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Life & Health > Chapter 6: Life Insurance Premiums, Proceeds and Beneficiaries > Flashcards

Chapter 6: Life Insurance Premiums, Proceeds and Beneficiaries Flashcards

1
Q

Common Disaster Provision

A

Uniform Simultaneous Death Act
If both the insured and the primary beneficiary die withing a short period of time, the death benefits will be paid to the contingent beneficiary.
The primary beneficiary must outlive the insured by a specified period of time.

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2
Q

Expense Factor

A

AKA Loading Charge
A measure of what it costs an insurance company to operate.

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3
Q

Excess Interest

A

Whehe n the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate.

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4
Q

Fixed Amount Installment Option

A

Pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted.

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5
Q

Fixed/Level Premium

A

Concept of averaging the cost over monthly periodic payments.
More periodic payments = higher total premium.

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6
Q

Interest Factor

A

Calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums.

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7
Q

Life Settlement

A

An agreement where the policyholder sell or transfer ownership in all or part of a life insurance party to a third party for less than the expected death benefit.

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8
Q

Modified Premium

A

Initial premium is lower than it should be (3-5 years).
After, premium increases and then remains level for the rest of the policy

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9
Q

Morbidity Rate

A

Incidence and extent of disability that may be expected from a given group of people.

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10
Q

Mortality Rate

A

Measure of the number of deaths, scaled to the size of population, per unit time

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11
Q

Net Payment Cost Index

A

A formula used to determine the actual cost of a policy for a policyowner.
Helps the consumer compare costs of death protection between policies that will be held for ten or twenty years.

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12
Q

Per Capita

A

AKA By the head
Evenly distributes benefits among all named living beneficiaries

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13
Q

Per Stirpes

A

AKA By Bloodline
Evenly distributes benefits amongst insured’s family line

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14
Q

Policy Proceeds

A

Amount actually paid as a death, surrender or maturity benefit.

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15
Q

Settlement Options (5)

A

1) Lump sum cash
2) Interest Only
3) Fixed-period
4) Fixed-amount
5) Life Income

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16
Q

Spendthrift Clause

A

Prevents creditors from obtaining any portion of policy proceeds upon death.
Also, the policyowner can prevent the beneficiary from spending it all by having the benefits paid out in fixed amounts over time after death.

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17
Q

Surrender Cost Index

A

A cost comparison calculation formula used to determine the average cost-per-thousand for a policy that is surrendered for its cash value.

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18
Q

Uniform Simultaneous Death Act

A

States that if the insured and the primary beneficiary die at approx the same time, in a common accident, the law will assume the primary died first.

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19
Q

Viatical Settlement

A

When someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit.

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20
Q

Viatical (Viatee)

A

New third party owner in a viatical settlement

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21
Q

Viator

A

The original policyowner in a viatical settlement

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22
Q

Factors in the premium calculation (3)

A
  1. Mortality
  2. Interest
  3. Expenses
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23
Q

Where does the mortality factor originate from?

A

The Commissioners Standard Ordinary Mortality Table

24
Q

Interest Factor

A

An insurer’s return on investment.

25
Q

Expense Factors (4)

A

AKA Loading Charge/Factor
Operating expense including:
Death benefits paid
Commissions
Salaries
Admin costs

26
Q

Other factors that influence premium cost (7) include:

A
  1. Age
  2. Sex
  3. Health
  4. Occupation
  5. Hobbies
  6. Habits
  7. Travel
27
Q

Net Premium Formula

A

Makes provision for mortality cost and interest.
Net single premium = mortality - interest.

28
Q

Gross Premium

A

Actual premium paid
Gross premium = Net Premium + Insurer Expenses

29
Q

Fixed/Level Funding

A

Averages the single premium over the policy period.
Policyowner pays more than the actual cost of insurance in early years to help cover the cost of insurance in later years; that is how it remains level

30
Q

Minimum Deposit/Financed Insurance

A

Not an actual policy type
Best suited for individuals who are in a high marginal tax bracket; allows them to use policy loans to pay premiums that are due each year.
Use the cash value increase to pay the premium

31
Q

Reserves

A

AKA Unpaid Claim Reserves
Funds set asided by an insureer to pay current and future claims.
Fixed liability

32
Q

Legal Reserve

A

Amount of funds an insurance commissioner requires an insurer to maintain based on the CSO Mortality table and the assumed rate designated by the state commissioner or state insurance law.

33
Q

What does the Interest Adjusted Net Cost Method provide information for? (4)

A

Provide information for :
1. Premiums
2. Death benefits
3. Cash value
4. Dividends

34
Q

Index Numbers

A

Designed to give consumer a means of comparign the cost policies of the same generic type.

35
Q

What 2 interest adjusted indexes must be used in policy illustrations according to the NAIC reg?

A

Surrender cost index
Net payemnt cost index

36
Q

Net payment cost index

A

Useful for the insured who is concerned by the death benefit over the cash value.

37
Q

Surrender Cost Index

A

Useful for the insured who is concerned over the cash value over the death benefit

38
Q

Comparative Interest Rate Method

A

AKA Buy term and invest the rest strategy
Determines the rate of return thats required on an investment account to yield the same return as a life insurance policy that has cash value

39
Q

Chronically ill

A

A person who need considerable supervision due to cognitive impairment or is unable to perform at least two activities of daily living

40
Q

Terminally Ill

A

A person who’s not expected to survive a medical condition for more than 24 months

41
Q

Life Settlement

A

The sale of an existing life insurance policy to a third party for more than its cash surrender value, but less than the net death benefit.
Unlike viatical settlements, the insured doesn’t have to be chronical or terminally ill.

42
Q

Life settlements do not include the following alternatives: (5)

A

1) Policy assigned as collateral for loan
2) Policy loans
3) 1035 exchange
4) An agreement in which all of the parties are closely related to the insured by blood law or substantial economic interest
5) Legitimate corporate or pension benefit plans

43
Q

Death Benefit (other names, 5)

A
  1. Face Value
  2. Face Amount
  3. Coverage Amount
  4. Coverage Limit
  5. Policy Proceeds
44
Q

Life Income Options (4)

A
  1. Single, Pure or Straight Life
  2. Refund Life Income
  3. Life Income w/ Period Certain
  4. Joint & Survivor Option
45
Q

Single, Pure or Straight Life

A
  1. Life income, monthly payments
  2. Most significant amount of income
  3. Most risk due to no survivorship
46
Q

Refund Life Income Option

A

AKA Joint Life Option
Guarantees the return of an amount that’s equal to the principal minus any payments.
Minimum guaranteed return
Once the primary beneficiary dies, his survivors may receive the refund on an installment basis or in a lump sum

47
Q

Life Income w/ Period Certain

A

Pays a monthly income for as long as the beneficiary lives.
However if the beneficiary dies before a predetermined number of years, the insurer will continue monthly payments to a second beneficiary for the remainder of the years

48
Q

Joint and Survivor Options

A

Guarantees that benefits will be paid on a life-long basis to 2 or more people.
May include a period certain with reduction in benefits once the primary beneficiary dies.
Amount payable is based on the age of both beneficiaries.

49
Q

What are the 2 standard methods for changing a beneficiary?

A
  1. Filing method
  2. Endorsement method
50
Q

Testementary Trust

A

Created at the time of the insured’s death according to a will.

51
Q

Inter vivos trust

A

AKA Living Trust
Created during the life of the insured

52
Q

Common Disaster Provision

A

Requires the beneficiary to survive 14-30 days past the insured.
If both die, then the death benefits are paid to the contingent beneficiary.
If the primary beneficiary lives past the minimum period, then the estate receives the payemnt

53
Q

Spendthrift Clause

A

Protects a beneficiary from creditors with regard to life insurance proceeds.
When the death benefit is left with the insurer, no creditors can attach a lien of any kind to the proceeds.

54
Q

When can life insurance be tax deductible? (3)

A
  1. To an employer (employee benefit)
  2. To provide for charitable contributions
  3. To benefit an ex-spouse as court-ordered alimony
55
Q

Taxation of accelerated death benefit

A

Terminally ill (death within 2 years) will receive benefits tax free

56
Q

Taxation of policy dividends

A

Tax exempt since they’re considered a return of overpaid/excess premiums.

57
Q

What are the 3 exchanges allowed under the 1035 Rule?

A
  1. Life insurance > life insurance, endowment, annuity
  2. Endowment > endowment, annuity
  3. Annuity > annuity

It is not allowed to change an annuity > life insurance.

Life & Health (19 decks)

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