Chapter 4 Flashcards
allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is certified by a physician as expected to die within 1-2 years
Accelerated Benefit (Option) Rider
the person or entity designated in a life insurance policy to receive the death proceeds.
Beneficiary
the equity or savings element of whole life insurance policies
Cash Value
a beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name
Class Designation
a provision of the Uniform Simultaneous Death Act, which ensures a policyowner 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.
Common Disaster Provision
the beneficiary second in line to receive death benefit proceeds if the primary beneficiary dies before the insured.
Contingent (Secondary) Beneficiary
the amount of premium paid by the policyowner for policy coverage or insurance protection received up to this point.
Earned Premium
also known as the loading charge, is a measure of what it costs an insurance company to operate
Expense Factor
provision in life insurance means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate
Excess Interest
pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted
Fixed Amount Installment Option
a concept of averaging what would be the total single premium for a policy over periodic payments. More periodic payments = higher total premium
Fixed/Level Premium
pays the death benefit proceeds in equal installments over a set period of years. The dollar amount of each installment depends upon the total number of installments
Fixed Period Or Period Certain Option
is a premium funding option characterized by a lower premium in the early years of the contract, with premiums increasing annually for an introductory period. After the introductory period, the premium jumps to an amount higher than what the initial level premium would have been. It then remains fixed or constant for the life of the policy
Graded Premium
is the net premium for insurance plus commissions, operating and miscellaneous expenses, and dividends
Gross (Annual) Premium
is the calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums
Interest Factor
is a death settlement option where the insurance company holds the death benefit for a period of time and pays only the interest earned to the named beneficiary. A minimum rate of interest is guaranteed, and the interest must be paid at least annually
Interest Only Option
is a beneficiary which may not be changed by the policyowner without the written consent of the beneficiary
Irrevocable Beneficiary
Is a settlement option that guarantees that benefits will be paid on a life-long basis to two or more people. This option may include a period certain, and the amount payable is based on the ages of the beneficiaries
Joint And Survivor Option
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
Life Settlement
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 Income Option
is a death settlement option where the death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums
Lump Sum Option
*The lump sum option is considered the automatic (or “default”) option for most life insurance contracts.
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
Modified Premium
demonstrates the incidence and extent of disability that may be expected from a given group of people.
Morbidity 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
Mortality Rate
is a formula used to determine the actual cost of a policy for a policyowner. It helps the consumer compare costs of death protection between policies that will be held for ten or twenty years
Net Payment Cost Index
is a premium calculation used to calculate an insurer’s policy reserves factoring in interest and mortality
Net (Single) Premium
evenly distributes benefits among all named living beneficiaries (i.e., all living children)
PER CAPITA (By The Head)
evenly distributes benefits amongst an insured’s according to the family line, branch, or root (i.e., children and grandchildren).
PER STIRPES (By The Bloodline)
is the frequency in which a policyowner elects to pay premiums
Premium Mode
is the first beneficiary in line to receive benefit proceeds upon the death of an insured
Primary Beneficiary
is the amount actually paid as a death, surrender, or maturity benefit. In the case of a death benefit, it includes the face value plus any earned dividends less any outstanding loans and interest. If surrender benefit, the amount includes any cash value, minus surrender charges, and outstanding loans and interest. If maturity, the benefit amount includes the cash value less any outstanding loans and interest.
Policy Proceeds
is the money set aside (required by the state’s insurance laws) to pay future claims.
Reserves
is a beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary.
Revocable Beneficiary
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
Settlement Options
is a policy funding option where the policyowner pays a single premium that provides protection for life as a paid-up policy.
Single Premium Funding
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.
Spendthrift Clause
is a cost comparison calculation formula used to determine the average cost-per-thousand for a policy that is surrendered for its cash value. It aids in cost comparisons if the policyowner plans to surrender the policy for its cash value in ten or twenty years.
Surrender Cost Index
is the third beneficiary in line to receive death benefit proceeds. Will only receive the death benefit if both the primary and contingent beneficiaries die before the insured.
Tertiary Beneficiary
is the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.
Underwriting Department
includes the premium that has been paid by a policyowner for insurance coverage that has not yet been provided.
Unearned Premium
states that 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.
Uniform Simultaneous Death Act
involves someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit.
Viatical Settlement
is the new third-party owner in a viatical settlement.
Viatical (Viatee)
is the original policyowner in a viatical settlement
Viator
is both an exchange for insurance protection and a portion of the policyowner’s consideration
The premium
Factors in premium calculations
Mortality Factor or Mortality Rate
Interest Factor
Expense Factor
refers to the frequency of deaths in a defined population at a specific time interval.
The mortality rate
refers to the occurrence of diseases in a defined population at a specific time interval.
Morbidity rate
is one of the ways an insurance company can lower the premium rates
Interest
is derived from operating expenses, or funds the insurer “pays out.”
The expense factor, also known as the loading charge or factor
is a premium that makes provision for mortality (death benefit) losses only while being influenced by the interest rate assumed, gender, the benefit to be provided and the mortality rate.
Net (Single) Premium
is the premium charged by an insurer comprised of or influenced by the mortality, interest, and expenses
Gross (Annual) Premium
Additional factors that may influence the premium amount include:
Age
Sex/ gender
Health
Occupation
Hobbies
Habits
Benefits
Options and Riders
Premium Mode
refers to the policy feature that permits the policyowner to select the timing (frequency) of premium payments.
Premium mode
the policyowner pays a single premium that provides protection for the life of the policy
single premium funding
averages the “single premium” over the policy period.
Fixed/Level Premium Funding
is the amount an insurer is entitled to since it provided coverage for a specific period of time
Earned premium
is 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).
Modified Premium Funding
an amount of premium for which the policyholder has made payment to the insurance company, but coverage has not yet been provided.
Unearned premium
is the amount of funds an insurance commissioner (or director/superintendent) requires an insurer to maintain based on the mortality table and assumed rate designated by the state’s commissioner or state insurance law.
A legal reserve
is a contract characterized, like modified, by a lower premium in the early years of the contract.
Graded Premium Funding
allows the policyowner to adjust the premiums throughout the life of the contract.
Flexible Premium Funding
are the funds set aside by an insurer, required by law, used to pay current and future claims.
Reserves
uses a calculation formula where the net cost is averaged over the number of years the policy was in force to arrive at the average cost-per-thousand for a policy that is surrendered for its cash value at the end of that period.
Surrender Cost Index
uses the same formula as the Surrender Cost Index, with the exception that it doesn’t assume that the policy will be surrendered at the end of the period.
Net Payment Cost Index
that a whole life (permanent life) insurance plan possesses during the life of the policy is its cash value build-up.
The primary living benefit
is sometimes referred to as the terminal illness rider. This benefit allows the policyowner to access a portion of the death benefit if a physician certifies the insured as terminally ill.
The accelerated benefit
allows someone with a chronic or terminal illness to sell their existing life insurance policy to a third party for a percentage of the face value.
A viatical settlement
is called the viator
The original policyowner
is called the Viatical or the Viatee.
The new third party owner
means a person who needs considerable supervision due to cognitive impairment or cannot perform at least two activities of daily living.
Chronically ill
means a person not expected to survive a medical condition for more than 24 months.
Terminally ill
If the policyowner chooses to select a settlement option….
it cannot be changed by the beneficiary.
the death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums.
lump sum option
the insurance company holds the death benefit for a period of time and pays only the interest earned to the named beneficiary.
interest only option
permits the death proceeds to be left “at interest” with the insurer and to pay a fixed death benefit in specified installment amounts until the principal and interest are exhausted.
fixed amount installment option
the death benefit proceeds are paid in equal installments over a set period of years.
Fixed period or also called period certain
Under the single, pure, or straight life income option, like a straight life annuity, monthly installments are paid to the beneficiary for as long
as they live
guarantees the return of an amount equal to the principal less any payments already made.
The refund life income option, also known as the joint life option
pays a monthly income for as long as the beneficiary lives. However, should they die before a predetermined number of years have elapsed, the insurer will continue monthly payments to a second beneficiary for the remainder of the designated period.
The life income option with a period certain
guarantees that benefits will be paid on a life-long basis to two or more people.
The joint and survivor option
may be changed or removed by the policyowner at any time without notifying or getting permission from the beneficiary.
A Revocable Beneficiary
may not be changed without the written consent of the beneficiary.
An Irrevocable Beneficiary
means by the person or by the head
Per capita
the individual who receives the death benefit when the insured dies.
The primary beneficiary
means by the bloodline.
Per Stirpes
is the second individual(s) in line to receive the death benefit.
The secondary or contingent beneficiary
is third in line to receive policy proceeds when the insured dies if they survived the primary and contingent beneficiaries.
A tertiary beneficiary
are created at the insured’s death according to a will.
Testamentary trusts
are created during the life of the insured.
Inter Vivos trusts or living trusts
states that if the insured and primary beneficiary both die in a common disaster and it cannot be determined who died first, the insured will be considered to have survived the primary beneficiary (or died last).
The Uniform Simultaneous Death Act
protects a beneficiary from creditors with regard to life insurance proceeds.
The spendthrift clause provision
Dividends paid on a whole life policy are tax-exempt as they are considered ?
to be a return of overpaid or excess premiums.
enables the postponement of tax consequences.
A Section 1035 exchange
