Term
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Definition
the policy owner possesses
all contractual rights in the policy while the insured is living
o Rights include naming beneficiaries and surrendering the policy for its cash value
o the policyholder can designate a new owner by filing an appropriate form |
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Term
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Definition
states that the life insurance policy and attached application constitute the entire contract between the parties
O prevents the insurer from making endorsements withour the policyholders knowledge |
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Term
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Definition
states that the insurer cannot contest the policy after it has been in force two years during the insured’s lifetime
o Protects the beneficiary if the insurer tries to deny payment of the claim years after the
policy was first issued
o the insurer has two years to detect fraud |
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Term
| The insurer can contest a claim after the incontestable period if: |
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Definition
The beneficiary takes out the life insurance policy with the intent of murdering
the insured
the applicant has someone else take a medical examination
an insurable interest does not exist at the inception of the policy |
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Term
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Definition
states that if the insured commits suicide within two years after the policy is issued, the face amount of insurance will not be paid; there is only a refund of the premiums paid
O reduces adverse selection against the insurer |
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Term
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Definition
A life insurance policy contains a ________ during which the policy holder has a period of 31 days to pay an overdue premium
O prevents the policy from lapsing by giving the policy owner additional time to pay |
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Term
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Definition
| permits the owner to reinstate a lapsed policy |
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Term
| To reinstate, the following requirements must be met: |
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Definition
evidence of insurability is required
All overdue premiums plus interest are paid
any policy loans are repaid or reinstated
The policy was not surrendered for its cash value
O the policy must be reinstated within a certain period, usually 3-5 years after the date of lapse |
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Term
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Definition
| is the party named in the policy to receive the policy proceeds |
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Term
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Definition
| is the first entitled to receive the policy proceeds |
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Term
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Definition
| is the next person entitles to receive the policy proceeds |
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Term
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Definition
| means that the policy owner reserves the right to change the beneficiary designation without the beneficiary’s consent |
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Term
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Definition
| is one that cannot be changed without the beneficiary’s consent |
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Term
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Definition
| is specifically identified |
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Term
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Definition
| a member of a group, e.g., children of the insured |
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Term
| misstatement of age or sex clause |
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Definition
| if the insured’s age or sex is misstated, the amount payable is the amount that the premiums paid would have purchased at the correct age and sex |
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Term
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Definition
| Insures might insert a _______ to exclude payment if the insured ides as a direct result of war |
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Term
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Definition
| allows policy owners to exchange their present policies for different contracts |
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Term
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Definition
| ownership rights in the policy are transferred to a new owner |
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Term
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Definition
the policy owner temporarily assigns a life insurance policy to a creditior as collateral for a loan
only certain rights are transferred to the creditor
creditor receives policy proceeds only to the extent of the loan |
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Term
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Definition
allows the policy owner to borrow the cash value
o The policy owner must pay interest on the loan to offset the loss of interest to the
insurer
o A policy could lapse if the policy owner does not repay a loan and the total indebtedness
exceeds the available cash value |
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Term
| automatic premium loan provision |
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Definition
an overdue premium is automatically borrowed from the cash value after the grace period expires
O prevent the policy from lapsing
O policy owner may become lazy and exhaust all cash value |
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Term
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Definition
| If a policy pays dividends |
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Term
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Definition
| if a policy does not pay dividends |
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Term
| Dividends come from three main sources |
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Definition
o The difference between expected and actual mortality experience
o excess interest earnings
o The difference between expected and actual operating expenses |
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Term
nonforfeiture value or cash surrender
value |
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Definition
| The payment to a withdrawing policy owner |
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Term
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Definition
| A policy owner has a right to the policy’s accumulated cash value; all states have standard |
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Term
| Policy owners have three _nonforfeiture options |
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Definition
the policy can be surrendered for its cash value
Under the _reduced paid up insurance_ option, the cash surrender value is applied as a net single premium to purchase a reduced paid‐up policy
Under the _extended term insurance_ option, the net cash surrender value is used as a net single premium to extend the full face amount of the policy into the future as term insurance |
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Term
| reduced paid up insurance |
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Definition
| option, the cash surrender value is applied as a net single premium to purchase a reduced paid‐up policy |
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Term
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Definition
| option, the net cash surrender value is used as a net single premium to extend the full face amount of the policy into the future as term insurance |
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Term
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Definition
the proceeds are retained by the insurer, and interest is periodically paid to the beneficiary
The beneficiary can be given withdrawal rights |
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Term
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Definition
| the proceeds are paid to a beneficiary over some fixed period of time |
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Term
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Definition
| a fixed amount is periodically paid to the beneficiary until the principal and interest are exhausted |
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Term
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Definition
installment
payments are paid only while the beneficiary is alive and cease on the beneficiary’s death
o there is no refund feature or guarantee of payments
• Settlement options allow for periodic payments to the family, restoring their financial security |
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Term
| Disadvantages to life income option include |
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Definition
O interest rates offered by insurers may be lower than rates offered elsewhere
O the settlement agreement may be inflexible and restrictive |
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Term
| waiver-of-premium provision |
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Definition
if the insured becomes totally disabled, all premiums coming due during the period of
disability are waived
In many cases, total disability means that the insured cannot do any of the
essential duties of his or her job for which he or she is suited based on
schooling, training, or experience |
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Term
| guaranteed purchase option |
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Definition
permits the policy owner to purchase additional amounts of life insurance at specified times in the future without evidence of insurability
The option guarantees the purchase of specified amounts of life insurance in the
future even though the insured may become uninsurable |
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Term
| accidental death benefit rider |
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Definition
doubles the face amount of life insurance if death occurs as a result of an accident
O also known as double idemnity |
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Term
| accelerated death benefits rider |
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Definition
allows insureds who are terminally ill to collect part or all of their life insurance benefits before they die
o Forms include: a terminal illness rider, catastrophic illness rider, and long‐term care rider |
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