Policy Provisions, Options And Riders
Session Four
Lesson Two
Settlement Options - Are methods by which insurance proceeds are distributed to
beneficiaries. Principal proceeds are not taxable; however, interest earned on principal is
taxable.
Cash Payment - Lump Sum - Benefits are paid in cash.
Interest Only - Proceeds are retained by insurer who invests the amount and pays the
interest to the beneficiary for a specified time before paying principal amount.
Fixed-Period Installments - Principal plus interest generated by investing it;
distributed to beneficiary over a set amount of time.
Fixed-Amount Installments - Beneficiary receives a certain amount on a regular
basis until there are no more benefits.
Life Income - Beneficiary receives periodic payments for life under the following
possible options.
Life Income - Payments for life, guaranteed.
Without Fixed Period
With Fixed Period (10,15,20 yrs)
Joint and Survivor Life Income - Two recipients receive payments through the
life of the first; survivor receives smaller payment (usually 1/2 or 2/3).
Non-forfeiture Options (Guaranteed Values)
Non-forfeiture Options - Are when the cash value accumulated must be available
to the policy owner if premiums are no longer paid. Most states require ordinary
insurance to have cash surrender value after premiums have been paid for at least
three full years.
1.
Cash Surrender Value - Full amount of current accumulated cash value
is due to the policy owner upon surrender of policy.
2.
Extended Term - Accumulated cash value used as a single-premium to
buy paid-up term insurance which is the same face amount as the policy
producing the cash value.
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3.
Reduced Paid-Up Insurance - Cash value is used as a single premium
payment for a paid-up permanent policy of a reduced face amount from
that of the policy producing the cash value.
Policy Loans and Withdrawal Options
Policy Loans are made only on policies which accumulate cash value.
Cash Loans - Borrowing may be up to a limit not to exceed cash surrender value
of the policy.
Automatic Premium Loans - Allows insurer to use any part of the cash value
that is needed to pay premiums due if payment is not made by the
policyowner. Loans are automatically activated at end of Grace Period.
Withdrawals or Partial Surrenders - Partial withdrawals on the cash value of a
Universal Life policy may be withdrawn from the policy; however, there
may be a charge and a limit. Partial or full surrender is allowed with the
possibility of being subject to taxation.
Dividend Options
Dividend Options are ways that an insured may receive policy dividends.

Cash Payment - Dividends taken in cash.

Reduction of Premium Payments – applies the dividend toward the next
premium payment.

Accumulation at Interest - Dividends are left with insurer to be invested.

One-Year Term Option - Used to purchase a single premium, one-year term
policy.

Paid-Up Additions - Used to purchase additional insurance that is the same
type as the original policy on a single premium basis.

Paid-Up Insurance - Insurance policy exists and no more payments are
needed.
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Disability Riders
Disability Riders are attachments to a policy that will change its conditions of coverage.
Waiver of Premium - Disabled policyowner is exempted from paying premiums
during time of disability; policy is still in force.
Waiver of Cost Insurance - Waives the cost of the insurance but not the cost of
premiums necessary for cash value accumulations. (Usually found in Universal Life
Policy.)
Disability Income Benefit - Provides monthly income to disabled insured through
period of total and permanent disability.
Payor Benefit Life/Disability (juvenile insurance) - If a parent/policyowner of a
juvenile insured dies or becomes disabled, the juvenile policy will be in force until
the insured reaches specified age. Insured and owner must be two different
individuals.
Accelerated (Living) Benefit Provision/Rider
Provides for all or part of benefits if the insured has a terminal illness or a dreaded
disease; usually death is diagnosed to be within one to two years.
Conditions For Payment - Policy contains the Accelerated Benefit Provision for
immediate financial help; minimum payment from death benefit for this purpose is
generally 50%.
Effect On Death Benefit - When using part of the death benefit under the
Accelerated Benefit Provision, the benefit at death would be reduced by amount
accelerated and interest amount lost by the insurer.
Viatical Settlement - The selling of a life insurance policy for less than face value
to allow a person who has a catastrophic or life-threatening illness to obtain funds
from another source other than from the insurer who wrote the policy.
Minimum Discounts:
Life Expectancy
less than 6 mos.
% of Face Value
80%.
6 mos. to 12mos.
70%
12mos. to 18mos.
65%
Viator - Owner of a life Ins. policy insuring the person with a life-threatening illness
Viatical Provider - Person/Company purchasing Viator’s contract.
Viatical Broker - One who brings Viator and Provider together.
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Riders Covering Additional Insureds
Spouse/other-insured Term Rider - Allows spouse to be added for a limited
amount and a limited time period.
Children's Term Rider - Allows children to be added for a limited amount and a
limited time period.
Family Term Rider - Allows other members of the family to be added for a limited
amount and a limited time period.
Riders Affecting the Death Benefit Amount
Accidental Death (Double Indemnity) - Insured beneficiaries will receive additional
benefits if death was caused by an accident covered and not excluded under the rider
conditions. Benefit is normally 2 times the face amount (In some cases triple face
amount.). Death must occur within 90 days of the accident.
Guaranteed Insurability - Insured may purchase more coverage at specified
age/ages without proving insurability. Premium for additional insurance based on
attained age.
Cost of Living - Increasing Term insurance death benefit increases on an annual
basis as cost of living index increases.
Return of Premium - Premiums paid are returned as long as death occurs within the
specified time in the rider.
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