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Life Insurance, Provisions, Options and Exclusions
Terms:
ADL’s =…
Life Insurance, Provisions, Options and Exclusions
Terms:
- ADL’s = Activities of daily living.
- Assignment = transfer of rights of policy ownership
- Consideration = exchange of duties = contract biding of force.
- Indemnity = reimbursement = insurance base.
- Lump sum = payment of the entire benefit.
- NAIC = National Association of Insurance Commissioners.
Policy Provisions
- Standard created by NAIC to create uniformity among life insurance policies.
Entire Contract
- Composed by the application, riders and amendments.
Insuring Clause
- Basic agreement terms as death benefit, premium, duration and info about the parts involved.
Free Look
- Usually 14 days in Florida to cancel the policy and get the premium back.
- Certain policies may established a longer free look period.
Consideration
- Usually a separate provision of the payment schedule and death benefit is supplied.
Owners Rights
- Policicy owner is not necessary the insured.
- Responsibilities of naming and changing the beneficiary, selecting a benefit payment options and assigning the policy.
Assignments
-Policyowner can transfer the policy to another person but needs to notify the insurer company.
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Collateral Assignment
-Partial or temporary transfer of the rights of the policy to secure a loan or some other transaction.
Beneficiary Designations
- Can be a group of people called trust or trustee.
- Policyowner does not have to name the beneficiary for the policy to be valid.
- Usually the beneficiary is not a minor but if it is he needs a guardian or a trusted to get the payment or by court.
- Primary and Contingent Beneficiary but if no one is alive or designated the amount goes to insured’s state.
Irrevocable policy the owner needs a letter from the beneficiary to change the policy or designate another person or company. Revocable does not.
Common Disaster Clause - even if the beneficiary dies usually dies after a period of time (14 -30 days) after the policy owner in the same accident, the payment goes straight to the contingent or will.
Premium Payments - level or flexible types.
Grace Period - policy does not lapse with the no premium payment. If the insured dies during this period premium is discounted from the death benefit.
Reinstatement - reinstate a policy that lapsed and retrieve the whole amount of the premiums paid. Premiums not paid usually during maximum 3 years needs to be paid with interest.
Incontestability - 2 years for the insurer (insurance company) to claim inconsistent facts of the policy.
Misstatement of Age and Gender - Adjustment of premiums by the insurance company if that mistake happens.
Policy Loans and Withdraws - Only policies that have cash value(whole life). 30 days written notice from insurer that the policy will lapse if the loan is higher than the cash value + interests. Usually 6 months to start loans if not to pay the premium.
- Automatic Premium Loans - Revert the cash value loans in premium payments.
Exclusions or higher premiums - Non commercial pilots, hazard occupations or hobbies, war or military service (status clause) if the person dies of an act of war (declared or undeclared).
Suicide - time stipulate by the insurance company to start counting even if the insured commits suicide.
Subrrogation
- Avoiding the insured to receive the benefit twice.
- Way to insurance companies to transferthe reponsability on paying the benefit.
Policy Riders
- Modifications for specific needs in the policy.
- May require additional premium.
Disability Riders
- Benefits of insured disability.
- Accelerated or Living Benefits riders - partial payment of the death benefit.
Waiver of Premium
- When the insurer becomes totally disable until is able to return to work.
-If notable to return premiums continue to be waived.
6 months of waiting period needs to be paid . If the disability continues than the premiums paid in the period are refunded.
- Usually expires at age 65.
Waiver of Monthly Deductions
- Same of the above but only to avoid the policy to collapse.
- Only Igor Universal and Variable Life policies to avoid generate ping cash value.
Payor Benefit.
- If the insured is a minor and the policy owner dies te premiums are waived until the minor completes 21.
Other Insureds
- Children’s term or family term - one premium for all children.
- Usually level term insurance.
-Also known as family rider.
- Maintained until the age of 21 and not proof of insurability require when converting it.
- Spouse term rider - Limited time, specific amount and expires at age 65.
- Nonfamily insureds - usually for joint life of business to enable the insured substitution to mantain the policy.
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Policy Options
- How the cash value should be protected.
- How the dividends should be invested.
Nonforfeiture Options
- Cash Value guarantees cannot be forfeited.
- Required by the state law.
- Table showing the values for 20 years for policy surrender or cash.
Cash Surrender
- For current cash value is the coverage is no need or affordable.
- If the cash value exceeds the premiums paid , the excess is taxable as ordinary income.
- Cannot be reinstated.
- Surrendered charge is applicable.
Extended Term
- Convert the policy cash value to term insurance with the same face amount of the current policy.
- Period of the amount of that the cash value covers the premiums. Shorter term coverage.
- Automatic nornforfeitur in case of non payment.
Reduced paid -up
- cash value converted on a single paid premium with a reduced face amount .
- New reduced policy builds its own cash value and will remain in force until death or maturity.
Dividend Options
- Insurance companies cannot guarantee dividends.
- As soon as the first year and no later of the end of the third year.
- Return of excess of premiuns.
- Not taxable when paid to the policy owner.
- Paid up option - using the dividend to pay the premiuns.
- One year term option - Additional insurance for one year.
- Paid-up addition - new whole life policy-automatically if no other option was chosen.
- Accumulation at interest , policy owner can withdrawn anytime and the interest is taxable.
- Reduction of premium for the next year.
- Cash by sending a check to the policy owner.
Settlement Options
- Methods to pay the death benefit or endowment benefit.
- Cannot be changed by the beneficiary if selected by the policy owner but if no option was selected than he can choose.
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Life Income
- Also know as straight life.
- Recicient cannot outlive the benefit payments even if the amount exceeds total principal.
- payment guaranteed for as long as the recipient lives, irrespective of the date of death but if he he dies right after the insurer get (forfeit) the money. OTHER FURTHER OPTIONS NO.
- Installment based on the recipient life expectancy and The amount of the principal.
- WITH PERIOD CERTAIN OPTION - Guaranteed installments even with the premature death of the beneficiary.
Lower or decreased installments.
Fixed Period
-Also called Period certain.
- Equal installments paid on a specific period even with the premature death of the beneficiary.
For a certain amount of time.
Fixed Amount
- Pays fixed installments until the proceeds(principal and interest) are exhausted even if the benefitiary dies.
Interest Only Settlrment
- Not the death benefit, only interest over that.