Chapter 12: Life Insurance Contractual Provisions

Transcription

1 Clquitt/Rejda McNamara Chapter 12 Chapter 12: Life Insurance Cntractual Prvisins Life Insurance Cntractual Prvisins Under the, the plicy wner pssesses all cntractual rights in the plicy while the insured is living Rights include naming beneficiaries and surrendering the plicy fr its cash value The states that the life insurance plicy and attached applicatin cnstitute the entire cntract between the parties The states that the insurer cannt cntest the plicy after it has been in frce during the insured s lifetime Prtects the beneficiary if the insurer tries t deny payment f the claim years after the plicy was first issued The insurer can cntest a claim after the incntestable perid in limited circumstances The states that if the insured cmmits suicide within tw years after the plicy is issued, the face amunt f insurance will nt be paid; there is nly a refund f the premiums paid Reduces against the insurer A life insurance plicy cntains a during which the plicy hlder has a perid f 31 days t pay an verdue premium 12 1

2 Clquitt/Rejda McNamara Chapter 12 The permits the wner t reinstate a lapsed plicy T reinstate, the fllwing requirements must be met: All verdue premiums plus interest are paid The plicy was nt surrendered fr its cash value Althugh it may require a large utlay f cash, it may be cheaper t reinstate a lapsed plicy that t purchase a new plicy Under the, if the insured s age r sex is misstated, the amunt payable is the amunt that the premiums paid wuld have purchased at the crrect age and sex The is the party named in the plicy t receive the plicy prceeds The is the first entitled t receive the plicy prceeds A means that the plicy wner reserves the right t change the beneficiary designatin withut the beneficiary s cnsent An is ne that cannt be changed withut the beneficiary s cnsent A is specifically identified A is a member f a grup, e.g., children f the insured 12 2

3 Clquitt/Rejda McNamara Chapter 12 Life insurance cntracts d nt cntain many exclusins Insures might insert a war clause t exclude payment if the insured ides as a direct result f war Premiums can be paid annually, semiannually, quarterly, r mnthly A life insurance plicy is freely assignable t anther party Under an, all wnership rights in the plicy are transferred t a new wner Under a, the plicy wner temprarily assigns a life insurance plicy t a creditir as cllateral fr a lan A allws the plicy wner t brrw the cash value The plicy wner must pay interest n the lan t ffset the lss f interest t the insurer A plicy culd lapse if the plicy wner des nt repay a lan and the ttal indebtedness exceeds the available cash value Under the, an verdue premium is autmatically brrwed frm the cash value after the grace perid expires Dividend Optins If a plicy pays dividends it is a Otherwise it is a 12 3

4 Clquitt/Rejda McNamara Chapter 12 Dividends cme frm three main surces: The difference between expected and actual mrtality experience The difference between expected and actual perating expenses Nnfrfeiture Optins The payment t a withdrawing plicy wner is knwn as a r A plicy wner has a right t the plicy s accumulated cash value; all states have standard Plicy wners have three : Under the ptin, the cash surrender value is applied as a net single premium t purchase a reduced paid up plicy Under the ptin, the net cash surrender value is used as a net single premium t extend the full face amunt f the plicy int the future as term insurance Settlement Optins The plicy wner can chse amng several ptins fr paying the plicy prceeds The mst cmmn ptins include: Under the, the prceeds are retained by the insurer, and interest is peridically paid t the beneficiary 12 4

5 Clquitt/Rejda McNamara Chapter 12 Under the, the prceeds are paid t a beneficiary ver sme fixed perid f time Under the, a fixed amunt is peridically paid t the beneficiary until the principal and interest are exhausted Under the, installment payments are paid nly while the beneficiary is alive and cease n the beneficiary s death Settlement ptins allw fr peridic payments t the family, restring their financial security Disadvantages include: Additinal Life Insurance Benefits Other benefits can be added t a life insurance plicy fr an additinal premium Under a, if the insured becmes ttally disabled, all premiums cming due during the perid f disability are waived The permits the plicy wner t purchase additinal amunts f life insurance at specified times in the future withut evidence f insurability The dubles the face amunt f life insurance if death ccurs as a result f an accident The allws insureds wh are terminally ill t cllect part r all f their life insurance benefits befre they die 12 5