Insurance License Section 9

Front 1

policy provisions

Back 1

identify the rights and obligations of both the policyowner and the insurer under the insurance contract

Front 2

insuring clause/agreement

Back 2

states that the insurer agrees to provide life insurance protection for the insured which will be paid to bene (or estate if there's no bene)

Front 3

entire contract clause/provision

Back 3

• states that the policy and a copy of the application constitutes the entire contract (assures the policyowner that he has all the necessary docs)
• only an executive officer can amend the policy
  

Front 4

consideration clause

Back 4

• provides that the insurance coverage is granted in consideration of the application and the payment of the initial premium (initial premium is required to place the coverage in effect)
• insured's consideration = premium paid and representations made in application
• insurer's consideration = promise to pay
  

Front 5

payment of premium provision

Back 5

• specifies when, where, and how premiums are to be paid
• usually premiums are to be paid in advance at the company's office or to the agent
  

Front 6

ownership rights

Back 6

• changing the bene
• receiving dividends if any are paid
• borrowing funds from the cash value if they exist
• assigning some or all of the rights of the contract to another party
  

Front 7

applicant control clause/ownership clause

Back 7

makes the parent in control of the policy for a minor

Front 8

grace period

Back 8

period when the premium is overdue but coverage is still provided, usually 31 days

Front 9

automatic premium loan (APL) provision

Back 9

• may be added to a cash value life insurance contract and protects the policyowner against the inadvertent lapsing of the contract
• if cash value is sufficient, a loan is automatically taken from it to pay the premium
• must be requested at time of application
• once cash value goes to 0 and no more loans can be taken, policy lapses
• outstanding loan amts are deducted from the death benefit when insured dies
  

Front 10

reinstatement

Back 10

• many contracts permit reinstatement of the policy of it is effected within three years of the policy lapse
• all owed premiums as well as any outstanding loans must be paid
• lower premium than starting a new policy

Front 11

policy loan provision

Back 11

• policyowner has the right to borrow from the cash value, and there is no legal obligation to repay the loan
• interest is assessed by the insurer for these borrowed funds and interest rates are determined by each state (8% right now)
• interest is payable annually, or added to the loan if it's not paid (then you're paying interest on the interest!)
• in a whole life policy, you can usually borrow up to 90% of cash value
  
• variable life policy: after 3 years, 75% of cash value is available for a loan
  

Front 12

withdrawals and partial surrenders

Back 12

• partial cash value distributions may be classified as loans or withdrawals
• the loan is supposed to be paid back or it will decrease the death benefit
• a withdrawal will reduce the benefit, but doesn't have to be paid back
• only universal and variable universal policies allow withdrawals
• loans aren't taxable, withdrawals are!
  

Front 13

incontestability

Back 13

clause that states that after a specified period of time (2 yrs), the insurer may not dispute or contest the validity of the contract or statements

Front 14

suicide clause

Back 14

death by suicide is not covered during the policy's first two years (if suicide occurs in the first two years, premiums are refunded)

Front 15

assignment

Back 15

transfer of some or all of the policyowner's legal rights under the contract to another party (party receiving rights is the assignee, person transferring rights is the assignor)

Front 16

collateral/partial/conditional assignment

Back 16

assignment of some but not all policy rights, transfers a portion of the ownership right temporarily (rights are returned to policyowner when debt is repaid)

Front 17

absolute/voluntary/complete assignment

Back 17

policyowner sells or makes a gift of a life insurance policy by assigning ALL rights in the policy to the assignee (policyowner can't get it back)

Front 18

beneficiaries' assignment rights

Back 18

an irrevocable beneficiary can assign a portion of the proceeds

Front 19

misstatement of age or sex

Back 19

if insured's age was misstated on the application, benefits can be adjusted to an amount that the premium would have purchased if the correct age was stated (premiums for females are less than males)

Front 20

medical exams and autopsy

Back 20

insurer may have the right, at its own expense, to examine an insured while a claim is pending or perform an autopsy if it's allowed

Front 21

modifications

Back 21

• changes in the policy
• must be endorsed on or attached to the policy in writing over the signature of a specified officer or officers of the company (only exec officer can modify, not the agent)
  

Front 22

policy change provision (conversion option)

Back 22

• permits the insured to exchange a policy for another type of policy permitted by the company
• if new premium is higher, cool
• if new premium is lower, proof of insurability may be needed to reduce adverse selection
  

Front 23

free look

Back 23

• policyowner can take a # of days to examine the contract
• if he changes his mind, he can cancel it and get a refund
• 10-20 day period starts when policy is received
  

Front 24

beneficiaries can be:

Back 24

• individuals
• businesses
• trusts
• estates
• charities
• minors
  

Front 25

classes as beneficiaries

Back 25

rather than specifying one or more beneficiaries by name, the policyowner can designate a class or group of benes (children of the insured)

Front 26

revocable beneficiary

Back 26

may be changed (doesn't have to be notified)

Front 27

irrevocable beneficiary

Back 27

can't be changed without beneficiary's consent (consent is also needed for the insured to take a loan, assign, or cancel the policy)

Front 28

filing method of changing beneficiaries

Back 28

• a.k.a "recording method"
• request must be filed in writing to the insurer and the company changes it on its records to make it effective
  

Front 29

endorsement method of changing beneficiaries

Back 29

• bene change must be typed or affixed directly to the policy
• insured makes a written request and mails it with the policy to the insurance co
  

Front 30

inter vivos trust

Back 30

takes effect during the lifetime of the grantor

Front 31

testamentary trust

Back 31

created after the grantor's death, according to their will

Front 32

Per stirpes and per capita

Back 32

• per stirpes: by the root, goes to the bene's living children equally
• per capita: by the head, proceeds are paid only to the named benes who are living
  

Front 33

uniform simultaneous death act

Back 33

• if insured and primary bene die at the same time, proceeds are distributed as if the insured died last (proceeds go to secondary or contingent bene)
• common disaster clause is pretty much the same (both involved in same accident, primary bene must die within 30 to 90 days)
• if primary bene lives, it goes to their estate
  

Front 34

spendthrift

Back 34

• person who spends money extravagantly
• spendthrift clause means the proceeds won't be paid in a lump sum and are protected from creditors while they are still in the insurance co
• bene can't transfer the proceeds (to a creditor), commute them (take present value as lump sum), or encumber them (borrow money on them)
  

Front 35

facility of payment provision

Back 35

allows the insurer to select a beneficiary if the named beneficiary is a minor, is deceased, or can't be found (most common in group and industrial policies), usually picks an immediate family member

Front 36

aviation exclusion

Back 36

• restricts coverage in the event of death from aviation activities (except when insured is a fare-paying passenger)
• generally found in double indemnity (accidental death) provisions as well
• military pilots and crew members restricted
• most pilots not covered without additional premium
• commercial airline pilots and crew usually covered at standard rates
  

Front 37

status-type clause

Back 37

policy won't pay for death while the insured is in the military, regardless of cause (even if they're home on leave)

Front 38

results-type clause

Back 38

no coverage if death occurred because of military