Unit 6: Policy Provisions

Question 1

one of the provisions contained in every policy states what?

Answer 1

that the insurance policy itself and the application, when attached to the policy, make up the entire contract between the parties. No company rules, no oral understandings, or the like have any bearing on the contract unless they are included in the policy or the attached application.

Question 2

On occasion, it’s necessary to amend a life insurance policy after it has been issued. This occurs when ….?

Answer 2

when a customer wants to make changes to a policy

Question 3

changes or additions to the policy are called what?

Answer 3

riders, endorsements, or simply amendments.

Question 4

Who can make chanegs to a policy?

Answer 4

only authorized company officers. never an agent

Question 5

Many states today require that life insurance companies provide an examination period. Commonly ten days. If they decide to return it during this time. What happens?

Answer 5

must receive a full refund of all premiums paid. If the insured dies during this 10-day period, the beneficiary receives the policy proceeds, unless the policy has been returned for refund. 10 DAYS EXTEND TO 30 WHEN POLICY REPLACEMENT IS INVOLVED

Question 6

What are the 8 policy owner rights

Answer 6

1. The policy owner can name the beneficiary (person or person to receive the policy benefits)
2. the initial right to select how the policy proceeds are to be paid out
3. The policy owner also has the right to assign the policy.
4. the policy owner may use his or her policy to obtain a loan or cash.
5. the policy owner is entitled to the policy’s cash . surrender value.
6. the policy owner has the right to establish the policy’s premium payment schedule.
   Once the policyowner and the company have established the payment (annually, semiannually, quarterly, or monthly.)
7. the policyowner has the right to decide how to use any dividends paid by the company.
8. Convert the policy: With convertible term life insurance, the policyowner can change coverage to permanent protection. That is, he can CONVERT THE POLICY.

Question 7

What does it mean for owners rights that the policy owner also has the rights to assign the policy?

Answer 7

example, the policyowner could borrow funds from a bank and assign the policy to the bank as collateral security for the loan. When the loan is fully repaid, the policy would be reassigned back to the policyowner.

Question 8

What is the most primary beneficiary?

Answer 8

The word primary means first or most important. Therefore, if Jane is named the primary beneficiary, she is the first person in line to receive the proceeds of the life insurance

Question 9

Can you name more than one orimary beneficiary? If so, how is it possible

Answer 9

So if Jane and her brother Bob are both named primary beneficiaries, they will both receive their shares of the proceeds before any others.

Question 10

Because there’s no guarantee that a beneficiary will outlive the insured, it may be wise to name a contingent beneficiary as well. Why is that and what is it?

Answer 10

Whether the contingent beneficiary receives anything depends upon—or is contingent upon-some-thing happening to the primary beneficiary that keeps her from receiving the proceeds. Thus, a contingent beneficiary will receive the proceeds of the policy only if the primary beneficiary dies before the insured.

Question 11

Beneficiary designations that are selected by the policy owner may later be changed if the policyowner wishes to do so.

Answer 11

Beneficiary designations that are selected by the policy owner may later be changed if the policyowner wishes to do so.

Question 12

When an irrevocable beneficiary is named, the policy owner gives up what?

Answer 12

the usual ownership rights to the policy and cannot exercise them without the consent of the beneficiary

Question 13

Can minors be beneficiaries?

Answer 13

a minor would not be competent legally to receive payment of and provide receipt for the policy proceeds should the insured die before the minor comes of age.

Question 14

What is the work around for giving minors the death benefits from life policies?

Answer 14

To avoid this, insurance companies may hold the proceeds, paying interest on them until the beneficiary reaches legal age. Or the company may insist that a trustee or guardian be appointed for the minor, someone who is legally entitled to receive and manage the policy

Question 15

can you point beneficiaries by group?

Answer 15

yes

Question 16

What are the two types of designations?

Answer 16

Per capita and per stirpes

Question 17

What is per capita design?

Answer 17

per capita is derived from the latin language and means per head

Question 18

Under a per capita beneficiary designation, if one of the named beneficiaries is already dead when the policy matures, what happens?

Answer 18

the remaining beneficiary or beneficiaries divide the share of the one who passed, in addition to receiving their own original share

Question 19

Under a per stirpes designation, what would happen to the proceeds?

Answer 19

The proceeds belonging to the deceased brother would no go to the other beneficiaries.

Question 20

How does the situation work if one of the 3 brothers dies in a per stirpes designation?

Answer 20

In this case, the deceased brother is the root-
-that is, if he has heirs of his own. To those heirs-usually his children—he is their root, and the proceeds of the father’s policy pass through the root to his children.

ex. So, if we have three brothers named primary beneficiaries per stipes of a $150,000 policy, but one of them has died, followed by the death of the fa-ther, each surviving brother would receive $50,000 with the deceased brother’s $50,000 share passing on to his heirs.

Question 20

What does per stirpes designation mean?

Answer 20

through the root

Question 21

Can trusts be beneficiaries?

Answer 21

yes. If a person wants to, he can name his estate as the beneficiary of his policy. The same is true of a company or a trust. All of these may be named as a beneficiary, as can the surviving stockholders of a closely held corporation.

Question 22

What is the common disaster provision?

Answer 22

This provision simply writes into a policy that the primary beneficiary must outlive the insured a specified length of time in cases of simultaneous (or nearly simul-taneous) death, or the proceeds are paid to the contingent beneficiary.

Question 23

How many days does the policy owner get to request in the common disaster provision?

Answer 23

The policyowner requests this provision in the policy. It states that the primary beneficiary must outlive the insured a specified period of time, usually 10, 15, or 30 days, in order to receive the proceeds.

never more than 30 days

Question 24

What is a spendthrift?

Answer 24

someone who spends a lot of money

Question 25

How can an insured protect the money of a life policy from a spendthrift? how does the clause work?

Answer 25

with a spendthrift clause. the clause 1. will cause the proceeds to be paid in some way other than. a lump sum 2. The proceeds or payments to be made to the beneficiary are protected from the beneficiary's creditors while they are still held by the insurance company.

Question 26

What does the spendthrift clause also protect?

Answer 26

1. transferring the proceeds assigning payments to a creditor; 2. commuting the proceeds taking the present value of future payments in a lump sum; or 3. encumbering the proceeds-borrowing money on the strength of the proceeds of the

Question 27

What is the incontestable clause?

Answer 27

The incontestable clause states that after the policy (term as well as per-manent) has been in force a certain length of time, the company can no longer contest it, or void it, except for nonpayment of premiums. The length of time varies, but it's usually one or two years

Question 28

If the company discovers some reason to void the policy during the contestable period —the first year or two the policy is in, what can they do?

Answer 28

take action. Once the policy has been in force for the specified period, even if fraud is discovered, the company cannot void the

Question 29

What does the misstatement of age clause in an insurance policy provide?

Answer 29

when a discrepancy in age exists, if the insured is alive the company must adjust the amount of future premiums and request payment of the additional premium the policyowner should have paid. If the insured has died, the company must compute the amount of insurance that the actual premium paid would have purchased at the insured's correct age and pay the beneficiary that amount.

Question 30

what is the suicide clause designed to do?

Answer 30

The suicide clause is designed to prevent people who are contemplating suicide from obtaining life insurance.

Question 31

What is the suicide clause?

Answer 31

the clause states that if the insured commits suicide within a specified period of time, the policy will be voided. The length of time varies, but it's usually the same as the incontestable clause time limit: one or two years.

Question 32

What happens to the money if an insured does commit suicide within one yeear or two years of the policy creation?

Answer 32

If suicide occurs within the time limit, however, the company usually refunds any amount the policyowner has paid for the coverage.

Question 33

What happens if the insured commits suicide after the one or two year period

Answer 33

Once the period of time specified in the policy has elapsed, the company will pay the claim even if the insured commits

Question 34

When refunding premiums in the case of suicide occurring within the specified time limit of the suicide does the company usually pay interest the premium has earned?

Answer 34

no

Question 35

does it matter of an insured is sane or insane at the time he commits suicide with the suicide clause?

Answer 35

no

Question 36

With the reinstatement clause, what 3 conditions must be met?

Answer 36

1. The policyowner must pay all back premiums due plus interest on this amount. 2. The insured must show proof of insurability. 3. Less than three years must have lapsed

Question 37

as a general rule, a life insurance company will allow a change to a policy that calls for a higher premium than the original, usually without wht?

Answer 37

medical examination?

Question 38

when the policyowner is requesting a change to a policy that calls for a lower premium payment, or one that increases the risk borne by the company, the company can do what?

Answer 38

require proof of insurability. ebcause they could've gotten fat or things like that

Question 39

Privilege of change clause is in regards to what?

Answer 39

Changing policy type not amount

Question 40

The automatic loan provision, when included, allows what?

Answer 40

the company to use, automatically, whatever portion of the cash value is needed to pay premiums as they fall due.

Question 41

What does the automatic loan provision when included do?

Answer 41

It keeps the policy in force when it would otherwise lapse as a result of nonpayment of premiums

Question 42

how is the money let to the policyowner under the automatic premium loan provision treated? and what does it mean?

Answer 42

1. it is treated just like any other loan of the policy's cash value. 2. this means that interest is charged on the loan, and the cash value payable on surrender or death is reduced by the loam amount outstanding,

Question 43

the automatic premium loan provision must be what?

Answer 43

reuquested and written into the policy

Question 44

When a policyowner assigns a policy, she transfers what?

Answer 44

rights in the policy— either all of them or a stipulated portion-to another party.

Question 45

The assignment clause in a policy stats what?

Answer 45

that any assignment the policyowner decides to make must be filed in writing with the company or it will not be valid when the claim is paid.

Question 46

What are the two bullets about policy assignment?

Answer 46

1. When a policyowner assigns a policy, she transfers rights in the policy— either all of them or a stipulated portion-to another party. The assignment clause in a policy states that any assignment the policyowner decides to make must be filed in writing with the company or it will not be valid when the claim is paid. 2. The company will expend no effort to determine it's validity or legality

Question 47

What does Collateral, Partial, or Conditional Assignment refer to?

Answer 47

temporary

Question 48

what is collateral assignment?

Answer 48

Because the policyowner is using his policy as collateral for a

Question 49

we call collateral assignment or partial assignment because?

Answer 49

Because just part of the proceeds are assigned, we sometimes call

Question 50

In Collateral, Partial, or Conditional Assignment, the assignee is to receive a portion of the proceeds only under certain conditions, what is the main one? and because this condition exists? this collateral or partial assignment is reffered to as?

Answer 50

the main one being that a balance remains on the loan when the insured dies. part 2: conditional assignment

Question 51

In Collateral, Partial, or Conditional Assignment

Answer 51

Regardless of the exact title given to this kind of agreement, it occurs when the insured (policyowner) assigns all or part of the policy's proceeds as collateral for a loan.

Question 52

absolute, voluntary, complete assignment refer to what type of action?

Answer 52

permament

Question 53

What is voluntary assignment?

Answer 53

It sometimes happens that the policyowner decides to sell or make a gift of a life insurance policy by assigning all rights in the policy to the assignee. For in-Stance, a man might want to give a policy on his life to his son. This type of instance, is made be voluntarily so it sometimes called a voluntary assement,

Question 54

In a voluntary assignmenthy can a voluntary assignment sometimes be call an absolute or complete assignment?

Answer 54

A veis made volumaly usually involves turning all rights, including the

Question 55

When an absolute assignment is made, on the other hand, the original policyowner usually has no means of recovering surrendered rights. In effect, he has done what?

Answer 55

designated another policyowner to take over—a change in policy ownership is taking place. This type of assignment is usually permanent. IT USUALLY IS A GIFT!

Question 56

With the exception of the suicide clause, which we studied earlier and which can be considered a kind of exclusion, these exclusions are no longer found in policies being issued today. Companies may charge higher premiums for persons in situations such as those described, but the policy proceeds will be guaranteed to the

Answer 56

With the exception of the suicide clause, which we studied earlier and which can be considered a kind of exclusion, these exclusions are no longer found in policies being issued today. Companies may charge higher premiums for persons in situations such as those described, but the policy proceeds will be guaranteed to the