6 – Health Insurance Policy Provisions

Policy Loan provision A policy loan will pay the policyowner an amount that, with interest, does NOT exceed the guaranteed cash value.

contest a claim during the contestable period he incontestable clause or provision specifies that after a certain period of time (usually two years from the issue date), the insurer no longer has the right to contest the validity of the life insurance policy so long as the contract continues in force.

The full face amount In this situation, the beneficiary will receive the full death benefit stated in the policy.

at future dates specified in the contract with no evidence of insurability required

Accidental Death and Dismemberment clause An AD&D clause provides benefits for death due to an accident or for the loss of one or more hands, feet, arms, legs, or loss of sight.

The correct answer is "Paid-Up Additional Insurance". In this situation, Paid-Up Option should be selected.

Claims are denied under the Suicide clause of the policy

Insuring clause The insuring clause in a Life insurance contract establishes the basic promise of the insurance company.

Entire Contract provision The Entire Contract provision, found at the beginning of the policy, states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract.

Interest on accumulations is taxed If the dividends exceed the total premium payments for the insurance policy, the excess dividends are considered taxable income.

automatically add the amount of interest due to the loan balance Unpaid interest from a policy loan is added to the loan balance if not paid by the due date.

policy proceeds If not repaid by the time the insured dies, the loan balance and any interest accrued are deducted from the policy proceeds at the time of claim.

Insured must be eligible for Social Security disability for claim to be accepted Receiving Social Security disability benefits is not a requirement to be eligible for the Waiver of Premium.

Child A payor benefit clause is generally added to a life policy that insures the life of a juvenile. It provides continuance of insurance coverage in the event of the death or total disability of the individual responsible for the payment of premiums.

20-Pay Life accumulates cash value faster than Straight Life

In this situation, the beneficiary will receive $50,000 less any outstanding loans and interest. At the time of the insured's death, the policy is beyond the contestable period.

Full face amount minus any past due premiums

Waiver of Premium the Waiver of Premium is a rider on a life insurance policy that guarantees that the premium will be paid if the insured is disabled for a specified period of time.

$50,000

Beneficiary will be paid the Death Benefit The incontestable clause prevents the insurer from canceling the contract even for a material misrepresentation.

$50,000 The suicide occurred outside the Suicide clause period (normally 1-2 years), thus the face amount will be paid.

Automatic Policy Loan

Collateral assignment

Reinstatement Most insurers require evidence of insurability be provided upon reinstatement of a lapsed policy.

A payor benefit rider provides for waiver of premium if the adult-payor of the policy dies or becomes totally disabled.

Ex-wife D's ex wife is still the beneficiary of this policy, even though policy ownership has changed to his current spouse.

It is taxed as ordinary income Accumulated interest earned on dividends from an insurance policy is taxed as ordinary income

The correct answer is "Deducted when the policy is discontinued". In a policy with a rear-end loaded provision, surrender charges are deducted when the policy is discontinued.

Who the policyowner is and what rights the policyowner is entitled to

The correct answer is "Evidence of insurability is required when the option is exercised". All of these statements are true EXCEPT "Evidence of insurability is required when the option is exercised".

Variable Life

"Owner's Rights" states who may select policy options, designate and name a beneficiary, and be the recipient of any financial benefits from the policy.

The correct answer is "Whole life and Increasing term". A Return of Premium life insurance policy is whole life insurance with a death benefit rider of increasing term insurance equal to the amount of premiums paid. If the insured dies within the period of term, the beneficiary will receive face amount plus the value of all paid premiums.

An Accidental Death and Dismemberment (AD) rider provides an additional death benefit for a limited period of time at the lowest possible cost.

both an insurance and securities product

Payor clause

Modify a provision in the insurance contract

Amount of premium payments and when they are due

adjust the death benefit to a reduced amount

avoid a policy lapse

Insuring agreement

beneficiary's age

Exclusion

Premiums are waived if payor becomes disabled

Reinstatement In cases where a policyowner wishes to reinstate a lapsed policy, the reinstatement provision allows the policyowner to do so with some limitations.

The correct answer is "Cash value provision". The Cash value provision makes a policy loan possible.

When the insured dies or at the policy's maturity date, whichever happens first

The correct answer is "Interest Only". The Interest Only option does NOT involve the systematic liquidation of the death proceeds.

Past-due interest on a policy loan is added to the total debt

Decreasing Term The Automatic Premium Loan provision can be incorporated into all of these policies EXCEPT decreasing term.

Return of premium rider

Reduced Paid-Up A Reduced Paid-Up option would provide continuing cash value build-up.

The correct answer is "Decreasing term rider". A decreasing term rider can add additional coverage to a whole life policy.

Exclusion

Term rider Term riders allow an applicant to have excess life insurance coverage.

Assign policy ownership to the bank A policyowner may assign ownership of the policy to a bank as collateral.

Coverage will be adjusted to reflect the insured's true age if a misstatement of age is discovered

$20,000 death benefit If the insured dies before the endowment's maturity, the policy's face value — also known as the "death benefit" — is paid in a lump sum to any beneficiaries.

exclusion

Life Income All of these are examples of Nonforfeiture options EXCEPT Life Income.

Must have a terminal illness to qualify

Living Benefit

Only the beneficiary may select

P will still receive declared dividends Even though premiums are waived because of the disability, the insured will continue to receive dividends just as if the insured were still making the payments themselves.

The Accidental Death and Dismemberment (AD&D) provision in a life insurance policy would pay additional benefits if the insured is blinded in an accident.

Child term rider One of the best methods of adding coverage for a child on a parent's life insurance policy is to add a child term rider.

Void the policy only if it is discovered during the Contestable period and proven to be material

Inability of the insured to perform more than 2 Activities of Daily Living (ADL's)

safeguard the insurer from an applicant who is contemplating suicide

An insurer's basic promise The insuring agreement in a Life insurance contract establishes the basic promise of the insurance company.

Long term care

Variable Universal Life Variable Universal Life is comprised of monthly mortality charges and self directed investment choices.

Reinstatement provision In cases where a policyowner wishes to reinstate a lapsed policy, the reinstatement provision allows the policyowner to do so with some limitations.

additional Whole Life coverage at specified times A guaranteed insurability option in a Whole Life Policy permits the policyowner to purchase, without evidence of insurability, stated amounts of Whole Life insurance at specified times.

Accumulation at Interest While policy dividends are not taxable, any interest paid on them is taxable income in the year the interest is credited to the policy.

the initial premium The Consideration clause states that the policyowner's consideration consists of a completed application and the first initial premium.

Entire Contract Provision The entire contract provision, found at the beginning of the policy, states that the policy document, the application (which is attached to the policy), and any attached riders constitute the entire contract. Nothing may be "incorporated by reference," meaning that the policy cannot refer to any outside documents as being part of the contract.

Past due premiums are waived In this situation, the insurance company will deny the claim, as the policy would have lapsed due to nonpayment by September 15.

Claim will be denied

Pay face amount minus the past due premium In this situation, the insurer would pay the death benefit less the past-due premium because death occurred within the grace period.