Chapter 2 Flashcards
Adverse selection
tendency of individuals with higher probability of loss to purchase insurance more often than those who present a lower risk
Death benefit
the amount paid upon the death of the insured in a life insurance policy
Cash value
equity amount accumulated in permanent life insurance
Estate
a person’s net worth
Illustrations
presentation or depiction of nonguaranteed elements of 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
Minor
a person under legal age
Solvency
ability to meet financial obligations (e.g., an insurance company maintains enough assets to pay claims)
insurable interest
policyowner must face the possibility of losing money or something of value in the event of loss
In life insurance, insurable interest must exist between the policyowner and the insured ______________; however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest exists
at the time of application
A valid insurable interest may exist between the policyowner and the insured when the policy is insuring any of what?
- Policyowner’s own life;
2.The life of a family member (a spouse or a close blood relative); or
3.The life of a business partner, key employee, or someone who has a financial obligation to the policyowner (for example, a debtor has a financial obligation to a creditor, so the creditor has a valid insurance interest in the life of the debtor).
survivor protection.
he death of a nonearning spouse who cares for minor children can also cause great financial hardship for the survivors. Life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured’s death
The purchase of life insurance ______________.
creates an immediate estate
- Estate creation is especially important for young families that are getting started and have not yet had time to accumulate assets. When an insured purchases a life insurance policy, they will have an estate of at least that amount the moment the first premium is paid. There is no other legal method by which an immediate estate can be created at such a small cost
some life insurance policies provide __________ to the policyowner
liquidity
- That means the policy’s cash values can be borrowed against at any time and used for immediate needs.
___________ is the use of life insurance to guard one’s wealth against creditor claims without engaging in practices that are ultimately illegal, such as concealment or fraudulent transfer.
Asset protection
Viatical settlements
allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed: before their death.
While viatical settlements are not policy options, they are____________ in which the insured sells the death benefit to a third party at a discounted rate
separate contracts
What are the important concepts you need to understand about viaticals?
- The insureds are referred to as viators;
- Viatical settlement provider means a person, other than a viator, that enters into a viatical settlement contract;
3.Viatical producers represent the providers; and
4.Viatical brokers represent the insureds.
Chronically ill
means a condition in which a person is unable to perform at least 2 activities of daily living or that requires substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.
Terminally ill
means a condition (illness or sickness) that can reasonably be expected to result in death within 24 months.
Viator
means the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.
Viatical Settlement Broker
means a licensed person that, for a fee, negotiates viatical settlement contracts between the viator and viatical settlement providers. The viatical settlement broker represents the viator.
Viatical settlement provider
means a person (other than a viator) who enters into or effectuates a viatical settlement contract. This term does not include a bank, financing entity, or the issuer of a life insurance policy providing accelerated benefits.
Viatical Settlement Purchaser
means anyone who gives a sum of money as consideration for a life insurance policy or interest in the death benefits of a life insurance policy. It also means a person who owns, acquires, or is entitled to a beneficial interest in a trust that owns a viatical settlement contract or is the beneficiary of a life insurance policy which is or will be the subject of a viatical settlement contract.
Fraudulent viatical settlement act
means an act or omission committed knowingly or with intent to defraud for the purpose of depriving another of property or for monetary gain by a person
life settlement
refers to any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party for some form of compensation, usually cash.