Life Insurance, cont'

1
Life Insurance, cont.

• Lecture 16

2
Ownership Clause

• Owners Insured, beneficiary, 3rd party
• Owner possesses all contractual rights in policy
  while insured is living
• Rights
• Change beneficiary
• Surrender policy
• Receive dividends
• Elect settlement options

3
Entire Contract Clause

• Policy and application constitute the entire
  contract between the parties
• Insurer may not amend w/o consent of owner

4
Incontestable Clause

• Insurer cannot contest after the policy has been
  in force two years during the insureds lifetime
• Insurer has two years to uncover even material
  misrepresentations fraud
• Exception no insurable interest someone else
  takes medical intent to murder insured

5
Suicide Clause

• If insured commits suicide within two years of
  issuance, face amount will not be paid
• Premiums refunded
• Burden of proving rests with insurer

6
Grace/Reinstatement

• Grace period 31 days some 61 days
• Reinstatement of lapsed policy
• Evidence of insurability
• Overdue premiums plus interest repaid
• Policy loans repaid
• Must not have been surrendered for CV
• Within certain period 3 to 5 years for ex.

7
Misstatement of age or sex

• Insurance amount payable is amount premiums would
  have purchased based on correct age/sex

8
Beneficiary Designation

• Primary and contingent (contingent if primary
  dies first ex wife and kids)
• Revocable and Irrevocable
• Policyowner can change beneficiary
• Beneficiarys consent needed if irrevocab.
• Specific and class specifically named versus
  children of insured

9
Other

• War clause aviation exclusion
• Premiums paid
• Annually, semi-annually, qtly, monthly
• Assignment insurance policy can be freely
  assigned to another party
• Automatic premium loan overdue premiums
  automatically paid out of cash value

10
Policy Loan Provisions

• Cash value life insurance allows policyowner to
  borrow cash value
• Advantages
• Usually low rate
• No paperwork flexible repayment
• Excessive borrowing may cause policy to lapse
  net protection reduced

11
Dividends

• For participating policies, the source of surplus
  for dividends is
• Higher interest earnings than assumed
• Lower mortality rates than expected
• Lower operating expenses than expected
• Nonparticipating no dividends

12
Ways of Taking Dividends

• Cash
• Reduction of premiums
• Accumulate at interest company guarantees
  minimum may pay higher
• Paid-up-additions dividends used as single
  premium to buy addl pd up ins.
• Purchase term insurance
• Convert policy to paid-up contract

13
Nonforfeiture options

• Amount policyowner can get by surrendering policy
• Cash value
• Reduced paid-up insurance (retiree with limited
  income w/ some insurance needs)
• Extended term insurance

14
Dollar Amount for Each 1000 of Ordinary Life
Insurance Issued at Age 21
15
Settlement Options

• Interest option
• Interest periodically paid to beneficiary
• Minimum interest guaranteed
• Beneficiary has withdrawal rights
• Fixed period
• Monthly, quarterly, semi- or annually
• Payments to contingent if beneficiary dies
• Income needed for definite period

16
Settlement Options

• Fixed amount
• Definite amount paid each time period
• Paid until principal and interest exhausted
• Beneficiary has withdrawal rights
• Life income options
• Life income only game w/ life expectancy
• Life income w/ period certain contingent
• Refund annuity
• Joint and survivor

17
Fixed-Period Option (Minimum Monthly Income
Payments per 1000 Proceeds, 3 Percent Interest
18
Life Income Options (Minimum Monthly Income
Payments per 1000 Proceeds, 3 Percent interest
19
Joint-and-Survivor Life Income Option (Minimum
Monthly Income Payments per 1000 Proceeds, 3
1/2 Percent Interest)
20
Settlement options

• Advantages
• Periodic income
• Guaranteed principal and interest
• Life insurance planning
• Disadvantages
• Higher yields elsewhere
• Inflexibility
• Life income option not attractive at younger ages

21
Other Life Insurance Benefits

• Waiver of premium provision premiums waived
  during disability
• Guaranteed purchase option to purchase
  additional insurance w/o evidence of insurability
• Double indemnity rider accidental death (why
  double for accident?)

22
Other benefits

• Cost of living rider allows policyowner to
  purchase one-year term insurance equal to
  change in CPI without evidence of insurability
• Accelerated Death Benefits
• Terminal illness rider
• Catastrophic illness rider
• Long-term care rider