chapter 6 Flashcards
both an exchange for insurance protection and a portion of the policyowner’s consideration.
premium
Factors in premium calculations include:
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
The morbidity rate
one of the ways an insurance company can lower the premium rates.
interest
also referred to as the loading charge or factor—is derived from operating expenses or funds that the insurer “pays out.”
expense factor
a premium that makes provisions 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
the premium that’s charged by an insurer which is comprised of (or influenced by) the mortality, interest, and expenses.
Gross (annual) premium
refers to the policy feature that permits the policyowner to select the timing (frequency) of premium payments.
premium mode
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
characterized by an initial premium that’s lower than it should be during an introductory period (typically the first three to five years).
modified premium funding
a contract (like modified) that’s characterized 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
amount to which an insurer is entitled since it provided coverage for a specific period.
earned premium
an amount of premium that the policyholder has paid to the insurance company, but coverage has not yet been provided.
unearned premium
the funds that are set aside by an insurer and used to pay current and future claims.
reserves
amount of funds that an insurance commissioner (or director/superintendent) requires an insurer to maintain based on the mortality table and an assumed rate that’s designated by the state’s commissioner or state insurance law.
legal reserve
uses a calculation formula in which the net cost is averaged over the number of years that the policy was in force to arrive at the average cost-per-thousand for a policy that’s surrendered for its cash value at the end of that period.
surrender cost index
uses the same formula as the Surrender Cost Index; however, it doesn’t assume that the policy will be surrendered at the end of the period.
net payment cost index
allows a person with a chronic or terminal illness to sell his existing life insurance policy to a third party for a percentage of the face value.
viatical settlement
