fraudulent

  • Protects the Insured/Policyholder
  • Contestable Period - 2 Years (usually)
  • Policy can’t be taken away due to Material Misrepresentation or Fraud/Concealment
18
Q

Definition:
Suicide Clause

3 Parts

Life Insurance: Policy Provisions

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A

If the Insured commits suicide:
* First 2 Years - Only the Premiums paid are returned
* After 2 Years - The full Face Amount will be paid

Suicide is excluded from “Accidental Death” benefits

19
Q

Definition:
Misstatement of Age/Gender

2 Sub-Parts (each)

Life Insurance: Policy Provisions

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A

Incontestability Provision’s does not apply

Misstatement of Age
* If Older than stated - Death Benefit reduced
* If Younger than stated - Death Benefit increased

Misstatement of Gender
(The Face Amount will be adjusted in a similar way)
* (The Premium is higher for Men)
* (The Premium is lower for Women)

20
Q

Definition:
Payment of Claims

1 Part / 2 Sub-Parts

Life Insurance: Policy Provisions

Study These Flashcards
A

The Insurer will pay the Death Benefit promptly
* Usually within 60 days (2 months) of receiving the claim
* If payment is made after 60 days, interest must be paid

21
Q

Who can be named as a Beneficiary for an Insurance Policy?

7 Parts

Life Insurance: Beneficiaries

Study These Flashcards
A
  1. Individuals
  2. Classes
  3. Trusts
  4. Minors
  5. Estates
  6. Charities
  7. University/Colleges
22
Q

Key Points:
Individual Beneficiaries

4 Parts

Life Insurance: Beneficiaries

Study These Flashcards
A
  1. Must have an “Insurable Interest” (when policy is purchased)
  2. Must be clearly identified by name (including middle name/middle initial)
  3. If two (or more) are named, Policyowner must define how benefits will be shared/split
  4. If no division is given, the benefits will be split equally
23
Q

Key Points:
Beneficiary Classes

Life Insurance: Beneficiaries

Study These Flashcards
A

Not Required to be identified by name

Examples:
* “My Children”
* “My Siblings”

24
Q

What are the Differences?:
Per Capita vs. Per Stirpes

3 Sub-Parts / 2 Sub-Parts

Life Insurance: Beneficiaries

Study These Flashcards
A

Per Capita - “By Head”
* Not Inheritable
* Divides the Death Benefit equally among the members of the Class
* Does not transfer proceeds below a generational level

Per Stirpes - “By Branch”
* Inheritable
* The children (of a deceased beneficiary) are entitled to that beneficiary’s share of the proceeds

25
Key Points: **Trust Beneficiaries** ## Footnote Life Insurance: Beneficiaries
Allows someone to receive the Death Benefits proceeds without giving them full access/ownership * Most common when the Beneficiary is not able/capable of managing the money
26
Key Points: **Minor Beneficiaries** | 4 Parts ## Footnote Life Insurance: Beneficiaries
1. Someone under age of 18 2. Defined as "Legally Incompetent" *(Cannot take ownership of the life insurance proceeds)* 3. Proceeds are paid to a Trustee/Guardian *(Legally entitled to receive/manage the funds on behalf of the minor)* 4. The Insurer may be instructed to hold the proceeds (and interest) until the minor becomes of legal age
27
Key Points: **Estate Beneficiaries** | 3 Parts ## Footnote Life Insurance: Beneficiaries
1. Typically used to pay debts and costs associated with closing out the estate 2. Any remaining proceeds are then distributed to the insured's heirs *(along with any other asssets)* 3. Life Insurance proceeds are counted toward the Estate's total value *(for estate tax purposes)*
28
What are the Differences?: **Primary/Contingent/Tertiary/Estate** | Levels of Beneficiary - Inheritance ## Footnote Life Insurance: Beneficiaries
**Primary Beneficiary** - (First in Line) * Will receive the policy's Death Benefit **Contingent Beneficiary** - (Second in Line) * Will receive the Death Benefit, if the Primary Beneficiary has died **Tertiary Beneficiary** - (Third in Line) * Will receive the Death Benefit, if the Primary and Contingent Beneficiary's have died **Estate** - (Last in Line) * Will receive the Death Benefit, if all other (named) Beneficiaries have died
29
What are the Differences?: **Revocable vs. Irrevocable** (Beneficiaries) | 3 Parts ## Footnote Life Insurance: Beneficiaries
**Revocable Beneficiary** * Can be changed by the owner at any time **Irrevocable Beneficiary** * Must have the current beneficiary's consent to be changed **If Irrevocable Beneficiary dies** * The Policyowner can name another
30
Definition: **Facility of Payment Provision** | 4 Sub-Parts ## Footnote Life Insurance: Beneficiaries
Allows the Insurer to pay all (or part) of the Death Benefit to someone *(other than a designated beneficiary)* if: 1. The Beneficiary is a minor 2. The Beneficiary is Deceased 3. The Beneficiary cannot be found 4. Someone (other than the beneficiary) incurred the insured's final medical/funeral expenses
31
Definition: **Uniform Simultaneous Death Act** | 2 Parts / 2 Sub-Parts ## Footnote Life Insurance: Beneficiaries
The Insured and the Primary Beneficiary die in the same accident (at the same time)... The "Uniform Simultaneous Death Act" directs that: 1. The Primary Beneficiary is assumed to have died first *(Unless there is evidence to the contrary)* 2. The Death Benefit proceeds are paid to the Contingent Beneficiary *(or to the Insured's estate if no contingent beneficiary is listed)*
32
Definition: **Common Disaster Provision** | 3 Sub-Parts ## Footnote Life Insurance: Beneficiaries
Provides a (lenient) timespan for the "Uniform Simultaneous Death Act" * Insured and Primary Beneficiary are in a "Common Accident" * Both die within 30–90 days after accident * Proceeds paid to the Contingent Beneficiary/Estate *(paid as if the primary beneficiary died first)*
33
Definition: **Spendthrift Provision** | 4 Examples ## Footnote Life Insurance: Beneficiaries
Requires that the Death Benefit proceeds are paid in installments (to the beneficiary) Examples: 1. Death Benefits cannot be paid in a lump sum 2. Death benefits cannot be claimed by creditors (before paid to beneficiary) 3. Death benefits cannot be pledged to a creditor (by the beneficiary) 4. Death benefits cannot be used as collateral for a loan (by the beneficiary)
34
Definition: **Life Insurance Policy Exclusions** ## Footnote Life Insurance: Policy Exclusions
Categories provided, within a Policy, for when coverage does not apply
35
What are the 4 Primary **Life Insurance Policy Exclusions**? ## Footnote Life Insurance: Policy Exclusions
1. Illegal Activities 2. Suicide *(during the first 2 Years of the Policy)* 3. Aviation *(Private Pilots, Test Pilots, Military Pilots/Crew)* 4. War/Military Service *("Status-Type" and "Results-Type")*
36
What are the Differences?: **Status-Type vs Results-Type** | War/Military Service Exclusions ## Footnote Life Insurance: Policy Exclusions
**Status-Type** * Eliminates coverage for the entire period the Insured is in the military *(Regardless of how they died)* **Results-Type** * Eliminates coverage only if the cause of death was related to military service
37
Definition: **Hazardous Occupation/Hobby** | 2 Parts / 2 Sub-Parts ## Footnote Life Insurance: Policy Exclusions
May be included if the Insured engages in "hazardous/dangerous" activities Alternative to excluding coverage - the insurer may: * Charge an additional Premium or * Limit the amount of coverage issued ## Footnote Examples: 1. Mountain Climbing 2. Auto Racing 3. Sky Diving 4. Scuba Diving

Life & Health Insurance (MA) (14 decks)

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