Questions and Answers
What does the Cost of Living Rider do?
Who is the policy owner?
The person who can request changes in premium payments, face value, loans, and policy plans.
What is the Interest Only Option?
What does the Paid-Up Option allow?
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What happens under the Waiver of Cost of Insurance rider?
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Childrens Rider requires proof of insurability for newly born children.
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What does the Facility of Payment Clause allow?
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What is the purpose of an Automatic Premium Loan?
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What is the definition of Cash Value in life insurance?
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Match the following terms with their definitions:
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What does the term 'Irrevocable Beneficiary' refer to?
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Study Notes
Life Insurance Policy Provisions, Options, and Riders
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Cost Of Living Rider: Adjusts the policy's face amount based on inflation, ensuring coverage aligns with the rising cost of living.
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Policy Owner: Holds rights to modify premium payments, face value, loans, and policy plans, distinctly separate from the insured or beneficiary.
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Interest Only Option: The insurer pays interest on the policy proceeds to the beneficiary while retaining the principal amount.
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Paid-Up Option: Allows accumulation of dividends which can pay off the policy earlier by purchasing a single premium policy alongside the permanent policy.
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Waiver of Cost of Insurance Rider: Available in Universal Life policies, this rider waives insurance costs if the insured becomes disabled.
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Children's Rider: Provides term insurance for all family children, convertible to permanent insurance without proof of insurability as they age.
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Facility of Payment Clause: Enables insurers to disburse death benefits to a person who may seem entitled, ensuring flexibility in payment.
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Automatic Premium Loan: Protects against unintentional policy lapse due to unpaid premiums by automatically borrowing against the policy's cash value.
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Face of Term Policy: Matches the face amount of a whole life policy, ensuring consistency in coverage terms.
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Reduced Paid-Up Policy: Employs the original policy’s cash value as a single premium to maintain permanent coverage at a lower face amount.
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Return of Premium Rider: Utilizes increasing term insurance to refund premiums paid in addition to the policy's face amount.
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Payor Benefit Rider: Covers premium payments if the payor (usually a parent) is disabled or dies, but does not increase the death benefit.
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Revocable Beneficiary: Policy owners can change the designation at will, without needing beneficiary consent.
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Under and Extended Term Nonforfeiture Option: Converts policy cash value into term insurance equal to the original permanent policy's face amount.
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Cash Option: Provides policyholders with annual, nontaxable dividend checks.
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Cash Surrender: Any cash value exceeding premiums paid is taxed as ordinary income.
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Accidental Death Rider: Offers death benefit payout that is two to three times the policy's face amount for accidental deaths occurring within 90 days of the incident.
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Lump Sum: This settlement option is default if the policy owner does not choose another payment method.
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Irrevocable Beneficiaries: Changes require written consent from the designated beneficiary.
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Paid-Up Additions: Dividend payments can be applied as a single premium to increase the insurance amount each year.
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Advantage of Reinstating a Policy: Allows resuming coverage based on the original age for premium calculations, which may offer lower rates.
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Cash Value: Represents the amount available to the policyholder, reduced by any outstanding loans or interest.
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Reduction of Premium: Permits application of policy dividends towards the subsequent year's premium payment.
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Incontestability Clause: Insurers cannot deny claims due to application statements after the policy has been active for two years.
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Other-Insured Rider: Enables coverage for multiple family members under one policy.
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Single Life: Provides a steady income stream to the beneficiary for their lifetime.
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Waiting Period on Waiver of Premium Rider: Characterizes a six-month waiting period for activating the rider after the insured disability.
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Reinstatement Provision: Requires payment of overdue premiums plus interest prior to reinstating the policy.
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Interest Earned on Policy Dividends: Taxable income, impacting the net benefit received by the policyholder.
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10-Day Free-Look Period: Initiates upon policy delivery, allowing full refund if the policy is returned within this timeframe.
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Contingent Beneficiary: Must survive both the insured and primary beneficiary to receive death benefits.
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Extended Term Nonforfeiture Option: Converts cash value into term insurance, matching the original permanent policy’s face amount for maximum coverage.
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Guaranteed Insurability Rider: Offers opportunities to purchase additional insurance amounts at specified dates or upon certain events without proving insurability.
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Common Disaster Clause: Addresses scenarios where both the insured and beneficiary die in a shared accident, often dictating benefits distribution.
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Trustee: Holds legal title to property within a trust for the benefit of the trust's beneficiary.
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Reduced Paid-Up Nonforfeiture Option: Provides ongoing coverage until the insured reaches age 100, with benefit amounts tied to the cash value.
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Grace Period: Activates the automatic premium loan provision at its conclusion, offering leeway for premium payments.
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Two Types of Assignments: Recognizes absolute (complete ownership transfer) and collateral (limited rights transfer) assignments.
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Payor Benefit: Alleviates premium obligations for minor insureds if the payor (parents) becomes disabled or dies, with a six-month disability condition.
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Spouse Term Rider: Grants coverage for a spouse under level term insurance until they reach age 65.
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Triple Indemnity Accidental Death Rider: Guarantees triple payout for accidental deaths meeting specific criteria within 90 days.
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Fixed-Period Option: Allows beneficiaries to receive equal payments over a predetermined period.
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Per Stirpes Class Designation: Ensures inheritance distribution within a family tree if a beneficiary predeceases the insured.
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Class Designation: Groups beneficiaries by specific relationships (e.g., children of the insured) for payment structure.
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Life Income Joint and Survivor Settlement Option: Guarantees ongoing income to two or more beneficiaries as long as at least one remains alive.
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Policy Reinstatement: Involves paying all overdue premiums, interest, and potentially any outstanding loans to restore coverage.
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Collateral Assignment: Grants partial rights under the policy to another person without relinquishing full ownership.
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Per Stirpes: Similar to the class designation, this option ensures family branch distribution upon a beneficiary’s passing.
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Accelerated Death Benefit: Reduces the overall death benefit by the amount received through accelerated benefits.
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Joint and Survivor: Provides payouts as long as either of the named beneficiaries is alive.
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Absolute Assignment: Refers to the complete transfer of ownership rights associated with a life insurance policy.
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Joint and 2/3 Survivor: Allows surviving beneficiaries to receive two-thirds of the amount formerly shared when both were alive.
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Life Income with Period Certain: Ensures payments for the recipient's lifetime while also guaranteeing a specified duration of payments, offering financial security.
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Description
Study essential terms and definitions related to life insurance policy provisions, options, and riders. This flashcard set will help you understand key concepts such as Cost of Living Rider and the rights of the policy owner. Perfect for anyone preparing for a career in insurance or finance.
