Policy, Provisions, Options and Riders

Question 1

insuring clause

Answer 1

(aka insuring agreement)

insurer’s basic promise to pay benefits to PO in event of covered loss

Question 2

free look

Answer 2

PO certain # of days once policy delivered to look over policy and return for refund of all premiums paid

Question 3

consideration clause

Answer 3

PO must pay a premium in exchange for insurers promise to pay benefits

consists of the PO complete app. and paying initial premium. “please consider me”

Question 4

grace period

Answer 4

period after due date of premium where policy remains in effect without penalty

Question 5

what happens if PO dies during grace period

Answer 5

beneficiary will receive face amt of policy minus any required premiums.

typically 1 month.

Question 6

reinstatement

Answer 6

putting lapsed policy back in force

must provide evidence of insurability and paying any past due premiums.

most states allow 3 years after lapse but some are 5-7 yrs

Question 7

policy loan provisions

Answer 7

(aka cash withdrawal) applies to CV policies.

these policies must begin to build CV after certain amt of years.

most states 3 years

loans cannot exceed the guaranteed CV or the policy is no longer in force

Policy loan not taxable

any interest due on loan at time of death will be deducted from the insured’s policy proceeds.

Question 8

automatic premium loan provision (rider)

Answer 8

(aka rider) allows ins. co. to automatically deduct overdue premium from insured’s CV at the end of grace period.

can continue to happen as long as you still have CV

if no CV, and no payment is made, policy will lapse.

Question 9

other insureds (rider)

Answer 9

aka dependent riders

may be added to primary policy to cover spouse or “another insured” children or adopted children

Question 10

the “incontestability period

Answer 10

for certain reasons such as misstatements of app, the co. may void a life ins. po. after its been in force during the insured’s lifetime, usually 1-2 more years after issue, after that, po. considered “incontestable”

Question 11

assignment clause

Answer 11

allows right to transfer policy to another person/entity.

Question 12

absolute assignment

Answer 12

assignee receives full control over the policy and also full rights to its benefits.

generally if po. assigned to a debt, the owner retains all rights in the policy in excess of the debt

Question 13

collateral assignment

Answer 13

assignment to policy to creditor as security for a debt.

creditor reimbursed out of policy proceeds

the beneficiary is entitled to any excess of policy proceeds over amt due to creditor if PO dies.

Question 14

accelerated benefit rider

Answer 14

allows insured to receive a portion of death benefit prior to death if insured has terminal illness and expect death 1-2 years.

if withdrawn, whatever amt will decrease the death benefit if death occurs.

Question 15

what are the 6 common exclusions in insurance

Answer 15

1. suicide clause
2. aviation
3. war/military service
4. commitment of felony/illegal occupation.
5. alcohol/narcotics
6. hazardous occupation or hobby

Question 16

the misstatement of age or sex provision

Answer 16

allows insurer to adjust po. benefits if insured age/sex misstated.

will adjust according to age

Question 17

nonforfeiture options

Answer 17

options you have for your CV IF YOU TERMINATE policy (closing/surrending po)

Question 18

what are the nonforfeiture options available

Answer 18

1. cash surrender
2. extended term option
3. reduced paid-up option

Question 19

what is a cash surrender nonforfeiture

Answer 19

PO receive policy CV.

normally, longest time life. ins. co. may defer paying CV of surrendered policy is 6 months (delayed payment provision)

Question 20

what is an Extended Term Option

Answer 20

can use PO’s CV to buy level, extended term ins. for specified period.

no premium payments are made.

the coverage provided is = to the net death benefit of the lapsed policy

Question 21

what is the reduced paid-up option of nonforfeiture

Answer 21

PO pays no premiums but the face amt is decreased.

Question 22

dividend options

Answer 22

pay dividends to PO if co. operations result in divisible surplus.

dividends are a return of overcharged premiums and are NOT taxable.

typically paid on annual basis.

policy still active w/ dividends

Question 23

what are some dividends options

Answer 23

1. cash option
2. reduced premiums option
3. accumulate interest option
4. paid-up additions option
5. one-year term option.

Question 24

what is the cash dividend option

Answer 24

take the cash

Question 25

what is the reduced premiums dividend option

Answer 25

reduces premium payments

Question 26

what is the accumulate. dividend option

Answer 26

allow to accumulate interest. interest is the ONLY thing you can be charged TAX on.

Question 27

what is the paid up additions dividend option

Answer 27

purchase single pay whole life coverage

Question 28

what is the one-year term dividend option

Answer 28

purchase 1 year protection

Question 29

what is The Guaranteed Insurability Rider

Answer 29

aka future increase option or cost of living increase permits PO to buy additional perm. life ins. coverage at specific points of time in the future WITHOUT submitting proof of insurabilty. also includes marriage/birth, w/out requiring proof of insurability usually allowed every 3 years no need for proof of insurability . health doesn't matter, age does typically issued on child's policy, allows them to add additional Whole Life Coverage

Question 30

the waiver of premium rider

Answer 30

allows PO to waive premium payments during disability - does not provide cash pay to PO. disability must be permanent and total, and have sustained through the waiting period (90 days or 6 months) at 60-65, waiver of premium rider is void. covers the primary insured and doesn't provide income. NOT a loan.

Question 31

payor provision (rider or clause)

Answer 31

avail. under certain juvenile life ins. po. and provides for the waiver of future premiums if the person responsible for paying them dies or is disabled before the policy becomes fully paid or matures as a dealth claim, or as an endowment. OR the chilid reaches a specific age

Question 32

Accidental Death Benefit Rider (multiple indemnity)

Answer 32

pays additional sum to beneficiary if the insured dies due to accident. amt paid is a multiple of the policy face amt such as a double or the triple original benefit. the cheapest way to add a lot of coverage for a period of time

Question 33

return of premium rider

Answer 33

pays the total amt of premiums paid into the policy in addition to the face value, as long as the insured dies w/in certain time period specified. also returns premiums to the living insured at the end of a specified period of time, as long as the premiums have been paid.