Chapter 2

Front 1

Premiums

Back 1

payments made to keep the policy in effect

Front 2

Rider

Back 2

- changes contract provisions
- increases/reduce benefits

Front 3

Standard Provisions for Individual Policies

Back 3

1. Insuring Clause
2. Consideration
3. Payment (Mode) of Premium
4. Grace Period
5. Reinstatement
6. Ownership
7. Assignment
8. Entire Contract
9. Incontestability
10. Conversion Option
11. Misstatement of Age or Sex
12. Modifications (Changes)
13. Right to Examine Period (Free Look)
14. Exclusions
15. Policy Loan Rate Provisions

Front 4

Insuring Clause

Back 4

- defines who is insured by whom
- benefit/coverage amounts
- obligations of the insurer
- risks considered for premature death

Front 5

Consideration

Back 5

- premium payment

Front 6

Payment (Mode) of Premium

Back 6

- due date
- frequency of payments
- pay to who

Front 7

Grace Period

Back 7

- period after due date and before policy lapses
- if insured dies then benefit is payable minus premiums due
- cash value remains unchanged
- policy may be surrendered

Front 8

Reinstatement

Back 8

- 3 years from start of lapse
- premiums plus interested
- proof of insurability if the policy was not surrendered for its cash value

Front 9

Ownership

Back 9

- rights to all benefits
- can change beneficiary, assign policy, and exercise options

Front 10

Assignment

Back 10

- transfer of ownership to another party
- two types, Collateral (Partial) and Absolute (entire face amount)
- assignment must be paid first which may reduce the settlement for the beneficiary
- insurer not responsible for the validity or effect of an assignment

Front 11

Incontestability

Back 11

- insurer cannot contest anything in the application after the policy takes effect (usually 2 years) including errors, misstatements, and even fraud

Front 12

Conversion Option

Back 12

allows for changing the policy type (term to cash value)

Front 13

Misstatement of Age or Sex

Back 13

- allows for adjustments at the time of the claim according to the corrected age or sex at the time of purchase
- never voids or cancel a policy
- incontestability clause does not apply here

Front 14

Right to Examine Period (Free Look)

Back 14

CA Law
- between 10 and 30 days for those < 60
- 30 days or more for those =>60

Front 15

Right to Return Policy for policies <$10,000 issued between 1/1/1981 and 1/1/1990

Back 15

- must contain notice regarding return policy for cancellation between 10-30 days

Front 16

Right to Return for policies issued after 1/1/1990

Back 16

- return policy for cancellation between 10-30 days
- premiums and fees must be refunded to the owner within 30 days of the cancellation

Front 17

Exclusions

Back 17

Doesn't Provide Coverage for
- Aviation
- Status (military) clause
- War Clause (results clause)
- Hazardous Occupation
- Suicide

Front 18

Suicide Exclusion

Back 18

- within two years, liability limited to only a refund of the premium
- CA law adds that after the first two years, insurer must pay the full face amount (death benefit) of the policy

Front 19

Policy Loan Rate Provision

Back 19

- maximum fixed rates of 8%
- variable rates based on Moody's corporate bond yield average
- loan cannot exceed available cash value
- interest not paid is added to the total debt

Front 20

Provisions Prohibited by Law

Back 20

- time limits on legal actions to less than 1 year after act occurs
- backdating for other than conserving the age of application (6 months max); no regulation in CA to support this
- lower settlement to be less than face amount at maturity
- designate agent as the representative of the insured
- require contract forfeiture when an outstanding loan is less than the loan value

Front 21

Beneficiary Provisions

Back 21

Two Types:
- Revocable - owner can change beneficiary at any time
- Irrevocable - owner can't change anything without consent of the beneficary

Front 22

Succession

Back 22

1. Primary
2. Contingent
3. Tertiary (usually the estate)

Front 23

Designation Options

Back 23

1. Individual/Named (specific)
2. Class (ie: my children)
- costly, time consuming

Front 24

Per Capita

Back 24

- per person
- surviving beneficiaries share equally in death benefits

Front 25

Per Stirpes

Back 25

- per beneficiary
- heirs of those beneficiaries who predeceased the insured will receive their portion of the claim proceeds and not have it split between living beneficiaries

Front 26

Trust

Back 26

- when a recipient is not to have direct access to the death benefits

Front 27

Credit

Back 27

- named beneficiary is a creditor
- collateral assignment to the lender covering the amount of the loan

Front 28

Common Disaster Clause (simultaneous death law)

Back 28

cannot be determined whether the insured or primary
beneficiary died first, the insured will be presumed to have survived the beneficiary and proceeds will
be paid to a named contingent beneficiary of the insured, or to the insured’s estate

Front 29

Spendthrift Clause

Back 29

- denies beneficiary right to move or transfer his/her interests in the policy proceeds
- protect beneficiary from creditors

Front 30

Changed of Insured

Back 30

- corporate life insurance when executive moves to the another company or retires
- authorizes changing the insured
- removes new policy loading at the time of the change
- requires proof of insurability