Life insurance exam concepts
The terms candidates search for most, answered first and backed by the source behind every fact.
What is a payor benefit rider?
A payor benefit rider is attached to a juvenile life insurance policy. If the adult who pays the premiums dies or becomes disabled, the insurer waives the premiums until the child reaches a set age, often 21.
What is a spouse term rider?
A spouse term rider adds term insurance on another person, usually the insured's spouse, for a stated amount and term under the base policy. It does not cover the base insured, and it commonly ends at a set age such as 65.
Accumulation at interest dividend option: how it is taxed
Under the accumulation at interest dividend option, the insurer keeps the policy's dividends on deposit and credits interest on them. The dividends are not taxable, but the interest is taxable to the owner in the year it is credited, even if it is not withdrawn.
Offer and acceptance in a life insurance application
When an applicant submits the application with the initial premium, the applicant makes the offer, and the insurer accepts by issuing the policy as applied for. If the insurer issues the policy on different terms, that is a counteroffer.
Waiver of premium vs waiver of cost of insurance
A waiver of premium rider pays the policy's premiums while the insured is totally disabled, after a waiting period, so coverage stays in force. On universal life, which has no fixed premium, the matching rider waives the monthly cost of insurance and expense deductions instead.
Interest only settlement option explained
Under the interest only settlement option, the insurer keeps the death benefit and pays the beneficiary the interest it earns, at a guaranteed minimum rate. The principal stays intact and is paid later to the beneficiary or to another payee.
Aleatory, adhesion, unilateral, conditional: insurance contract terms
A life insurance policy is aleatory (the values exchanged can be very unequal and depend on chance), a contract of adhesion (the insurer writes it and the applicant accepts or declines), unilateral (only the insurer makes an enforceable promise) and conditional (the insurer pays only if the policy's conditions are met).
Buy-sell agreements: cross-purchase vs entity purchase
A buy-sell agreement funded with life insurance lets the business or its owners buy a deceased owner's interest. In a cross-purchase plan each owner insures every other owner, so the plan needs n × (n − 1) policies; in an entity purchase the business owns one policy on each owner.
What is an accelerated death benefit?
An accelerated death benefit lets the policyowner receive part of the death benefit while the insured is alive, on proof of a qualifying condition such as a terminal illness. Whatever is paid early reduces the amount paid at death.
Common disaster clause and simultaneous death
When the insured and the primary beneficiary die in the same accident and the order of death cannot be proven, simultaneous death rules and common disaster clauses treat the beneficiary as having died first. The proceeds go to the contingent beneficiary, or to the insured's estate if none is named.