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Questions and Answers
What is the policy provision for a beneficiary if the insured disappears?
What are the dividend options available to the policy owner?
Who has the ownership rights of a policy if there is no beneficiary designated?
What happens if the insured misstates their age on the application?
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What is the survivorship clause in life insurance?
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What is the settlement option that pays fixed amounts until the principal is exhausted?
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What happens to the policy if the insured is declared legally insane?
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What is the policy provision for a beneficiary if the insured commits suicide within 2 years?
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What happens if there are multiple beneficiaries designated in a policy?
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What is the insurable interest requirement for a business relationship?
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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.
