2 Life Insurance Basics Flashcards
Beneficiary
person who receives benefits of an insurance policy
Death Benefit
Amount paid upon death of insured to the beneficiary in a life insurance policy
Cash Value
Equity amount accumulated in a life insurance policy
Rating Classification
Used in deciding if application pay requires a higher or lower premium
Estate
A person’s net worth
Illustrations
Presentation or depiction of non guaranteed elements in a life insurance policy
Life Insurance
Coverage on human lives
Liquidation
Selling assets in order to raise capital
Lump-Sum
Payment of the entire benefit in one sum
Solvency
Ability to meet financial obligations. Example: Life insurance maintains enough assets to pay claims
Insurable Interest (when purchasing insurance)
Policy owner faces the possibility of losing money or something or value in the event of a loss *This must exist at the time of application
Again, Pure risk only. The loss and never win
In life insurance, a valid insurable interest may exist between the policy owner and what/who is being insured when the policy is insuring what (3)
- Policy Owner’s own life
- Life of family (blood/spouse)
- Business Partner, key employee who has a financial obligation to the policy owner (debtor to a creditor)
Insurable Interest must exist when?
at the time of application
The ____ must have an insurable interest in the life of the insured
policy owner
The higher the risk, the higher the ____
Premium
True/False and Why/Why Not:
Insurable Interest is required of the beneficiary
False: Insurable Interest is NOT required of beneficiaries. The Beneficiary’s well being is dependent on the insured. The beneficiary is not insured. They do not have to show interest for the policy to be purchased,
Survivor Protection
Provide funds necessary for survivors to maintain lifestyle in the event of the insured’s death
The purchase of Life Insurance creates a ____ estate
immediate
As a result of the cash accumulation feature, some life insurance policies provide ____ to the policy owner
Liquidity (this means policy cash values can be borrowed against at any time and used for immediate needs
A prospective insured may be rated as one of which 3 classifications
Standard
SubStandard (High Exposure)
Preferred
To help producers/agents determine the amount needed for protection: What are the 2 basic approaches Insurance developed
Human LIfe Approach
Needs Approach
Explain Human Life Approach
Gives the insured estimate of what is lost to the family upon premature death.
Calculates life value through their wages, inflation, # of years to retirement, and the time value of money
Example of Human Life Approach
JIm = 40 Years Old and make $50k annually
He plans to retire at 65 (25yrs).
Costs $40K for his family and $10K for personal
25x$40K=$1 Million=Human Life Value
Explain Needs Approach
Predicted needs of the family.
Factors: Income, debt, investments, ongoing expenses