Understanding Beneficiary Provision and Assignment in Life Insurance
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Questions and Answers

What is the policy provision for a beneficiary if the insured disappears?

  • The policy pays the full proceeds after a court declares the insured legally dead. (correct)
  • The policy pays the full proceeds immediately.
  • The policy pays the full proceeds after 10 years from the date of disappearance.
  • The policy pays the full proceeds after 7 years from the date of disappearance.
  • What are the dividend options available to the policy owner?

  • Cash, Reduced Paid-up Insurance, and Term Insurance.
  • Cash, Reduced Paid-up Insurance, and Return of Premium.
  • Cash, Extended Term Insurance, and Paid-up Additional Insurance. (correct)
  • Cash, Paid-up Additional Insurance, and Term Insurance.
  • Who has the ownership rights of a policy if there is no beneficiary designated?

  • The insured's spouse.
  • The insured's children.
  • The insurance company.
  • The insured's estate. (correct)
  • What happens if the insured misstates their age on the application?

    <p>The policy is valid, but the premiums are adjusted accordingly.</p> Signup and view all the answers

    What is the survivorship clause in life insurance?

    <p>It pays the full proceeds if one insured dies before the other.</p> Signup and view all the answers

    What is the settlement option that pays fixed amounts until the principal is exhausted?

    <p>Fixed Amount Option.</p> Signup and view all the answers

    What happens to the policy if the insured is declared legally insane?

    <p>The policy is valid, and the benefits are paid in full.</p> Signup and view all the answers

    What is the policy provision for a beneficiary if the insured commits suicide within 2 years?

    <p>The policy pays the premiums refunded.</p> Signup and view all the answers

    What happens if there are multiple beneficiaries designated in a policy?

    <p>The policy pays each beneficiary an equal share.</p> Signup and view all the answers

    What is the insurable interest requirement for a business relationship?

    <p>One party has a financial interest in the life of the other.</p> Signup and view all the answers

    Study Notes

    Suicide Clause

    • If an insured takes their own life after two years, the company pays the full proceeds.
    • If suicide occurs within two years, the company refunds the premiums, except when suicide is caused by insanity.

    Settlement Options

    • Lump Sum: full face amount (FA) is given.
    • Interest Option: interest earnings of the proceeds are given.
    • Fixed Period Option: pays an equal amount over a fixed period.
    • Fixed Amount Option: pays a fixed amount until the principal is exhausted.
    • Life Annuity Option: pays part of the principal for a fixed period or for a fixed period and for life if the insured lives beyond the fixed period.

    Beneficiary Provisions

    • The beneficiary is the person who receives the insurance proceeds upon the death of the insured.
    • The beneficiary must have an insurable interest in the life of the insured.
    • Insurable interest is defined as financial benefit derived from the income of the proposed insured while they live.
    • Insurable interest must be present at the time of insurance application.

    Types of Insurable Interest

    • Ties of Love and Affection: married couple, parents, child, siblings, relatives.
    • Pecuniary Relationship: business relationship, debtor-creditor, business partners, employer-employee, keyman insurance.

    Beneficiary Assignment

    • Assignment is based on priority and right.
    • Primary beneficiary: first in line to receive the proceeds.
    • Secondary/Contingent beneficiary: next in line if the primary beneficiary is unable to receive the proceeds.
    • Estate: can be a beneficiary.
    • Irrevocable assignment: acts as a co-policy owner.
    • Revocable assignment: can be changed or revoked.

    Beneficiary Limitations

    • Assignments made between persons guilty of adultery or concubinage at the time of donation are not allowed.
    • Assignments made between persons found guilty of the same criminal offense are not allowed.
    • Assignments made to a public officer or their wife, descendants, or ascendants by reason of their office are not allowed.

    Policy Provisions

    • When the Insured Quits: non-forfeiture options are available.
    • Non-forfeiture options:
      • Cash Surrender Value.
      • Reduced Paid-Up Insurance: cash value is used to buy the same kind of insurance but with a reduced FA.
      • Extended Term Insurance: cash value is used to buy a term insurance with the same FA but a shortened length.
      • Pure Endowment: given if the cash value is more than enough to pay for extended term coverage.

    Reinstatement Provisions

    • If premiums remain unpaid after the grace period, the policy lapses.
    • Policyowner can reinstate the policy within 3 years.
    • Proof of insurability will be required, and the contestability period resets.
    • Pure/straight reinstatement: policyowner pays back all unpaid premiums plus interest.

    Grace Period Provision

    • The insured has 30 days from the due date to pay premiums and remains insured within the period.
    • If the insured dies during the grace period, FA – unpaid premiums = net proceeds.

    Automatic Premium Loan

    • Premiums not paid beyond the grace period will be automatically paid by making a loan against the cash value of the policy.
    • Loan is subject to interest.

    Loan Provisions

    • The policyowner can make a loan on the policy not exceeding 80% of the cash value.
    • Cash value + interest = Loan Value.
    • There is no specific repayment date.
    • If the interest is not paid, the insurance company increases the present loan with interest.

    Assignment Provisions

    • The transfer of some or all of the ownership rights from assignor to assignee.
    • Absolute assignment: the transfer of all ownership rights permanently.
    • Collateral assignment: transfers some rights to a bank or lender to provide security for a loan.

    Dividend Options

    • Dividends may be earned if there are few claims, better earnings, and less expenses of the company.

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    Description

    Learn about beneficiary provision, beneficiary assignment based on priority and right, primary and secondary beneficiaries, revocable and irrevocable assignments, and beneficiary limitations in life insurance policies.

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