Individual Contracts
Standard provisions
Protection of beneficiaries from creditors
- When the policy names a beneficiary, the proceeds must inure solely to that beneficiary.
- They are not subject to the claims of creditors of the insured.
- However, if the policy is payable to the estate of the insured, the proceeds become part of that estate and are subject to the claims of the insured's creditors.
- Also, the cash surrender value of life insurance policies and annuities are not subject to garnishment, attachment or legal process in favor of a creditor unless the policy was specifically taken out for the benefit of the creditor.
Proceeds exempt from attachment
Cash surrender values and proceeds paid out from an annuity are not subject to attachment, garnishment, or legal process unless the insurance policy or annuity was taken out for this specific purpose.
Prohibited provisions
Policy loans: ****
The maximum the insurance company can charge for fixed loan rates is 10%. If they use an adjustable rate, it will be tied to Moody's Bond Index.
Free Look ****
Life insurance policies have a minimum of 14 days.
Annuities have a minimum of 21 days in which the policyholder may return the policy and receive a full refund.
This is from the time of delivery.
Grace Period *****
Not less than 30 days. The payment, at the option of the insurance company, may be subject to an interest charge of not more than 8%. If the insured dies during the grace period the face amount is paid but the premium due will be subtracted from the death benefit plus interest.
Life agent as beneficiary ****
A life insurance agent can not be the beneficiary of a life insurance policy covering the life of a person who is not a family member unless the agent has an insurable interest in the life of the person. Family members are cousins, step-brothers/sisters, half brothers/sisters, first cousin, niece/nephew, grandparents, parents, in-laws, uncles/aunts.
Effect of divorce on death proceeds ****
Unless a specific exception applies, a beneficiary designation naming a former spouse is void at the time the policyholder's marriage is judicially dissolved, so long as the beneficiary designation was made prior to the court order. The proceeds would be paid as if the ex-spouse had per-deceased the insured. So, the proceeds would go to the secondary beneficiary or to the estate if a secondary beneficiary was not named.
Additional lapse notice and secondary addressee *****
Anyone age 64 and over receives an extra 21 days of grace period. No policy, if in force for at least one year, may lapse unless, after expiration of the grace period, and at least 21 days before the effective date of such lapse, the insurer has mailed a notification of the impending lapse to the policyowner and to a specified secondary addressee if such addressee has been designated in writing by name and address by the policy-owner.
An insurer must notify the applicant of the right to designate a secondary addressee at the time of application for the policy. This section does not apply to any life insurance contract under which premiums are paid monthly or more frequently and are regularly collected by a licensed agent, paid by credit card, or any pre-authorized check.
Conversion of industrial Life *****
When an insured has $3,000 or more in industrial insurance with a company, the insured has the option to convert all of those into one ordinary life policy without any health questions.
Non-Forfeiture options *****
Just as was discussed in chapter 6, non-forfeiture options include:
- reduced paid-up
- cash surrender
- extended term