Chapter 6: Premiums and Proceed Flashcards
Name the 9 aspects premiums are calculated on
- Mortality (deaths in a population)
- Interest factor
- Expense Factor (operating cost)
- Age
- Gender
- Health
- Occupation
- Hobbies
- Habits
Premium Mode
- Policyowner can select timing of premium payments
Options:
- Annual
- Semi-annual
- Quarterly
- Monthly
The more frequent the payment the higher the premium
Level Premium Funding
- Policyowner pays more in the early years then premiums remain level after
Single Premium Funding
- Single premium that provides protection for life
- Associated with whole life Insurance
Reserves
Money set aside to pay future claims
Cash value
Savings element of whole life insurance
The cash value is less than the amount of premiums paid early on (it takes awhile to build cash value)
Tax Treatment for Premiums
Usually not tax deductible except:
- premiums used for charity
- Premiums paid by an ex-spouse as court ordered alimony
- Employer paid premiums for group insurance
Death Benefit settlement options (five)
- Lump Sum
- Interest only (insurance company holds benefits and pays only interest earned to beneficiary)
- Fixed period (paid in equal installments)
- Fixed Amount (specific amount)
- Life Income (paid on a life long basis)
Living benefits
- Using benefits if needed during life
Living benefits options
Accelerated: Physician certifies someone is temporarily ill and needs to use benefits
- Viatical Settlement: Terminal illness to sell their insurance to a third party for a percentage of face value
- Life Settlement: Sell insurance policy for more than its cash value but less than end death benefit
Who can be beneficiaries?
- Individuals
- Businesses
- Trust
- Estates
- Charities
- Minors
Order of Succession
Primary: First in line to receive benefits
- Secondary: Second in line
- Tertiary: Third in line (if not named benefits go to estate)
Two types of Distribution of Descent
Per Stirpes: By bloodline. If beneficiary dies money goes to their heirs
Per Capita: Evenly distributes benefits to all living beneficiaries
Two ways to change beneficiary
Revocable: May change beneficiaries at any time without getting permission from beneficiary
- Irrevocable: May not be changed without written consent
Special Situations
Simultaneous Death: Primary beneficiary died first so the next in line receives benefits
Common Disaster Provision: Benefits paid as if the insured outlived the beneficiary
Spendthrift Clause: Benefits received in fixed installments
