Insurance Flashcards Chapter 9.1

Questions and Answers

What will Carl be charged when the accident is discovered in a review of the files 5 years later?

The difference in premium between his actual age and his stated age, along with the interest on the back payments.

Why can't Steve's wife remove him as the beneficiary on her life insurance policy without his written permission after their divorce?

It's against the law

They have a mutual agreement

He is a revocable beneficiary

He is an irrevocable beneficiary (correct)

The proceeds from a policy paid through a spendthrift clause are paid directly to the beneficiary in monthly installments.

True

According to the entire contract provision, what does the entire contract include?

All documents, agreements, and endorsements that form the insurance contract, except the premium payment. Signup and view all the answers

What describes a revocable beneficiary?

May be changed without the beneficiary's consent Signup and view all the answers

When does the waiver of the premium apply?

When the insured is disabled. Signup and view all the answers

The right to examine the policy and return it for a full refund is referred to as the ___________________

free look provision Signup and view all the answers

Who can be named as beneficiaries of a life insurance policy?

Individuals, businesses, trusts, estates, charities, minors, and classes. Signup and view all the answers

What is a revocable beneficiary?

A revocable beneficiary is one that may be changed by the policy owner without their knowledge or consent. Signup and view all the answers

What is an irrevocable beneficiary?

An irrevocable beneficiary is one who cannot be changed without their consent and signature. Signup and view all the answers

What are the two methods for naming and changing beneficiaries?

The filing method and the endorsement method. Signup and view all the answers

What is the filing method in beneficiary changes?

The filing method requires a written request to the insurer, which must record the change. Signup and view all the answers

What is the endorsement method in beneficiary changes?

The endorsement method involves typing or affixing changes directly to the policy. Signup and view all the answers

What is the role of a primary beneficiary?

The primary beneficiary is designated to receive the face amount upon the insured's death. Signup and view all the answers

What is the purpose of a contingent beneficiary?

The contingent beneficiary receives the policy proceeds if the primary beneficiary predeceases the insured. Signup and view all the answers

Designating a minor as a beneficiary can present problems.

True Signup and view all the answers

What is a spendthrift clause?

A spendthrift clause protects the proceeds of an insurance policy from being claimed by creditors of the beneficiary. Signup and view all the answers

Which of the following are common exclusions in life insurance policies? (Select all that apply)

War or military service Signup and view all the answers

What is the entire contract clause?

The entire contract clause defines the components of the insurance contract. Signup and view all the answers

What type of assignment allows Carol to give her policy on her ex-husband to their daughter?

Voluntary assignment Signup and view all the answers

What is an insurance policy?

Legal contract and contains provisions setting forth the rights and duties of parties to the contract. Signup and view all the answers

What do policy provisions identify?

Rights and obligations of both the policy owner and the insurer under the insurance contract. Signup and view all the answers

What does the insuring clause specify?

The insurer agrees to provide life insurance protection for the named insured. Signup and view all the answers

What is the purpose of the entire contract clause?

To provide assurance that all necessary documents regarding life insurance coverage are in possession of the policy owner. Signup and view all the answers

What does the consideration clause entail?

Insurance coverage is granted in consideration of the application and the payment of the initial premium. Signup and view all the answers

When is the least expensive way to pay the premium?

Annually. Signup and view all the answers

What are ownership rights in a life insurance contract?

Rights to change the beneficiary, receive dividends, borrow funds from cash value, and assign rights. Signup and view all the answers

What is the grace period in a life insurance contract?

The time following the due date of a premium during which the policy remains in force without payment. Signup and view all the answers

What does the suicide clause state?

Death by suicide is not covered during the policy's first two years. Signup and view all the answers

What is the effect of misstatement of age or sex in a policy?

Benefits payable are adjusted if the insured's age or sex was misstated. Signup and view all the answers

What is the reinstatement clause?

Sets forth the requirements to bring a lapsed policy back up to date. Signup and view all the answers

What does the term 'assignment' refer to in a life insurance context?

The transfer of some or all of the policy owner's legal rights under the contract to another party. Signup and view all the answers

The _________________ loan provision allows the insured to borrow against the cash value in a whole life policy.

policy loan Signup and view all the answers

The ___________ states that after a specified period, the insurer can no longer void an insurance contract except for nonpayment.

incontestability clause Signup and view all the answers

The _____________ clause identifies that the policy owner must pay something of value for the contract.

consideration Signup and view all the answers

The ____________ immediately after the premium is due during which the policy will not lapse is called the grace period.

time period Signup and view all the answers

_____________ includes the company's promise to pay.

the insuring clause Signup and view all the answers

Modifications must be endorsed on or attached to the policy in writing over the signature of a specified officer or officers of the company. Only an executive officer of the insurer can change the contract, not the ____________.

agent Signup and view all the answers

Study Notes

Insurance Policies Overview

An insurance policy is a legal contract outlining the rights and duties of both the policy owner and the insurer.
Policy provisions specify the rights and obligations of both parties and are often standardized in life insurance.

Key Provisions of Insurance Contracts

The insuring clause guarantees life insurance protection for the insured, detailing the beneficiary to receive benefits upon death.
Entire contract clause asserts that the policy and its application comprise the full agreement, with statements in the application regarded as representations, not warranties.
The consideration clause stipulates that insurance coverage is granted based on the application and initial premium payment.

Premium Payment Details

Premiums must be paid in advance, with modes of payment including monthly, quarterly, semiannually, and annually; the least expensive option is annual payment.
The grace period allows a buffer typically lasting 31 days post-due date where coverage remains active despite non-payment.

Policy Management and Rights

The ownership rights granted to the policy owner include changing beneficiaries, receiving dividends, borrowing against cash value, and assigning rights.
An applicant control clause enables parents or guardians to maintain control over a minor's insurance policy.

Loans and Reinstatement

The automatic premium loan provision can protect against lapses by using cash value to cover unpaid premiums but can lead to policy termination if cash value is depleted.
Policies may be reinstated within three years of lapse, requiring proof of insurability and payment of back premiums.

Policy Changes and Clauses

Policy change provisions allow for exchanges between different types of policies, possibly with proof of insurability needed for lower premium policies.
The incontestability clause limits the insurer's ability to dispute policy validity after a specified period (usually two years), protecting beneficiaries from claims of misstatements.

Beneficiary Designations

Beneficiaries can include individuals, businesses, trusts, estates, charities, and classes (e.g., "children of the insured").
A revocable beneficiary can be changed by the policy owner without consent, whereas an irrevocable beneficiary requires consent to make changes.

Assignment Rights

Assignment of rights in a life insurance policy allows partial or complete transfer, with collateral assignments temporarily transferring specific rights for loan security.
An absolute assignment involves transferring all rights to another party, often without recovery options for the original owner.

Special Provisions and Adjustments

The misstatement of age or sex provision adjusts benefits if discrepancies are found regarding an insured's age or gender on the application.
Some states mandate the right for insurers to conduct medical examinations and autopsies at their expense during the claim process.

Free Look and Modifications

The free look provision allows policy owners a specified period (10 to 20 days) to review the policy and cancel for a full refund.
Modifications to the policy require formal endorsement by appropriate company officers, ensuring only authorized changes are made.### Filing Method
Also referred to as the recording method, necessitates a written request to the insurer.
Effective once the insurance company records the change.

Endorsement Method

Requires the beneficiary change to be directly attached to the policy.
Insured must send a written request along with the policy to the insurance company.

Succession of Beneficiaries

Primary beneficiary receives the policy proceeds upon the insured's death.
Contingent beneficiary is paid if the primary beneficiary predeceases the insured; tertiary beneficiaries may also be named.
Absence of contingent beneficiaries results in proceeds going to the insured's estate.

Changing Beneficiaries

Careful wording in beneficiary designations is crucial to avoid confusion or legal disputes.
Beneficiaries should be named explicitly to prevent ambiguity, especially in cases involving multiple marriages.

Designating a Minor as a Beneficiary

Naming a minor complicates the receipt of policy proceeds due to their legal incapacity.
Proceeds may be held by the insurance company until the minor reaches legal age or a guardian is appointed.
Establishing a trust can provide a solution for managing life insurance proceeds for minor beneficiaries.

Trust as Beneficiary

A trust allows the grantor to designate a trustee to manage property for the benefit of a third party.
Policy proceeds can fund a trust, providing management of funds as outlined in the trust provisions.
Types of trusts include intervivos (active during the grantor's life) and testamentary (activated upon the grantor's death).

The Insured's Estate as Beneficiary

If the estate is the named beneficiary, proceeds will pay debts such as taxes and funeral costs.
Naming the estate is generally undesirable as distributions may not align with the deceased's wishes.

Estate Costs and Proceeds Vulnerability

Including life insurance proceeds in the probate estate increases settlement costs.
Proceeds going into an estate may be more vulnerable to creditors than those directly designated to a beneficiary.

Class Designations

Beneficiaries can be designated by group (e.g., "all my children") for simplicity with changing family dynamics.
This method avoids the need for frequent policy updates due to births or deaths.

Per Capita and Per Stirpes Distribution

Per stirpes ensures a beneficiary's share passes to their descendants if they die before the insured.
Per capita distributes proceeds only to living named beneficiaries, ignoring deceased beneficiaries' shares.

Uniform Simultaneous Death Act

If insured and primary beneficiary die in the same accident and order is unclear, proceeds are treated as if the insured died last.
This law facilitates payment to contingent beneficiaries or the insured's estate if no contingents are named.

Common Disaster Provision

Presumes the insured survived the primary beneficiary in a common disaster, preventing payment to the deceased beneficiary's estate.
Typically applies if the primary beneficiary dies within a specified period following the event.

Spendthrift Clause

Protects insurance proceeds from a spendthrift beneficiary's creditors and prevents the beneficiary from transferring, assigning, or encumbering the proceeds.
Elections for this clause are generally made at the insurance application stage.

Facility of Payment Provision

Allows insurers to choose a beneficiary if the named beneficiary is a minor or deceased.
Common in group life insurance contracts to enable payment to immediate family members.

Exclusions and Limitations

Life insurance policies typically include exclusions such as aviation activities or military service conditions.
Specific exclusions aim to manage risk and prevent adverse selection by the insurer.

Aviation Exclusion

Coverage for deaths resulting from flying is often restricted, particularly for non-passengers and certain pilot roles.
Private pilots may face added exclusions unless additional premiums are paid.

War or Military Service Exclusion

Policies issued during wartime may include clauses that return premiums if death occurs due to excluded conditions.
Helps insurers manage risk associated with military-related applications.

Status-Type and Results-Type Clauses

Status-type clauses prevent coverage if death occurs while serving, regardless of circumstances.
Results-type clauses restrict coverage only if the death results from military actions.

Hazardous Occupation or Hobby Exclusion

Underwriters focus more on hazardous hobbies than occupations; applicants may face limitations or additional premiums for risky activities.

Prohibited Provisions in Life Insurance

Life insurance policies cannot include certain legal provisions that limit lawsuit timelines or allow forfeiture under specific conditions.
Backdating policies is permitted within a six-month limit and requires premium payments for each backdated month.

Entire Contract Clause

Defines the components of the life insurance contract, including coverage terms and conditions without exceptions.

Voluntary Assignment

Used to transfer control of a policy when a policy owner wants to assign it to someone else, like a family member.

Age Misstatement Consequences

If an insurer records the wrong age, the insured will be charged for the difference in premiums along with any accrued interest when corrected.

Irrevocable Beneficiary Status

A beneficiary designated as irrevocable cannot be changed without their consent, providing them with secured rights to the policy proceeds.

Spendthrift Clause Payments

Payments made through a spendthrift clause are delivered to beneficiaries in periodic installments rather than a lump sum.

Revocable Beneficiary

A revocable beneficiary designation allows changes to be made by the policy owner without requiring the beneficiary's consent.

Waiver of Premium

Premium payment typically resumes when the insured is no longer disabled, maintaining policy coverage.

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Test your knowledge of key insurance concepts with these flashcards focusing on the essential terms and definitions from Chapter 9.1. This quiz covers important aspects of insurance policies and their provisions, helping you understand rights and duties in insurance contracts.