LIFE INSURANCE POLICY RIDERS
o GURANTEED PURCHASE OPTION
• DELIVERING THE POLICY
• OFFER AND ACCEPTANCE
• SUMMARY


• Guaranteed Purchase Option

This entitles the policyholder to additional purchases of insurance covers without
assessment/examination, or without providing evidence of insurability. Normally,
purchases are linked with specific time intervals or events that change the family
status e.g. marriage, birth of a child, an anniversary policy year etc. Premiums
are based on the age of the insured at the time of the purchase and the type of
insurance purchased.
Delivering the Policy
The issue of the effective date of the policy is crucial for certain aspects of the policy like
the Incontestability Clause and the Suicide Clause.
• The incontestability clause allows the applicant a certain time to contest the policy
on the basis of misrepresentation or fraud.
• The suicide clause is not enforceable for the first two years of the policy.
Offer and Acceptance
• In the insurance business, the proposed buyer makes an offer to buy the insurance
by signing the application and submitting it along with the first premium. Once the
insurer issues a policy, it is construed as the acceptance of that offer.
• If, however, the premium payment is not made with the submission of the
application, no offer to purchase insurance has been made by the applicant. This
happens when the insurance company issues the policy. Acceptance then occurs
when the premium payment is made and that becomes the effective date of the
coverage.

Important Points

• In situations where the initial premium does not accompany the completed
application, most companies state in the application that the proposed insured
must be in good health at the time of policy delivery, before coverage becomes
effective.
• Also, if the premium is submitted with the application but no receipt is given, the
policy's effective date is generally the date that the policy is issued and delivered.
SUMMARY
In this lesson, we examined closely the reasons for purchasing a life insurance policy
and the advantages associated with holding a policy. We considered the
comprehensive methods used to estimate an applicant’s life insurance need such as
Family Needs Approach, Income Replacement and Estate Preservation and Liquidity
Needs. We also evaluated rules of thumb such as using the Income Rule and the
Income Plus Expenses Rule.
We proceeded to determine the percentage of the applicant’s income that should be
spent on life insurance premiums and the modalities of the application process, as well
as a description of the parties involved. The difference between representations and
warranties and fraud and concealment were also covered.
Subsequently, the features of an insurance policy were covered in depth including
backdating, provisions and various policy clauses including ownership clause, entire
contract clause, incontestability clause, suicide clause, reinstatement clause and
misstatement clause.
We went on to discuss the various kinds of beneficiaries and the way different life
insurance companies are structured. This was followed by a discussion of the two most
popular rating services, A.M. Best Company and Standard and Poor’s, and the way
these two rating services differ from each other in their rating methodologies.
An outline of the two basic types of life insurance, Term Insurance and Permanent
Insurance, was presented, with an elaboration on the many variations and differences
between them.
The course then illustrated how a life insurance claim is filed and the ways in which the
beneficiary can receive the life insurance proceeds.
The next section contained an explanation of insurance underwriting and its purpose, as
well as the factors that contribute to the underwriting process in order to evaluate
applicants in terms of risk.
We also delineated the four risk groups in which insurance companies classify term
insurance applicants: Standard, Preferred, Substandard, or Uninsurable.
An in-depth discussion on premiums, factors responsible for the determination of
premium rates and the two standard ways of making premium payments followed.
The lesson proceeded with a list of the various settlements, non-forfeiture and dividend
options and concluded with a discussion on policy rider and delivering the policy.