1. Provisions
1.1. Standard Provisions
1.1.1. Consideration
1.1.1.1. Insured: Premiums and Statements
1.1.1.2. Insurer: Promise to pay
1.1.2. Entire Contract
1.1.2.1. Policy (with Riders/ Amendments) + Copy of Application
1.1.2.2. Changes to provisions: both parties must agree
1.1.3. Incontestability
1.1.3.1. Contestability Period: 2 years
1.1.3.2. Prevents insurer from denying a claim due to application statements
1.1.3.3. Exclusions:
1.1.3.3.1. Incontestability period (after 2 years)
1.1.3.3.2. Contestability period (nonpayment)
1.1.4. Insuring Clause
1.1.4.1. Insurer promises to pay DB
1.1.4.2. Located on policy face page, states:
1.1.4.2.1. 1. Parties
1.1.4.2.2. 2. Premium
1.1.4.2.3. 3. Coverage Period
1.1.4.2.4. 4. Amount of DB
1.1.5. Misstatement of age or gender
1.1.5.1. Allows insurer to adjust premiums/ benefits to reflect correct issue age
1.1.6. Premium
1.1.6.1. States
1.1.6.1.1. Due Date
1.1.6.1.2. Frequency
1.1.6.1.3. To who
1.1.6.1.4. Refunds of unearned premiums
1.1.6.1.5. Level VS Flexible
1.2. Other Provisions
1.2.1. Assignment
1.2.1.1. 1. Absolute Assignment
1.2.1.1.1. Complete/ Permanent
1.2.1.2. 2. Collateral Assignment
1.2.1.2.1. Partial/ Temporary
1.2.1.3. Changes who has ownership rights, w/o consent of insurer
1.2.1.3.1. Insurer must be informed in writing
1.2.2. Exclusions
1.2.2.1. Standard or Added as Riders
1.2.2.2. Aviation
1.2.2.3. Hazardous Occupations/ Hobbies
1.2.2.4. War or Military Service
1.2.2.4.1. Status Clause
1.2.2.4.2. Results Clause
1.2.3. Free Look
1.2.3.1. 10 day Return Policy for Full Refund
1.2.3.2. Starts on Policy Delivery Date
1.2.4. Reinstatement
1.2.4.1. Max time limit: 3 years from lapse date
1.2.4.2. PO proves insurability & pays all premiums back + interest, (& possibly) all outstanding loans + interest
1.2.4.3. Retains values established at issue age
1.2.4.4. Excludes Surrendered policies
1.2.5. Ownership
1.2.5.1. Naming/ Changing beneficiary
1.2.5.2. Selects Options/ Receives Living Benefits
1.2.5.3. Assigns Policy
1.2.5.4. "Third Party Ownership" (PO and Insured are different)
1.2.6. Suicide
1.2.6.1. Time period where DB is not payable if insured commits suicide
1.2.6.1.1. 2 years within policy effective (issue date)
1.2.6.1.2. Insurers liability: Limited to Refund of Premium
1.3. Beneficiary Provisions
1.3.1. Designations
1.3.1.1. Person, Class of Persons, Trust. Institution, Other Entity
1.3.1.1.1. If minor: paid to guardian/ trustee
1.3.1.2. PO doesn't have to name ben.
1.3.1.3. Ben. doesn't need insurable interest
1.3.2. Succession
1.3.2.1. Primary Beneficiary
1.3.2.2. Contingent beneficiary
1.3.2.3. Estate
1.3.2.3.1. DB is included in taxable estate
1.3.3. PO Right to change beneficiary
1.3.3.1. Revocable
1.3.3.1.1. No consent/ any time
1.3.3.2. Irrevocable (Vested Interest)
1.3.3.2.1. PO Needs Written Consent to:
1.3.3.2.2. 1. change designation, borrow against CV, assign policy
1.3.4. Common Disaster Clause
1.3.4.1. Insured + Primary Beneficiary die in same accident - assumes primary died first
1.4. Policy Loans, Withdrawals, & Partial Surrenders
1.4.1. Cash Loans Available
1.4.1.1. WHOLE LIFE POLICIES ONLY (CV)
1.4.1.1.1. entitled to borrow amt = available CV
1.4.1.2. Not subject to income tax
1.4.1.3. Loan Request Deferrals
1.4.1.3.1. Insurer can defer max 6 months, unless to pay premium
1.4.2. Automatic Premium Loans
1.4.2.1. Prevent unintentional lapse of a policy from nonpayment
1.4.2.1.1. PO elects provision in writing
1.4.2.1.2. If not repaid and dies, subtracted from DB
1.4.2.1.3. Charges interest
1.4.2.2. No deferrals, request honored immediately
2. Riders
2.1. Disability
2.1.1. Waiver of Premium
2.1.1.1. If Total Disability & 6 month waiting period
2.1.1.1.1. Refund of premium if still disabled after waiting period
2.1.1.1.2. Total Disability: inability to engage in any work/ perform own occupation's duties for first 2 years, Any gainful employment for insured: suited by education, training, and experience
2.1.1.2. Excludes: partial disability
2.1.1.3. Expires: once insured returns to work or at age 65
2.1.2. Waiver of Monthly Deductions
2.1.2.1. pays all monthly deductions while insured is disabled after 6 month waiting period
2.1.2.1.1. Note: Does NOT pay full premium necessary to accumulate CV
2.1.2.2. Variable Length of Rider
2.1.2.2.1. based on age of disability event
2.1.2.3. Universal Life/ Variable Universal
2.1.3. Payor Benefit
2.1.3.1. Juvenile Policies/ Policies written on life of a minor/ If PO and Insured are separate
2.1.3.2. Functions as Waiver of Premium Rider
2.1.3.2.1. If Payor (parent/guardian)= disabled for at least 6 mo/ dies, waive premiums until minor reaches age (21)
2.2. Additional Insured
2.2.1. Level Term Ins. attached to base policy
2.2.2. Family Term
2.2.2.1. Other Insured/ Spouse Rider
2.2.2.1.1. Spouse is covered for limited time/ specified amount
2.2.2.1.2. Expires when Spouse reaches 65
2.2.2.2. Children's term rider
2.2.2.2.1. One premium for ALL children
2.2.3. Nonfamily insureds: Substitute Ins/ Change of Insured Rider
2.2.3.1. Allows for the change of Insureds
2.2.3.1.1. Insureds= subject to insurability
2.2.3.2. Does NOT permit an addt insured
2.2.3.3. Key Person Insurance, Business Joint Life Multiple Key Person
2.3. Riders that affect DB
2.3.1. Accidental Death
2.3.1.1. Benefits only apply to base face amt, not any addt riders (NO CV accumulation)
2.3.1.2. Triple Indemnity (3x Face amount)
2.3.1.3. Double Indemnity (2x Face amount)
2.3.1.4. Expires at insureds age 65
2.3.2. Accidental Death & Dismemberment Rider
2.3.2.1. pays Principal Sum (face amount) for accidental death
2.3.2.1.1. Loss of two hands, two arms, two legs, or loss of vision in both eyes
2.3.2.2. pays Capital Sum (% of that amount) for accidental dismemberment
2.3.2.2.1. Limit of 1/2 Face Amt
2.3.2.2.2. Loss of one hand, arm, leg, eye
2.3.3. Term Riders
2.3.3.1. Accelerated Benefits Rider
2.3.3.1.1. early payment of portion of DB if insured:
2.3.3.1.2. Max benefit( % or $): 50-100%/ $100k
2.3.3.2. Living Needs Rider
2.3.3.2.1. early payment if diagnosed w/ terminal illness that will result in death w/in 2 years
2.3.3.2.2. Purpose: funds cover medical/ nursing home expenses incurred from terminal illness
2.3.3.3. Long Term Care (LTC)
2.3.3.3.1. purchased as separate policy/ rider that includes accelerated benefits
2.3.3.3.2. Benefits used to cover health care expenses incurred in nursing/ convalescent homes
2.3.3.4. EFFECT ON DB:
2.3.3.4.1. Face Amount
2.3.3.4.2. - Amount Withdrawn
2.3.3.4.3. -Earnings lost by insurer in Interest
2.3.3.4.4. =Payable Death Benefit
2.3.4. Guaranteed insurability
2.3.4.1. Insured purchase addt. coverage at specified future dates/events
2.3.4.1.1. (every 3 years, marriage, birth)
2.3.4.1.2. Without evidence of insurability
2.3.4.1.3. Additional premium
2.3.4.1.4. Expires at age 40
2.3.4.2. Not modified/defeated by other riders
2.3.5. Return of premium
2.3.5.1. Increasing term added to whole life policy
2.3.5.1.1. If death before given age, policy pays beneficiary:
2.3.5.2. Expires at age 60
3. Options
3.1. Nonforfeiture
3.1.1. Options: triggered by policy surrender/ lapse, Chosen by PO based on Nonforfeiture table
3.1.2. Reduced Paid Up
3.1.2.1. CV is used as a single premium to purchase a completely paid-up permanent policy
3.1.2.1.1. Paid-Up Permanent Policy A Reduced Face Amount from that of former policy
3.1.3. Extended Term
3.1.3.1. "automatic nonforfeiture option"
3.1.3.2. CV converts to term insurance for same face amount as former permanent policy
3.1.3.2.1. duration of new coverage= as long as CV amt can purchase
3.1.4. Cash Surrender Value
3.1.4.1. PO surrenders policy/annuity for current CV when coverage is not needed/ unaffordable
3.1.4.1.1. Receipt of Cash Surrender Value
3.1.4.1.2. Surrender Charge
3.2. Dividend
3.2.1. Cash
3.2.1.1. check for amount of dividend (annual)
3.2.2. Reduction of Premiums
3.2.2.1. use dividend to reduce next years premium
3.2.3. Accumulation at Interest
3.2.3.1. Dividend kept in account/ accumulate interest
3.2.3.1.1. Interest= taxable when credited to policy
3.2.3.1.2. Amount of Interest specified in policy
3.2.3.2. PO can Withdraw at any time
3.2.4. Paid-up Insurance
3.2.4.1. Step 1: Accumulate Interest on Dividends and apply to premium pmts
3.2.4.2. Step 2: Pay up policy early (using Accum. Int. + CV)
3.2.4.3. Continuous premium Whole life participating policy
3.2.5. Paid-up Addition
3.2.5.1. Dividends purchase single premium policy in addt. to face amount of permanent policy
3.2.5.1.1. No separate policies issued
3.2.5.1.2. Small single premium payments increase DB of original policy by amount Div buys
3.2.5.1.3. Each Paid-Up policy: accumulates CV and pays dividends
3.2.5.1.4. Amt of addt. coverage purchased with Div is based on Attained age at div declare date
3.2.5.2. Automatic Dividend Option
3.2.6. One-year Term
3.2.6.1. Dividends purchase 1 year term insurance to increase overall policy DB
3.2.6.1.1. Use Dividends as a single premium on as much it will buy
3.2.6.1.2. Purchase term insurance = to CV for as long as it will last
3.2.6.2. If death during 1 year term, beneficiary receives both DB
3.2.7. Dividends
3.2.7.1. only paid on participating policies
3.2.7.1.1. "grossed-up premium"
3.2.7.1.2. 1st dividend paid as early as 1 year (immediate) but no later than 3rd year (deferred)
3.2.7.1.3. annual
3.2.7.2. not gauranteed
3.2.7.3. return of excess premium, not taxable
3.3. Settlement
3.3.1. Cash
3.3.1.1. proceeds paid in lump sum, not taxed
3.3.1.2. automatic settlement option
3.3.2. Life-Income (Straight Life)
3.3.2.1. Recipient cannot outlive benefit payments
3.3.2.1.1. Guaranteed Installment PMT's based on recipient's life expectancy & principal amt
3.3.2.1.2. PMT's > total principal (if long life)
3.3.2.2. Not guaranteed that entire balance of proceeds will be paid (if premature death)
3.3.3. Life-Income with Period Certain
3.3.3.1. Life time income + guaranteed installment period
3.3.3.1.1. smaller installment amts than life income only
3.3.4. Life-Income Joint and Survivor
3.3.4.1. No guarantee that all proceeds are paid (if both die)
3.3.5. Interest Only
3.3.5.1. insurer retains proceeds / pays proceed's interest to beneficiary at regular intervals
3.3.5.2. guaranteed interest rate, int. paid usually > guaranteed
3.3.5.3. "temporary option"- interest paid for certain time/ proceeds paid out later in lump sum or another settlement option
3.3.5.3.1. EX: Interest only paid to surviving spouse, principle paid to children at age/ death of spouse
3.3.6. Fixed Period (Period Certain)
3.3.6.1. equal installments for specified # of years
3.3.6.1.1. Amt determined by: Principal, Guaranteed Interest, Length of Period
3.3.6.1.2. Longer period: smaller pmts
3.3.6.2. Guarantees entire principal is distributed- continues even if recipient dies
3.3.6.2.1. does not guarantee lifetime income
3.3.7. Fixed Amount
3.3.7.1. Fixed, Specified installments until proceeds (principal + interest) are gone
3.3.7.1.1. size of installment determines income payment period
3.3.7.1.2. larger installment= shorter income period
3.3.7.2. Guarantees all proceeds are paid
3.3.7.3. No lifetime income guarantee