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71 Cards in this Set
- Front
- Back
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Insuring Agreement
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Indicates that in return for the premiums paid, the insurer will pay to the designated beneficiary a sum of money as indicated on the Declarations Page of the contract when proper proof of death of the insured is received.
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Ownership Clause
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The policyowner may exercise all policy rights and privileges.
**Ownership may be changed in the contract, but only by the OWNER of record. |
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Entire Contract Clause
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States that the contract is NOT complete unless a photo copy policy application is attaches to the printed policy.
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Incontestable Clause
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States that life insurance policies are contestable by the insurer for *2 YEARS* from the issue date.
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Contestable
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Means that insurance company may wish to deny or reduce the amount of a claim based on misrepresentation or fraud perpetrated by the policy owner or an insured.
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Misstatement of Age (or Gender) Clause
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Allows the insurer to adjust he policy ANYTIME a misstatement of the insured’s age is discovered.
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If Age is UNDERSTATED...
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...The death benefit amount will be adjusted to the amount that could have been purchased with the premiums paid based on the insured’s ACTUAL age when the policy was issued.
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If Age in OVERSTATED...
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...The death benefit amount will not be adjusted.
Any overpaid premiums will be refunded to the policy owner |
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Grace Period
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NC statues require a grace period of *31 DAYS* from the premium due date.
Allows the policy owner to pay the premium during this time without a lapse (cancellation) of the policy. - If the insured dies during the grace period, the FULL death benefit will be paid minus any premium owed. |
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Reinstatement Clause
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Allows the policyowner to restore a lapsed (cancelled) life insurance policy to its original condition when purchased.
- NC insurance regulations require insurers to allow application for reinstatement up to 5 years from the default in payment. ** Reinstatement policies are subject to a new 2 year contestable period |
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Requirements for Reinstatement
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- Require the insured to provide satisfactory evidence of insurability (good health)
- Refuse to reinstate policy - If there has been a negative change in insured’s health, the insurance company may rate the policy and increase the premiums - If there has been a negative change in insured’s health, the insurance company may refuse to reinstate the policy - The policyowner must pay the premiums owed from the date of the last scheduled premium - The policyowner must pay any debt owed to the policy’s cash account, if any. |
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Assignment
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The TRANSFERENCE of the policyowner’s rights in the life insurance policy.
- Rights can be transferred in part or in whole - 2 types --> Absolute & Collateral |
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Absolute Assignment
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Transfers ALL policy rights to another party
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Collateral Assignment
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Uses the policy benefits as collateral for a debt
- Only for the amount of the debt owed at the time of death of the insured and last only for the period of indebtedness. |
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Conversions / Change of Plan
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Allows the policyowner to EXCHANGE the existing life policy for another type of the life policy currently issued by the company.
- No proof of insurability is required; however, if the premium for the new life policy will be lower than the original life policy and with the same death benefit, the policyowner MAY be required to show evidence of insurability. |
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Excess Interest Provision
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Allows interest that is more than the policy’s guaranteed rate of interest to be credited to the cash account.
Two methods: - Portfolio Method & Index-Linked Method |
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Portfolio Method
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Excess interest is credited in the direct relation to the company’s earnings on investments.
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Index-Linked Method
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Excess interest earnings are tied to an economic indicator such as the Consumer Price Index.
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Free Look Provision
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Gives the policy owner *10 DAYS* from the date that the policy is delivered to the applicant (policyowner) to cancel coverage and receive a full refund of their premium deposit.
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Suicide Clause
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Suicide is contestable if the insured commits suicide within *2 YEARS* after the policy was issued – similar to the incontestable clause.
- If this occurs BEFORE 2 years, the policy WILL NOT pay the death benefit – instead the insurer will return the premiums paid less any indebtedness to the company. - After the two years, the policy will pay the full death benefit, less any indebtedness. |
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War (or Military Service) Clause
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Can invalidate death claims from those in the armed services depending upon whether it is a Status Clause or a Results Clause provision
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Status Clause
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Excludes all causes of death while the insured in on active duty in the military.
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Results Clause
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Only excludes the death benefit if the insured is killed as a result of an act or war.
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Aviation Provision
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Excludes death claims from members of flight crew killed in aviation cause or related accidents.
**Does not exclude death claims from fare-paying passengers on regularly scheduled airline flights. |
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Non-Forfeiture Benefit (Option) Provision
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- States that the equity in a policy cannot be forfeited by the policyowner to the insurance company.
- Is required in Whole Life and Endowment policies. - Over the years, as the cash account grows the insurance company makes available the cash that has built up in the account. |
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Name the Non-Forfeiture Options (4)
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- Cash Surrender
- Cash Value Loan - Reduced (Paid-Up) Insurance - Extended Term insurance |
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Cash Surrender
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Receive the current accumulated cash value in the contract, BUT the contract is terminated.
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Cash Value Loan
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Borrows funds against the policy
- Policy serves as collateral and the policyowner is charged inters on the borrowed funds - If they don’t pay this interest, it will be added to the principle loan balance. |
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Reduced (Paid-Up) Insurance
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Allows policyowner to reduce the death benefit of the policy to a new amount.
- The policy will be paid-up requiring no additional premiums - The new lower death benefit was purchased with the existing cash value in the policy - The new death benefit amount would be based on the insured’s age, gender and the policy’s current cash value. |
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Extended Term insurance
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Allows the policyowner to maintain the full death benefit amount as a Level Term insurance policy instead of the original Whole Life policy.
- After term expires, coverage ceases - Length of term would be based on the insured’s age, gender and the policy’s current cash value |
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Dividends
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Refunds that an insurer pays to a policyowner.
- Although refunds are called Dividends, they are really a return of the portion of the premium. |
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Participating (Par) Insurers
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- Typically associated with mutual insurance companies
- Charge the policyowner more than what is needed to cover mortality and expense charges. |
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Non-Participating (Non-Par) Insurers
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- Typically associated with stock insurance companies.
- Do not issue policy dividends. |
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Name the Dividend Options for "Par Policies" (5)
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- Cash
- Paid-Up Additions - Accumulation at Interest - One-Year Term - Premium Payments |
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Cash
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The dividend is paid directly to the policyowner annually by check
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Paid-Up Additions
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The dividend is used to purchase paid-up life insurance.
- Provides an additional amount of death benefit without requiring evidence of insurability. |
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Accumulation at Interest
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The dividend is left to accumulate and earn interest.
- The accumulation amounts, plus interest paid by the insurance company, can be distributed as a future date or paid as part of the death benefit. |
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One-Year Term
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The dividend is used to purchase a one year term policy
If the insured dies within the term, the additional death benefit will be paid to the beneficiary |
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Premium Payments
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The dividend is used to pay future policy premiums
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Lump Sum Cash Settlement
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Immediately pays all policy proceeds to the named beneficiaries or the estate of the deceased. NO income taxes due on this dispersal.
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Interest-Only income
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Retains the death benefits until a later agreed upon time, but pays and income based on the interest earned on the death benefits to the beneficiary until the agreed upon time.
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Fixed Period Installment
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Benefit is divided be a fixed pay-out period, such as 10 years.
- The insurer pays the benefit in these installments |
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Fixed Amount Installment
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The benefit is divided by a fixed installment amount such as $2000 per month.
- The insurer pays the benefit in these installments |
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Life Income Option
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Provides the beneficiary with a payment of the proceeds through the use of an Annuity.
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Beneficiary
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A person or entity to which life insurance proceeds are paid upon the insured’s death.
**Beneficiaries select the settlement option when the insured dies. Once the beneficiary makes the decision, NO ONE can overrule that decision |
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Beneficiaries can be grouped into the following categories:
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- Estate
- Named Party - Class - Revocable Beneficiary - Irrevocable Beneficiary |
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Estate (Beneficiary)
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If beneficiary is not named, the estate of the deceased will receive the proceeds
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Named Party (Beneficiary)
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Requires the policyowner to name each beneficiary individually.
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Class (Beneficiary)
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Policy owner can use the class designation if they want to name a group of beneficiaries (children, grandchildren, etc.)
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Per Capita
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Refers to equal distribution of proceeds between ALL individuals in the named class.
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Per Stirpes
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Refers to equal distribution of proceeds between NAMED groups which may not result in equal distribution of proceeds amongst individuals.
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Revocable Beneficiary
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Allows the policy owner to change the beneficiary
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Irrevocable Beneficiary
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This designation does not allow the policyowner to change the beneficiary
- Once made irrevocable, the beneficiary acquires rights similar to the policyowner. **Policyowner cannot exercise any ownership rights without the permission of the beneficiary. |
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Name the 3 Beneficiary Designations
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- Primary
- Contingent - Tertiary |
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Primary (Beneficiary)
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The first beneficiary to receive policy proceeds. Can be more than one primary beneficiary named on the policy.
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Contingent (Beneficiary)
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If there are no surviving primary beneficiaries, the contingent beneficiary receives policy proceeds
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Tertiary (Beneficiary)
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Also known as second contingent. Usually not used , but if there are not any surviving Primary or First Contingent beneficiaries.
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Common Disaster and Short Term Survivorship Provision
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Requires the primary beneficiary to outlive the insured by a specified time period such as 30, 60, or 90 days.
- If the Primary Beneficiary dies within that time period, the policy proceeds go to a contingent beneficiary or the insured’s estate. |
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Uniform Simultaneous Death Act
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States that if the insured and primary beneficiary dies so closely that it is impossible to determine who died first, the insured will have outlived the beneficiary.
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Expense Charge "Load Charge"
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Covers the administration costs of the policy and operation costs of the insurance company such as premium taxes, agents’ commissions, and marketing costs.
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Front-End Load
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Applies the expense to the beginning of a premium-paying period
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Rear-End Load
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Applies the expense charges at the time of the monthly deduction
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Interest Credit
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Interest earned by making investments and loans with premium funds are used to reduce the costs of premiums.
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Accidental Death & Dismemberment Benefit (AD&D)
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Usually an optional rider on a Life insurance policy providing a benefit in addition to the underlying death benefit of the life policy if death, loss of limbs, sight, speech or hearing occurs.
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Guaranteed Insurability Rider (GIR)
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This optional rider “locks in” the insured ability to purchase additional life insurance without showing insurability due to health problems at future ages.
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Waiver of Premium
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This optional rider will provide a benefit if the insured becomes disabled for a prescribed minimum period (typically 3 or 6 months) of time.
- The insurer will waive the premiums as long as the disability continues. |
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Waiver of Monthly Deduction
(Optional Rider on UL Policies) |
Discontinues deductions (if insured becomes disabled) of the mortality charges subtracted regularly from the cash account of the UL policy.
- Doesn’t add to the cash value account of the policy |
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Spouse (Term Insurance) Rider
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- Provides a mechanism for the policyowner to add inexpensive Term insurance to the policy
- Provides Level Term coverage for the spouse of named insured - Usually requires evidence of insurability on the spouse added - Usually has limiting age such as 65 (once spouse reaches that age the will terminate from policy) - Usually requires conversion of the rider at the end of the term or when the named insured dies – whichever comes first, OR is based on the attained age of the spouse |
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Child (Term Insurance) Rider
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- Provides a mechanism to insure the life of a child for a minimal amount of death benefit, typically for $5000 to $10,000, and to do so very economically.
- Provides Level Term coverage on all children of the family – natural born, adopted and step children - Each child will be insured up to a “limiting age” as indicated on the Declarations Page (usually 21-25 years old) - One premium covers an unlimited number of children on this rider – no additional premium if more children are added - Allows a covered child to convert to an individual policy once they reach the limiting age WITHOUT providing evidence of insurability and may allow them to purchase more death benefit than the original amount provided under the rider. |
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Additional Insured (Term) Rider
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- Allows the policyowner an economical method of insuring a person that the policyowner has an insurable interest in – *such as a business partner*
- Provides Level Term coverage for other individuals such as another family member or a business partner. Requires evidence of insurability for the additional insured - May have a limiting age such as age 65 - Requires conversion when the primary insured dies and when the additional insured reaches the limiting age |
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Final Thoughts On Riders
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- Riders are used to create addition benefits
- Riders add to the cost of life insurance policies - Contestable periods for rides added after the original policy was issued are separate from the policy original contestable period - Riders may be for a specified number of years or to a specific age. |
