Life Insurance Chapter 5

Life Insurance Policy

A contract that pays money to your family if you die.

Provision

A rule in the insurance contract.

Clause

A specific part of the contract that explains a rule.

Rider

An extra feature you can add to your policy for more coverage.

Incontestable Clause

After a certain time (usually 2 years), the insurance company can't deny your claim because of mistakes on the application (unless there was fraud).

Suicide Clause

If the insured dies by suicide within the first 2 years, the policy usually won't pay the full death benefit.

Cash Value

Money that builds up inside some life insurance policies over time.

Policy Loan

Borrowing money from your policy's cash value.

Dividend

Extra money the insurance company may give policyholders if the company performs well.

Assignment

Giving your policy rights to someone else, like a bank.

Absolute Assignment

Permanently giving all policy rights to another person or business.

Conditional Assignment

Temporarily giving policy rights as security for a loan.

Nonforfeiture Options

Choices that let you keep some value if you stop paying premiums.

Policy Proceeds

The money paid out when the insured dies.

Exclusion

A situation where the insurance company will not pay a claim.

Accidental Death Benefit Rider

Pays extra money if the insured dies in a covered accident.

Accelerated Benefits Rider

Lets a terminally ill person receive part of the death benefit before they die

Automatic Premium Loan Provision

If you miss a premium payment, the insurer automatically borrows money from your policy's cash value to pay it

Cash Surrender Option

You cancel the policy and receive its cash value, but your coverage ends.

Collateral Assignment

You use your policy as security for a loan. If you die, the lender gets paid first.

Consideration Clause

You agree to pay premiums, and the insurance company agrees to provide coverage.

Dependent Rider

Adds your spouse or children to your life insurance policy.

Entire Contract Provision

Everything that makes up the insurance contract is in the policy and application—nothing else counts.

Free-Look Period

Time after buying the policy when you can cancel it and get a full refund.

Grace Period

Extra time to pay your premium without losing coverage.

Can an insurance agent change a policy?

No. Only an executive officer of the insurance company can.

What is the Insuring Agreement?

The insurance company's promise to pay the death benefit.

What is the Execution Clause?

The contract becomes effective after both parties meet their obligations.

What is the Privilege of Change Clause?

Allows policy changes under certain conditions.

After how many years is a policy usually incontestable?

2 years.

Who can modify an insurance contract?

Only authorized home office executives.

Name three exceptions to the incontestable clause.

• Impersonation

• No insurable interest

• Intent to murder

What is needed to reinstate a lapsed policy?

• Back premiums

• Interest

• Proof of insurability

Name the three Nonforfeiture Options.

• Cash Surrender

• Reduced Paid-Up

• Extended Term

Which nonforfeiture option gives the highest death benefit?

extended term

Which nonforfeiture option gives you cash immediately?

Cash Surrender.

Which nonforfeiture option gives permanent coverage with no more premiums?

Reduced Paid-Up.

what is Nonforfeiture

A clause in life insurance ensures you don't lose your policy's accumulated cash value if you stop paying premiums or cancel your plan.

What does the Spendthrift Clause protect?

Installment payments from creditors.

What is the Spendthrift Clause

A spendthrift clause is a legal provision in a trust that protects a beneficiary's inheritance from their own financial mismanagement or creditors

Who can use Accelerated Death Benefits?

Terminally ill insured.

How many ADLs usually trigger Long-Term Care benefits?

Two.

What's the difference between Independent and Integrated LTC Riders?

Independent does not reduce the death benefit; Integrated does.

What does CRAPPO stand for?

Cash, Reduction of Premium, Accumulate at Interest, Paid-Up Additions, Paid-Up Policy, One-Year Term.

Which dividend option increases the death benefit?

Paid-Up Additions.

Which dividend option lowers premium payments?

Reduction of Premium.

Which dividend option earns taxable interest?

Accumulate at Interest.

What does the Waiver of Premium Rider do?

Pays premiums if the insured becomes totally disabled.

What does the Payor Benefit Rider do?

Pays premiums on a child's policy if the parent dies or becomes disabled.

What does the Disability Income Rider provide?

Monthly income during total disability.

Waiver of Premium vs. Disability Income

Waiver pays the premium; Disability Income pays monthly cash.

Payor Rider vs. Guaranteed Insurability Rider

Payor pays premiums on a child's policy; Guaranteed Insurability lets the insured buy more coverage later without a medical exam.

Accelerated Death Benefit vs. Long-Term Care Rider

Accelerated Benefit pays early for a terminal illness; Long-Term Care Rider pays for qualifying long-term care needs, often based on inability to perform 2 ADLs.

What is Double Indemnity?

Pays twice the face amount for accidental death.

How soon must accidental death usually occur?

90 days

Does ADB (Accidental Death Benefit) cover death from disease complications?

No.

Guaranteed Insurability Rider allows what?

Buy more insurance without a medical exam.

Principal Sum means?

Full accidental death benefit.

Capital Sum means?

Usually half the death benefit for dismemberment.

Level Term Rider means?

Same extra coverage every year.

Decreasing Term Rider is commonly used for?

Mortgages.

Increasing Term Rider does what?

Coverage increases each year.

Felony exclusion applies when?

Insured dies while committing a felony.

Which aviation activities are commonly excluded?

Stunt pilot, crop dusting, test pilot, flight instructor, student pilot.

Status Clause means?

No coverage simply because insured is in the military.

Results Clause means?

No coverage only if death occurs during military activities.

Dependent Riders provide what kind of insurance?

Term insurance.

Return of Cash Value Rider pays?

Death benefit plus cash value.

Return of Premium Rider pays?

Death benefit plus total premiums paid.

What does the ownership clause in a life insurance policy state?

Who the policyowner is and what rights the policyowner is entitled to