Chapter 8 - Life Insurance Basics Flashcards
Key Terms
Temporary (Term) Policy: Any policy that pays upon death but does not build any cash value savings account.
Expire: Only for Term Life policy. The insured lives beyond the policies specific period of time.
Permanent Policy: paid for both death and living benefit (cash savings account). Whole life policy. Covers to 100 and then pays out the cash value savings account funds to the insured.
Face Value (Face Amount, Death Benefit, Proceeds): amount paid to the beneficiary upon death of the insured.
Premium: remains the same, leveled or fixed.
Proof of Insurability: passing a medical exam, unless dealing with group life, where this is usually waived.
Attained Age: typically insurance companies will round up, some will let you purchase the right to round down 1 year younger.
Grace Period: 31 days from failed date of paying the premium.
Lapse: after the 31 days, the policy will be terminated/lapse.
Surrender: termination may also result from the surrender policy. This means you physically return the policy for cancelations. A key reason for surrendering a permanent policy may be to get the money in the cash value savings account.
Maturity: when the policy pays the face value. Can happen for both temporary and permanent (when the insured reaches age 100).
Suitable: a life producer must sell something based on two approaches.
-Human Life Approach: tried to replace all of the income lost when the insured dies.
-Needs Approach: focuses on how much the survivor requires to sustain the household.
Human Value Approach Vs Needs Approach (How to figure out the amount of life insurance?)
Human Value Approach: a calculation based on the income. Uses interest on the life policy to realize a proper payout at 65. Concerned more with replacing their income.
Needs Approach: Doesn’t looks at inflation, interest, income, ect. It looks at how much debts of the insured to pay off, the needs of dependents (their age, health, education, income), and whether they have life insurance, ect.
