chapter 13 Flashcards
What is the purpose of Life Insurance? Who needs life insurance?
Life insurance provides a payment to a specified beneficiary when the policyholder dies. In this way, it allows you to provide financial support to specified beneficiaries in the event of your death.
How is your beneficiary taxed on life insurance paid out at your death? See pg 376
A $100,000 policy means that if you die, the beneficiary named in your policy will receive $100,000. The amount received by the beneficiary is not taxed.
What is a term insurance policy? It is more or less expensive than a whole life policy?
Term insurance is life insurance provided over a specified time period. The term is typi-cally from 5 to 20 years. Term insurance does not build a cash value, meaning that the policy does not serve as an investment.
Less
What is a whole life insurance policy? p. 381
continues to provide insurance as long as premiums are paid; the policy accumulates savings for the policy-holder over time. In this way, it not only provides benefits to a beneficiary if the policy-holder dies, but also creates a form of savings with a cash value. For this reason, whole life insurance is sometimes referred to as cash-value life insurance.
Which type of life insurance policy builds cash value whole life or term? Which is more expensive?
Whole life. term
Which type of policy has a fixed premium and cash value buildup over the life of the policy?
limited payment policy
Describe Universal Life Insurance p. 383. What is a “term rider?” You should build a base with permanent whole life insurance and add term and other insurance as needed to get the coverage you need for loved ones who would have a financial loss after your death.
Universal life insurance provides insurance over a specified term and accumulates savings for policyholders over this time. It is a combination of term insurance and a savings plan.
“term riders” so you can temporarily increase the level of insurance for a particular period. For example, if you needed an extra $100,000 of insurance coverage over the next five years, you could purchase a term rider to provide the additional coverage.
How does a policy holder determine the amount of life insurance needed?
using the income method
What are the income and budget methods to determine the amount of insurance needed? P. 384
The income method is a general formula for determining how much life insurance you should maintain based on your income. This method normally specifies the life insurance amount as a multiple of your annual income, such as 10 times your annual income. budget method (also referred to as the needs method ), which determines your life insurance needs by considering your future budget based on your household’s expected future expenses and your current financial situation.
What are the Contents of a Life Insurance Policy? p. 387
Beneficary, Grace period, living benefits, nonforfeiture clause
What are the settlement options? p. 388 Describe: Lump Sum, Installment payments and interest payments
Settlement options are the alternative ways beneficiaries can receive life insurance benefits in the event that the insured person dies.p.388
A lump-sum settlement provides all the benefits to the beneficiary in a single payment upon the death of the insured.p.388
installment payments set-tlement , which means that the beneficiary will receive a stream of equal payments over a specified number of years.p.388
