Ch. 4 Flashcards
Class Designation
A class designation is a beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name
Common Disaster Provision
ensures a policy owner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured by a specified period of time in order to receive the proceeds
Contingent (secondary) beneficiary
The contingent beneficiary is the beneficiary second in line to receive death benefit proceeds if the primary beneficiary dies before the insured
Earned Premium
the amount of premium paid by the policyowner for policy coverage or insurance protection received up to this point
Expense Factor
a measure of what it costs an insurance company to operate, AKA loading charge
Excess Intrest
Whole Life Insurance: This type of policy often guarantees a minimum interest rate on the cash value. Any additional interest earned beyond this guaranteed rate is considered excess interest
Fixed amount installment option
pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted
Fixed/Level premium
premium amount that remains constant throughout the life of the policy. More periodic payments = higher total premium
Fixed period or period certain settlement option
A fixed period or period in which a certain settlement option pays the death benefit proceeds in equal installments over a set period of years
Graded Premium
A graded premium in life insurance is a payment structure where the premiums start out lower in the initial years of the policy and gradually increase over time
Gross (annual) Premium
the total amount a policyholder pays for their life insurance policy
Interest factor
The interest factor is the calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums
Interest only option
settlement option where the death benefit is not paid out immediately as a lump sum. Instead, the insurance company holds the death benefit and pays the beneficiary regular interest payments on that amount. The beneficiary can choose to receive these interest payments for a specified period or until they decide to withdraw the principal. Eventually, the principal amount will be paid out, either in a lump sum or according to another payment option selected by the beneficiary
Joint and survivor option
payout option designed for two beneficiaries, often spouses. Under this option, the insurance policy pays benefits to the surviving beneficiary after the first person passes away. Once the first beneficiary dies, the survivor continues to receive income from the policy, typically at a reduced rate compared to the original payment
Life income option
The life income option is a death benefit settlement option which provides the beneficiary with an income that they cannot outlive. Installment payments are guaranteed for as long as the recipient lives. The amount of each installment is based on the recipient’s life expectancy and the amount of principal
Life Settlement
A life settlement is an agreement in which a policyholder sells or transfers ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of the policy
Modified Premium
Modified premium is a premium funding option characterized by an initial premium that is lower than it should be during an introductory period of time (usually the first three to five years). After this time, the premium will increase to an amount greater than what the initial level premium would have been and then remains level or constant for the life of the policy
Morbidity Rate
The morbidity rate demonstrates the incidence and extent of disability that may be expected from a given group of people
Mortality Rate
A mortality rate is the measure of the number of deaths (in general, or due to a specific cause) in some population, scaled to the size of that population, per unit time
Net payment cost index
formula used to determine the actual cost of a policy for a policyowner
Net (single) premium
calculation used to calculate an insurer’s policy reserves
PER CAPITA (By the head)
Per capita evenly distributes benefits among all named living beneficiaries (i.e., all living children)
PER STRIPES (By the bloodline)
Per stirpes evenly distributes benefits amongst an insured’s according to the family line, branch, or root (i.e., children and grandchildren)
Premium mode
The premium mode is the frequency in which a policyowner elects to pay premiums
Primary Beneficiary
The primary beneficiary is the first beneficiary in line to receive benefit proceeds upon the death of an insured
Policy Proceeds
Policy proceeds is the amount actually paid as a death, surrender, or maturity benefit
Death Benefit (policy proceeds)
includes the face value plus any earned dividends less any outstanding loans and interest
Surrender Benefit (policy proceeds)
the amount includes any cash value, minus surrender charges, and outstanding loans and interest
Maturity (policy proceeds)
the benefit amount includes the cash value less any outstanding loans and interest
Reserves
An insurer’s reserve is the money set aside (required by the state’s insurance laws) to pay future claims
Revocable Beneficiary
A revocable beneficiary is a beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary
Settlement options (5)
Settlement options are optional modes of settlement provided by most life insurance policies. Options include lump-sum cash, interest only, fixed-period, fixed-amount, and life income
Single premium funding
Single premium funding in life insurance refers to a payment method where the policyholder pays a large, one-time lump sum to fully fund the policy upfront, rather than making ongoing premium payments over time
Surrender cost index
financial metric used in life insurance to help policyholders compare the long-term costs of surrendering different life insurance policies. It calculates the cost of a policy assuming it is surrendered (canceled) at a specific point in the future, typically after 10 or 20 years. The index expresses the cost in terms of an average annual cost per $1,000 of the policy’s face amount
Tertiary beneficiary
the third beneficiary in line to receive death benefit proceeds
Underwriting Department
responsible for reviewing applications, approving or declining applications, and assigning risk classifications
Spendthrift clause
prevents creditors from obtaining any portion of policy proceeds upon an insured’s death. Additionally, the clause can be selected by the policyowner to prevent a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time
Unearned premium
Unearned premium includes the premium that has been paid by a policyowner for insurance coverage that has not yet been provided
Viatical settlement
involves someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit
Uniform Simultaneous act
if the insured and the primary beneficiary die at approximately the same time, in a common accident, with no clear evidence as to who died first, the law will assume that the primary died first. Therefore, the death benefit proceeds are paid to the contingent beneficiaries
Viatical (viatee)
is the new third-party owner in a viatical settlement
Viator
the original policyowner in a viatical settlement
Irrevocable beneficiary
cannot easily be changed or removed unless they consent
3 main factors in premium calculations
Mortality rate or mortality factor, Intrest factor, expense factor
Cost basis
Premiums paid into the policy minus dividends
Section 1035 exchange
allows for the tax-free transfer of funds from one life insurance policy or annuity to another, under certain conditions
Refund life income option
guarantees that the total amount paid into it (the principal) will be returned to the beneficiary if the insured or annuitant dies before receiving payments equal to that amount