Sonja, age 25, recently purchased a $100,000 ordinary life insurance policy on h
ID: 2649594 • Letter: S
Question
Sonja, age 25, recently purchased a $100,000 ordinary life insurance policy on her life. The waiver-of-premium rider and guaranteed purchase option are attached to the policy. For each of the following situations, indicate the extent of the insurer's obligation, if any, to Sonja or to Sonja's beneficiary. Identify the appropriate policy provision or rider that applies in each case. Treat each event separately.
a. Sonja fails to pay the second annual premium due on January 1. She dies 15 days later.
b. Sonja commits suicide three years after the policy was purchased.
c. At Sonja's death, the life insurer discovers that Sonja deliberately lied about her age. Instead of being 25 years old, as she indicated, she was actually 26 years old at the time the policy was purchased.
d. Two years after the policy was purchased, Sonja is told that she has leukemia. She is uninsurable but would like to obtain additional life insurance.
e. Sonja is seriously injured in an auto accident. After six months, she is still unable to return to work. She has no income from her job, and the insurance premium payments are financially burdensome.
f. Sonja has a mentally disabled son. She wants to make certain that her son will have a continuous income after her death.
g. Sonja lets her policy lapse. After four years, she wants to reinstate the policy. Her health is fine.
Point out to Sonja how she can reinstate her life insurance.
h. Sonja wants to retire and does not wish to pay the premiums on her policy. Indicate the various options that are available to her.
i. Ten years after the policy was purchased, Sonja is fired from her job. She is unemployed and is in desperate need of cash.
j. When Sonja applied for life insurance, she concealed the fact that she had high blood pressure. She dies five years later.
Explanation / Answer
Sonja, age 25, recently purchased a $100,000 ordinary life insurance policy on her life. The waiver-of-premium rider and guaranteed purchase option are attached to the policy.
For each of the following situations, indicate the extent of the insurer's obligation, if any, to Sonja or to Sonja's beneficiary.
Identify the appropriate policy provision or rider that applies in each case.
Answer :
Waiver of Premium Rider :
This insurance rider protects your insurance policy from being cancelled in certain situations, even if you are unable to pay the premium. Most policies limit the age you can use this rider to being older than 65. If, after you turn 65, you become disabled and are disabled for longer than six months, your premiums will be waived. Usually, the premiums you paid during the six months of disability will be reimbursed, but it depends upon the life insurance policy. Once you are no longer disabled, you are required to resume your premium payments as before.
The definition of being disabled varies from policy to policy so read over your insurance company's guidelines. Find out what qualifies as being disabled and how long you are able to retain your policy without paying the premiums. Become familiar with all the details, restrictions, and responsibilities outlined within the policy before agreeing to the extra cost.
Guaranteed-purchase-option rider :
With this rider, a policyholder can buy more life insurance in the future without having to take another medical exam.
a. Sonja fails to pay the second annual premium due on January 1. She dies 15 days later.
Answer :
A life insurance policy will lapse when premium payments are missed and cash surrender value is exhausted on a life insurance policy. A policy will only lapse after a grace period has passed.
To prevent a life insurance policy from lapsing each and every time a premium payment is slightly late, every state in the country requires that a life insurance policy first go through what is known as a grace period after a payment is missed. This is a period of time (usually 30 days) where despite the missed payment, the insurance policy will still provide coverage and make a full payout if the insured dies.
Life insurance policy will continue be effective even after failure of payment of second annual premium on due date and insurer will be obliged to Sonja's beneficiary $100,000.
b. Sonja commits suicide three years after the policy was purchased.
Answer :
Suicide means a wilful and intentional act on the part of the self-destroyer. It includes every act of self-destruction. Where there is such a clause in a policy, the insurer can avoid the policy. suicide is a crime and hence no money is payable if a person commits suicide while in a sane state of mind.
The claim would be barred on a contractual level because the assured cannot be the author of his own loss, and on a broader level, because the law will not allow him to benefit from his own criminal acts.
On the other hand if the assured was insane at the time of committing suicide, the sum due can be recovered by his legal representatives.
Suicide will also not affect the rights of assignee, if the policy holder had assigned the policy for valuable consideration.
Insurer will not be obliged to any amount.
c. At Sonja's death, the life insurer discovers that Sonja deliberately lied about her age. Instead of being 25 years old, as she indicated, she was actually 26 years old at the time the policy was purchased.
Answer :
Where misrepresentation was deliberate or reckless, it is reasonable for the insurer to avoid the policy. That means the insurer can cancel the policy, decline the claim and return the premiums that the consumer has paid from the date of the misrepresentation - together with interest.
And if the consumer's misrepresentation was made to obtain a benefit they weren't entitled to like cheaper premiums. it is reasonable for the insurer to keep all the premiums when avoiding the policy.
Insurer will not be obliged to any amount as she might mentioned less age to get benefit of lower premium.
d. Two years after the policy was purchased, Sonja is told that she has leukemia. She is uninsurable but would like to obtain additional life insurance.
Answer : Sonja is eligible to obtain additional life insurance due to Guaranteed-purchase-option rider in policy.
e. Sonja is seriously injured in an auto accident. After six months, she is still unable to return to work. She has no income from her job, and the insurance premium payments are financially burdensome.
Answer : life insurance policy of Sonja will continue to be effective due to Waiver of Premium Rider, provided She is eligible under conditions & restrictions mentioned for such waiver of premium Rider of her insurance policy because conditions & restrictions mentioned for waiver of premium Rider varies as per different policies.
f. Sonja has a mentally disabled son. She wants to make certain that her son will have a continuous income after her death.
Answer : Sonja can do so provided her insurance policy includes Family Income Benefit Rider.
Family Income Benefit Rider guarantees your family will continue receiving your monthly income if you die. While purchasing a policy with this provision, we have to choose a length of time you would like to provide this security to your family. As we grow older the duration will decrease and eventually expire. Depending upon the situation, our beneficiaries can choose to receive the amount in a lump sum instead of in monthly increments.
g. Sonja lets her policy lapse. After four years, she wants to reinstate the policy. Her health is fine. Point out to Sonja how she can reinstate her life insurance.
Answer :
To prevent a life insurance policy from lapsing each and every time a premium payment is slightly late, every state in the country requires that a life insurance policy first go through what is known as a grace period after a payment is missed. This is a period of time (usually 30 days) where despite the missed payment, the insurance policy will still provide coverage and make a full payout if the insured dies.
Only after the grace period has passed without receiving the due premiums can the life insurance company consider the policy to be lapsed.
For some period of time (depending on company and policy type) after a policy first lapses, the owner may have the option to reinstate the policy. We should make sure that we reinstate your policy as quickly as possible after a lapse. Different companies have different rules for reinstatement.
This can usually be done with no underwriting within the first 30 days, and with limited underwriting after 30 days but for less than six months. The limited underwriting usually requires that the insured person answers some health questions, and attests that no material changes in health have occurred since the policy was underwritten.
Here after four years, Sonja wants to reinstate the policy. Her health is fine. So she can do it if her insurance company permits it with full underwriting.
h. Sonja wants to retire and does not wish to pay the premiums on her policy. Indicate the various options that are available to her.
Answer : Sonja can premature its life policy and can get surrender value of it from insurance company or she can get all premiums along with interest if policy permits.
i. Ten years after the policy was purchased, Sonja is fired from her job. She is unemployed and is in desperate need of cash.
Answer : Sonja can get her policy premature and she will get amount equal to surrender value of its policy from her insurance company or she can get external finance by assigning her insurance policy to lender.
j. When Sonja applied for life insurance, she concealed the fact that she had high blood pressure. She dies five years later.
Answer :
Where it is consider that a misrepresentation was deliberate or reckless, it is reasonable for the insurer to avoid the policy. That means the insurer can cancel the policy, decline the claim and return the premiums that the consumer has paid from the date of the misrepresentation - together with interest.
And if the consumer's misrepresentation was made to obtain a benefit they weren't entitled to like cheaper premiums. it is reasonable for the insurer to keep all the premiums when avoiding the policy.
Insurer will not be obliged to any amount as she might concealed the fact of high blood pressure with view to avail lower premium.
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