Chapter 3 Policy Provision, Options and Riders

is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.

pays an additional sum to the beneficiary if the insured dies due to a covered accident. The amount paid is a multiple of the policy face amount, such as double or triple the original benefit. Accident death life insurance provides the cheapest way to add a lot of coverage for a limited period.

allows the insured to receive a portion of the death benefit before death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Insuring Clause (or Insuring Agreement

A policyowner must pay a premium in exchange for the insurer’s promise to pay benefits. A policyowner’s consideration consists of completing the application and paying
the initial premium. The amount and frequency of premium payments are contained in the
consideration clause.

Entire Contract:

grace period

Permits the policyowner to reinstate a policy that has lapsed- as long as the policyowner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5-7 years.

The clause in a life insurance contract that prohibits the insurer from questioning the validity of the contract after a certain period of time has elapsed.

Allows the insurer to adjust the policy benefits if the insured’s age or sex is misstated on the policy application.

Policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy’s cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured’s policy proceeds.

Allows the insurer to automatically use the policy cash value to pay an overdue premium. There is no cost for this provision.

The right to transfer policy rights to another person or entity.

When the assignee receives full control of the policy and rights to the policy benefits from the current policyowner.

The partial and temporary transfer of rights to another person or entity. Collateral assignments are usually intended for securing a loan with a creditor.

The policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.

The policy will be voided and no death benefit will be paid if the insured commits suicide within 1 year from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.

Aviation: The insurer will not pay the claim if the insured dies due to involvement with aviation, such as a military pilot flying a jet aircraft.
War or Military Service: The insurer will not pay the claim if the insured dies while in active military service or due to an act of war.
Hazardous Occupation or Hobby: If the insured dies as a result of a hazardous occupation or hobby, the insurer will not pay the claim.

When a policyowner decides he does not want his life insurance policy anymore, he has the option to surrender his policy. If there is cash value remaining he must use one of the following nonforfeiture options:

non forfeiture options – cash surrender

non forfeiture options- extended term options

nonforfeiture options-reduced paid up option

types of divedend options

dividend options

Allows the policyowner to waive premium payments during a disability and keeps the policy in force. It does not provide cash payments to the policyowner. The disability must be total and permanent and have sustained through the waiting period (90 days or 6 months). After a certain age (usually 60 or 65), the waiver of premium rider is void.

If the individual paying the premiums on a juvenile life policy becomes disabled or dies, the Payor Rider ensures that premiums will be waived.

Allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs.

Pays an additional sum to the beneficiary if the insured dies due to an accident. The amount paid is a multiple of the policy face amount such as double or triple the original benefit.

May be added to a life insurance policy. Pays benefits for dismemberment and accidental death. Pays a principal sum for loss of both hands, both arms, both legs, or loss of vision in both eyes.

Permits the policyowner to buy additional permanent life insurance coverage at specific points of time in the future without submitting proof of insurability. It also includes specific events like marriage and births, without requiring the proof of insurability. Usually the benefit is allowed every 3 years, up to the original face amount of the policy.

Allows the policy face amount to be adjusted to account for inflation based on the consumer price index.

pays the total amount of premiums paid into the policy in addition to the face value, as long as the insured dies within a certain time period specified in the policy. It also returns premiums to the living insured at the end of a specified period of time, as long as the premiums have been paid.

Allows the insurance company to deduct overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy.