Podcast
Questions and Answers
What is the primary difference between term life insurance and permanent life insurance?
What is the primary difference between term life insurance and permanent life insurance?
Which type of life insurance has a cash value that can be invested?
Which type of life insurance has a cash value that can be invested?
What is the purpose of a Waiver of Premium Rider?
What is the purpose of a Waiver of Premium Rider?
What is the primary function of an endorsement in a life insurance policy?
What is the primary function of an endorsement in a life insurance policy?
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What is the purpose of a Suicide Clause in a life insurance policy?
What is the purpose of a Suicide Clause in a life insurance policy?
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What is the role of the policy owner in a life insurance policy?
What is the role of the policy owner in a life insurance policy?
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What is the purpose of an Incontestability Clause in a life insurance policy?
What is the purpose of an Incontestability Clause in a life insurance policy?
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What is the primary difference between a rider and an endorsement in a life insurance policy?
What is the primary difference between a rider and an endorsement in a life insurance policy?
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What does the principle of utmost good faith require from the parties involved in an insurance contract?
What does the principle of utmost good faith require from the parties involved in an insurance contract?
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Under which principle must the insured demonstrate a financial interest in the subject matter of the insurance?
Under which principle must the insured demonstrate a financial interest in the subject matter of the insurance?
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What is the primary purpose of the principle of indemnity?
What is the primary purpose of the principle of indemnity?
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What does the principle of proximate cause determine in an insurance policy?
What does the principle of proximate cause determine in an insurance policy?
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What role does the principle of subrogation allow the insurer to undertake?
What role does the principle of subrogation allow the insurer to undertake?
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What does the principle of contribution ensure when multiple insurers cover the same loss?
What does the principle of contribution ensure when multiple insurers cover the same loss?
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What is required from the insured by the principle of mitigation of loss?
What is required from the insured by the principle of mitigation of loss?
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Which principle dictates that the insurer's liability is confined to the losses directly tied to an insured event?
Which principle dictates that the insurer's liability is confined to the losses directly tied to an insured event?
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Study Notes
Life Insurance Policies
Types of Life Insurance Policies
- Term Life Insurance: Provides coverage for a specified period (e.g., 10, 20, or 30 years). Pays a death benefit if the policyholder dies during the term.
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Permanent Life Insurance: Lifelong coverage with a cash value component that grows over time. Examples include:
- Whole Life Insurance: Fixed premiums, fixed death benefit, and a guaranteed cash value.
- Universal Life Insurance: Flexible premiums, adjustable death benefit, and a cash value that can be invested.
- Variable Life Insurance: Cash value invested in a separate account, with potential for growth or loss.
Policy Riders and Endorsements
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Riders: Additional features or benefits added to a policy, such as:
- Accidental Death Benefit Rider: Pays an additional death benefit if the policyholder dies due to an accident.
- Waiver of Premium Rider: Waives premium payments if the policyholder becomes disabled.
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Endorsements: Changes to the policy, such as:
- Assignment: Transfers ownership of the policy to another person or entity.
- Change of Beneficiary: Updates the beneficiary designation.
Policy Provisions
- Suicide Clause: Excludes payment of death benefits if the policyholder dies by suicide within a specified time period (e.g., 1-2 years).
- Incontestability Clause: The insurer cannot contest the policy's validity after a specified time period (e.g., 2 years) unless the policyholder provides false information.
- Graveyard Clause: A provision that allows the insurer to deny claims if the policyholder dies within a specified time period (e.g., 1-2 years) due to a pre-existing condition.
Policy Ownership and Beneficiaries
- Policy Owner: The person or entity that owns the policy and has control over it.
- Beneficiary: The person or entity that receives the death benefit if the policyholder dies.
- Contingent Beneficiary: The secondary beneficiary who receives the death benefit if the primary beneficiary is deceased or unable to collect.
Policy Termination
- Lapse: The policy terminates due to non-payment of premiums.
- Surrender: The policyholder voluntarily terminates the policy and receives the cash value.
- Expiration: The policy terminates at the end of the specified term.
Life Insurance Policies
Types of Life Insurance Policies
- Term Life Insurance: Provides coverage for a specified period (e.g., 10, 20, or 30 years) and pays a death benefit if the policyholder dies during the term.
-
Permanent Life Insurance: Offers lifelong coverage with a cash value component that grows over time, with three sub-types:
- Whole Life Insurance: Features fixed premiums, fixed death benefit, and a guaranteed cash value.
- Universal Life Insurance: Has flexible premiums, adjustable death benefit, and a cash value that can be invested.
- Variable Life Insurance: Invests the cash value in a separate account, with potential for growth or loss.
Policy Riders and Endorsements
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Riders: Add features or benefits to a policy, including:
- Accidental Death Benefit Rider: Pays an additional death benefit if the policyholder dies due to an accident.
- Waiver of Premium Rider: Waives premium payments if the policyholder becomes disabled.
-
Endorsements: Make changes to the policy, such as:
- Assignment: Transfers ownership of the policy to another person or entity.
- Change of Beneficiary: Updates the beneficiary designation.
Policy Provisions
- Suicide Clause: Excludes payment of death benefits if the policyholder dies by suicide within a specified time period (e.g., 1-2 years).
- Incontestability Clause: Prevents the insurer from contesting the policy's validity after a specified time period (e.g., 2 years), unless the policyholder provides false information.
- Graveyard Clause: Allows the insurer to deny claims if the policyholder dies within a specified time period (e.g., 1-2 years) due to a pre-existing condition.
Policy Ownership and Beneficiaries
- Policy Owner: The person or entity that owns the policy and has control over it.
- Beneficiary: The person or entity that receives the death benefit if the policyholder dies.
- Contingent Beneficiary: The secondary beneficiary who receives the death benefit if the primary beneficiary is deceased or unable to collect.
Policy Termination
- Lapse: The policy terminates due to non-payment of premiums.
- Surrender: The policyholder voluntarily terminates the policy and receives the cash value.
- Expiration: The policy terminates at the end of the specified term.
Principles of Insurance
Utmost Good Faith
- Insurer and insured must disclose all material facts accurately and honestly
- Insured must provide complete and accurate information about the risk
- Insurer must provide clear and transparent policy terms
Insurable Interest
- Insured must have a financial interest in the subject matter of the insurance
- Insured must stand to lose financially if the event insured against occurs
- Examples: business owners insuring their business, homeowners insuring their property
Indemnity
- Insurer will compensate the insured for losses up to the amount of the policy limit
- Goal is to restore the insured to their original financial position before the loss
- Insurer does not aim to make a profit for the insured, but rather to compensate for losses
Proximate Cause
- Insurer is only liable for losses that are directly caused by the event insured against
- Insurer is not liable for losses that are indirectly caused by other factors
- Example: if a hurricane causes a flood, and the flood causes mold growth, the insurer is only liable for the losses caused by the flood, not the mold growth
Subrogation
- Insurer can pursue a third party responsible for the loss to recover the amount paid to the insured
- Insurer steps into the shoes of the insured to seek compensation from the third party
- Example: if a driver causes an accident, and the insurer pays the claim, the insurer can then pursue the driver for reimbursement
Contribution
- When multiple insurers are liable for the same loss, each insurer will contribute a proportionate share of the loss
- This principle ensures that the insured is not over-compensated and that each insurer is only liable for their share of the loss
- Example: if two insurers each cover 50% of a loss, they will each contribute 50% of the claim amount
Mitigation of Loss
- Insured must take reasonable steps to minimize the loss or damage
- Insurer is only liable for losses that could not be avoided or minimized by the insured
- Examples: installing security cameras to prevent theft, taking steps to prevent water damage
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Description
Learn about different types of life insurance policies, including term life insurance, permanent life insurance, whole life insurance, and universal life insurance.
