Policy Provisions, Options And Other Features Flashcards Preview

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Flashcards in Policy Provisions, Options And Other Features Deck (51):

Entire contract

Policy and a copy of the application along with any riders or amendments constitute the entire contract. Neither insurer or the insured can change the terms without mutual agreement and the change being affixed to the contract.


Insuring clause

States insurers promise to pay the death benefit upon insured's death
Located on policy face page
Defines who the parties are
Premium to be paid
How long coverage is for
The amount of death benefit


Fee look

Allows policy owner 10 days from receipt to look over the policy and if dissatisfied for any reason may return it for a full refund. Free look begins at policy delivery.


Owners rights

Naming and changing the beneficiary
Receiving policy's living benefits
Selecting benefit payment options
Assigning the policy


Policy owner

Pay the premiums
Must have an insurance interest in the insured at the time of the application


Third party ownership

When the owner and the insured are not the same person



Ownership of a policy can change without the consent of the insurer
The policy owner must advise the insurer in writing


Absolute assignment

Transfers all rights of ownership to another person or entity
Permanent and total transfer of rights to policy
New policy owner does not need to have insurable interest in the insured


Collateral assignment

Transfers partial rights to another person
Usually to secure a loan
Partial or temporary assignment of some of the policy rights
Once debt or loan is repaid policy rights return to the original policy owner


Beneficiary designations

Person or entity that will receive funds upon death of insured
Could be a person, class of persons
Insured's estate
Institution or other entity ie foundation, charity, corp, trustee of a trust



Insured's estate will receive the proceeds of the life insurance policy, if none of the beneficiaries are alive at the time of the insured's death.



Class of beneficiary such as my children is vague. It is recommended to be more specific just in case there are multiple marriages, adopted children, illegitimate children, etc.
it is prudent to name each child and sate percentages.


Per capita

By the head...evenly distributes benefits among the living named beneficiaries.


Per stirpes

By the bloodline....distributes benefits of a beneficiary who died before the insured to that beneficiary's heirs.


Primary beneficiary

Has first claim to the proceeds following the death of the insured
Policy owner may designate more than one beneficiary as well as how the proceeds are divided.


Contingent beneficiary

Has second rights to the benefits in the event that the primary beneficiary dies before the insured does.


Revocable designation

Policy owner can change a revocable designation at any time without consent or knowledge.


Irrevocable designation

May not be changed without the written consent of the beneficiary
Irrevocable beneficiaries have a vested note rest in the policy
Policy owner may not exercise certain right without the consent of the beneficiary.
Policy owner cannot borrow against the cash value or assign the policy to another person without written consent as well


Common disaster

If the beneficiary and the insured die simultaneously or within 0-90 days of each other, the uniform simultaneous death law states that the beneficiary will be designated as deceased first to protect the owners original intent. As long as the beneficiary dies with in a specified timeframe after the insured.



Mortality charge - interest = net premium
Net premium + expenses (loading) = gross premium

Mortality - interest + expense (loading) = gross premium



Allows policy owner an opportunity to put a policy back in force subject to providing continued insurability.
Policy must be restored to its original value by paying any back premiums, loans, interest etc.



Prevents an insurer from denying a claim due to statements in the application after the policy has been in force for 2 years.


Misstatement of age

If an applicant misstated their age, in the event of a claim, the insurer has the right to adjust the benefit amount to an amount that the premium at the correct age would have otherwise purchased.


Automatic premium loan

Prevents unintentional lapse of a policy due to nonpayment of premium.
A loan for the premium due is automatically generated at the end of the grace period.
Loan requests for payment of due premiums must be honored immediately.



Aviation: fare paying passenger/pilot on a regularly scheduled airline.
Hazardous occupations or hobbies:skydiving auto racing
War military service:status clause excludes all active duty military
Results clause excludes death as a result of an act of war



If insured commits suicide within 2 years of policy effective date the insurer's liability is limited to premiums paid

After two years the insurer's liability will include the entire proceeds to the beneficiary.



Explain the rights and characteristics of the contract



Are amendments that "ride on" the provisions that already exist, so they modify the provisions



Are different ways the insured can invest or distribute an amount of money ie dividends, income, or death benefit.


Waiver of premium

Waves the premium for the policy if insured becomes totally disabled. 6- month waiting period


Total disability

Generally defined as the inability to engage in any work. The insured's inability to perform duties in his/her own occupation for the first 2 years then any gainful work thereafter.


Waiver of stipulated premium

(Universal life) designed to waive a specific amount of premium and can be added to a universal life policy at an additional cost.


Guaranteed insurability

Allows the insured to purchase additional coverage at specified future dates or events with out evidence of insurability for an additional premium. Usually expires at 40


Accidental death

Pays a multiple of the face amount if the death is a result of an accident as defined in the policy. Death must occur within 90 days of incident. Double indemnity. Triple indemnity.


Accidental death and dismemberment

pay the principal for accidental death and a percentage of that amount, capital sum, for accidental dismemberment.


Term riders

Allow for an additional amount of temporary insurance to be provided on the insured.


Other insured rider

Provides coverage for one or more family members aka family rider, spouse term rider, Children's term rider, nonfamily insureds,


Cost of living

Addresses the inflation factor by automatically increasing the amount of the insurance without evidence of insurability from the insured.


Waiver of cost

Universal life policies can include the ability to waive the cost of insurance. During this time the policy will not accumulate any cash value.


Disability income benefit rider

In event if disability the rider will waive policy premium and pay a monthly income


Payor benefit

Applies to juveniles...if adult pays the premium becomes disabled or dies the insurance company will waive premiums until the child reaches a specific age, usually 21


Nonforfeiture option

Certain guarantees are built into a policy that cannot be forfeited.
Cash surrender value
Reduced paid up insurance
Extended term



Are a return of excess premiums. Not taxable. Not guaranteed.
Can be received as cash, reduce next year's premiums, or kept to accumulate interest.


Paid up additions

dividends are used to purchase a single premium policy (not a new separate policy) increasing the death benefit


Paid up option

Uses accumulated dividends and interest to pay up the policy early


One year term option

dividends are used to purchase one year term insurance


Acceleration of Endowment

Dividends are accumulated with interest and used to shorten the endowment period or convert a whole life policy into an endowment.


Settlement options

Lump sum
Fixed period installments:equal installments over a specific period of time until the entire face amount is paid
Fixed amount installments:pays a fixed amount until all funds are exhausted


Life income option

Receive payments for life not guaranteed the face amount will be paid out


Life income with period certain option

Payments guaranteed for a lifetime plus a number of years after death ie 10 years, or 20 years


Interest only option

Insurer retains the proceeds and only pays the interest earned