Looking for the answer to the question below related to  Management ?

A father who dies within 3 years after purchasing a life insurance policy on his infant daughter can have the policy premiums waived under which provision?

 Options:

A) Payor provision B) Accelerated Benefits provision C) Assignment provision D) Waiver of Premium provision

The Correct Answer Is:

• A) Payor provision

Answer Explanation:

A) Payor provision:

The Payor provision, also known as the Payor Rider or Payor Benefit Rider, is a life insurance policy rider that comes into play when the policyholder (in this case, the father) purchases a life insurance policy on someone else’s life, such as his infant daughter.

This rider is typically used by parents or guardians who want to ensure that the life insurance policy on their child remains in force even if they, the payor, were to pass away prematurely. Here’s how the Payor provision works:

If the payor (the father in this scenario) dies within a specified time frame, typically within 2 or 3 years after purchasing the policy on the child’s life, the insurance company will waive the premium payments for the remaining duration of the policy term.

This provision is designed to protect the child’s insurance coverage, ensuring that it remains in effect even if the person who purchased the policy (the payor) is no longer alive to make the premium payments. It provides financial security for the child by maintaining the life insurance coverage.

Now, let’s explain why the other options are not correct:

B) Accelerated Benefits provision:

The Accelerated Benefits provision, also known as a Living Benefits Rider, allows the policyholder to receive a portion of the death benefit in advance if they are diagnosed with a terminal illness or meet specific criteria for a qualifying event.

This provision is not relevant to the scenario described because it pertains to the policyholder’s health status, not the payor’s death. It does not address the situation where the payor (father) passes away within a specific time frame after purchasing the policy on the infant daughter’s life.

C) Assignment provision:

An Assignment provision allows the policyholder to transfer or assign their rights under the insurance policy to another party. This is typically done for purposes such as collateralizing a loan with the policy’s cash value or transferring ownership of the policy to a different individual or entity.

In the context of the scenario, the Assignment provision is unrelated to the payor’s death or the premium payments being waived due to the payor’s death. It deals with the transfer of policy rights and ownership, which is not the issue at hand.

D) Waiver of Premium provision:

While the Waiver of Premium provision is a common feature in many life insurance policies, its purpose is different from that of the Payor provision. The Waiver of Premium provision typically comes into effect when the policyholder (in this case, the payor) becomes totally and permanently disabled.

If the payor becomes disabled and meets the policy’s criteria, this provision waives the future premium payments for the policy, keeping it in force during the disability period.

However, this provision is not relevant in the scenario where the payor (father) passes away within a specific time frame after purchasing the policy. It is focused on disability-related premium waivers, not death-related premium waivers.

In summary, the Payor provision is the correct answer because it specifically addresses the scenario where a father (the payor) purchases a life insurance policy on his infant daughter’s life and then passes away within a specified time frame.

The provision ensures that the remaining premium payments are waived, preserving the child’s life insurance coverage. The other options do not apply to this scenario as they pertain to different circumstances and provisions within life insurance policies.

• Coming from an insurance point of view, which of the following is the main risk associated with disability?