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P.R.O.s
Policy Riders, Provisions, Options and Exclusions
| Term | Definition |
|---|---|
| Waiver of Premium Rider | Waives the premium if the insured becomes totally disabled for 6 months or longer. During the waiting period, the policy owner (aka the insured) continues to pay premiums which are refunded by the insurer who then continue to pay the premium until the in |
| Guaranteed Insurability Rider | Allows the insured to purchase additional amounts of coverage as stated in the policy at specific ages or specific events without showing proof of insurability. The additional premium is based on insured’s attained age |
| Payor Benefit Rider | Primarily used on juvenile policies, but can be used on any policy where the owner and insured are two different people. Waives the premium if the payor (usually a parent or guardian) becomes disabled for 6 months+ or dies |
| Accidental Death Rider | May pay 2X or 3X the face amount if the Insured dies from an Accident within a short period of time, such as 90 days. The Accident must be the sole cause of death and meet the restrictions set forth in the policy. |
| Accidental Death and Dismemberment Rider | Pays the Principle Sum (full face amount) if the insured loses two or more of the principal parts (hands, arms, legs, feet and eyes); Pays the Capital Sum (reduced face amount) in the event of a loss of one primary part |
| Other Insured Rider | Used to purchase level term insurance on a spouse or someone other than the original person insured; Coverage for the spouse or other insured usually expires at age 65 |
| Long Term Care Rider | Can be either a separate policy or a rider added to a life insurance policy. Pays a portion of face amount in advance to reimburse expenses incurred in a nursing facility or convalescent home. If *Beneficiary receives a reduced face amount |
| Term Rider | Term insurance can be added to an existing policy in the form of a rider to cover other insureds without having to issue another policy |
| Children's Term Rider | Used to purchase term insurance on the life of a child or multiple children (natural, adopted, or stepchildren) for the same premium amount. Coverage is convertible to an individual policy at a specified age such as 18 or 21 |
| Family Term Rider | Combines the Spouse and Children's riders for temporary coverage on the family |
| Other Insured Rider | Used to purchase level term insurance on a spouse or someone other than the original person insured. Coverage for the spouse or other insured usually expires at age 65 |
| Return of Premium Rider | Added to an increasing term policy; pays an additional death benefit equal to the amount of the premiums paid to the beneficiary if the insured dies within term of their policy; refunds premium to policy owner if the insured outlives the term |
| Entire Contract | Consists of the policy and a copy of the original application plus any riders or amendments |
| Insuring Clause | The insurance company’s promise to pay the death benefit to the named beneficiary upon the death of the insured |
| Free Look Period | The time period, 10 days, from policy delivery that the policy owner has to look the policy over and decide whether to keep it or return it to the insurance company for a full refund of premium paid. Usually longer for replacement policies |
| Consideration Clause | An exchange of consideration (something of value). The applicant's (insured) consideration is the premium paid and the representations in the application. The insurer’s consideration is the promise to pay the death benefit in the insured's death |
| (Policy) Owner's Rights | The policy owner has all rights to the policy’s cash values, loans, and dividends. Assign the policy, name and change the beneficiary, receive the policy’s living benefits. Decide how policy proceeds are to be paid out and request changes to the policy |
| Primary Beneficiary | The first person(s) named to receive the policy proceeds upon the death of the insured |
| Contingent Beneficiary | Only receives the death benefit if the primary beneficiary has predeceased (died before) the insured |
| Revocable Beneficiary | May be changed by the policy owner at any time without consent or notice to the beneficiary |
| Irrevocable Beneficiary | May not be changed without the written consent of the beneficiary. When an irrevocable beneficiary is named, the policy owner may not borrow cash values or assign any part of the policy without the beneficiary’s consent |
| Common Disaster | If the insured and primary beneficiary are involved in the same accident and it cannot be determined who died first, it is assumed that the primary died first and the proceeds are paid to the contingent or the insured's estate, if there's no contingent |
| Minor Beneficiaries | Death benefits designated to a minor must be paid to a guardian or held in trust for the minor and paid by a designated trustee |
| Premium Modes | The frequency of premium payments: monthly, quarterly, semi-annually, or annually. Monthly costs more; annual costs less |
| Grace Period | The time after the premium due date that the policy owner has to pay the premium before the policy lapses. Protects the policy owner from an unintentional lapse of the policy. At least 30 days in most States (commonly expressed as 30/31 days or 1 calendar |
| Automatic Premium Loan | Allows the insurer to use the cash value of a permanent policy to pay a past due premium. Protects the policy owner from an unintentional lapse of coverage and keeps the policy in force at the end of a grace period; considered a loan with interest |
| Level Premium | The policy owner pays a fixed amount for the life of the policy. Level premiums are the most common type of payment |
| Flexible Premium | The amount and frequency of the premium payment will vary. Flexible premiums are usually available for polices such as universal life which allows the policy owner to pay more or less than the planned premium |
| Reinstatement | Must be completed within the maximum time limit ( 3 years) after lapse of a policy; policy owner required to pay all back due premiums plus interest with any outstanding loans plus interest; must also provide evidence/proof of insurability. |
| Policy Loans | Policy owner can borrow up to 100% of the cash value (variable policy, 75%-90%). Loan can be deferred up to 6 months, unless the loan is being used to pay premiums. Policy terminates if the loan plus interest equals or exceeds the cash value of the policy |
| Withdrawals or Partial Surrenders | Partial withdrawals (partial surrenders) of the policy’s cash value are allowed with Universal Life policies. Do not have to be paid back and are not charged interest. Any partial withdrawal or surrender that is not repaid will reduce the death benefit |
| Nonforfeiture Option (Whole Life) | Nonforfeiture is the guarantee to the policy owner the cash value in a policy belongs to the policy owner if the policy lapses or is surrendered. By law, a table showing the nonforfeiture values for a minimum of 20 years must be included in the policy. |
| Reduced Paid Up | Cash value is used to buy a single premium permanent paid-up policy with a reduced face amount. This option provides the longest protection |
| Extended Term | Cash value is used as a single premium payment to purchase the same amount of term insurance coverage as the original policy. This option provides the highest amount of protection. Automatically chosen by insurer if no other option has been selected |
| Cash Surrender | The cash value in the account minus any surrender charges and loans is paid to the policy owner when the policy is lapsed or surrendered. If a policy is surrendered for the cash surrender value, the policy cannot be reinstated |
| Dividends | Dividends are paid by participating companies and are never guaranteed. Dividends are a return of excess premiums paid and are not taxable income) |
| Cash | A dividend option: the policy owner receives a check, usually annually |
| Reduction of Premium | A dividend option: the policy owner applies the dividend to next year’s premium to reduce the amount owed next year. |
| Accumulation at Interest | A dividend option: the insurance company holds the dividend and pays interest on the amount. The policy owner is allowed to withdraw the dividend at any time. Any interest earned is taxable |
| Paid Up Addition | A dividend option: the policy owner purchases additional insurance at the insured’s attained age. The additional amount is added to the face amount and will increase the death benefit |
| One Year Term | A dividend option: the insurer uses the dividend to purchase a single premium, one-year term policy that increases the overall death benefit. Premium is calculated at the insured’s attained age |
| Incontestability Clause | Prevents an insurer from denying a claim based on statements in an application after the policy has been in force for a certain period (2 years) of time. Does not apply to nonpayment of premium or misstatement of age, gender or identity |
| Assignments | The transfer of some or all rights of ownership of the policy to another person or entity |
| Absolute Assignment | Transfers all rights of ownership; is permanent and total |
| Collateral Assignment | Transfers a portion of the ownership rights temporarily, usually to secure a loan or some financial transaction, and rights are returned to policy owner when the loan or debt is repaid. The amount of the assignment cannot exceed the amount of the debt |
| Suicide (Exclusion) | States that if the insured commits suicide within 2 years of policy issuance, the insurance company will only refund the premiums paid. If the insured commits suicide after 2 years, the insurance company is liable for the entire death benefit amount |
| Misstatement of age or gender | If the age or gender of the insured is misstated on the application, the insurer will adjust the face amount to the correct amount the premiums would have paid. This can be done at any time, but is most often done when there is a death claim. |
| Settlement Option | How death proceeds are paid out. If selected by the policy owner, the settlement option cannot be changed by the beneficiary. If no settlement option is selected, the beneficiary will be able to choose one at the time of the insured’s death |
| Cash | A settlement option: paid in one lump sum payment. Default option if no other is selected; not taxable to the beneficiary as income |
| Life Income | A settlement option: installment payments are guaranteed for as long as the recipient lives. The amount of each payment is determined based on the recipient’s life expectancy and the amount of the principal. |
| Interest Only | A settlement option: the insurer retains the policy proceeds and pays interest earned to the beneficiary at regular intervals. This is a temporary option since the proceeds will be paid at a future date using another settlement option |
| Fixed Period (Period Certain) | A settlement option: beneficiary will receive both the principle and interest of the death proceeds for a specified period of time (yearly) |
| Fixed Amount | A settlement option: beneficiary will receive a specified amount, including principal and interest, until the death benefit is exhausted (monthly) |
| Accelerated Death Benefits | The policy owner can withdraw a portion of the death benefit, (50%), if the insured is suffering from a terminal illness. The insured must not be able to perform two of the activities of daily living (bathing, dressing, eating, etc.) to receive payment. |
| Policy Exclusions | Causes of death that the insurance company will not cover. Common exclusions include: war, aviation, hazardous occupation – mainly suicide |
Created by:
KHodge5812
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