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hecol finance > chapter 9 COPY > Flashcards

chapter 9 COPY Flashcards

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1
Q

life insurance is obtained by…

A

purchasing a policy with a company promising to pay a lump sum to the person specified (beneficiary) at the time of the insured’s death

  • some policies have money paid to the insured if she is still alive at a future date
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2
Q

purpose of life insurance

A

to protect someone who depends on you from financial loss related to your death
(pay off home mortgage, debt, payments through endowment to children, provide education or income to kids, make charitable bequests upon death, retirement)

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3
Q

mortality tables

A

provides odds on your dying based on your age and sex

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4
Q

principle of life insurance

A

premium is based on your life expectancy and projections for payouts for persons who die; adjusted according to factors that increase/decrease an individuals risk and various administration fees

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5
Q

when to consider purchasing life insurance?

A

if you have people who you need to protect (spouse, children, parents, etc.)

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6
Q

Determining objectives for life insurance?

A

debating

  • how much money left to dependents?
  • leave dependents debt free? / what are their expenses?
  • how much will you be able to pay for your insurance program?
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7
Q

two methods to estimating life insurance method

A

the income replacement method

the family need method

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8
Q

the income replacement method

A

70% of salary for seven years

  • assumes family with NO liquid assets
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9
Q

the family need method

A

more thorough than the first method because it also considers employer provided insurance, social security benefits, and income and assets
-

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10
Q

term life insurance

A

provides for fixed set of time

called temporary, if you don’t pay premium, covers stop.

has renewability option (at the end of the term you can renew the policy)

conversion option (allows change to policy from term to whole life without a physical)

term to 100 (remains in effect to age 100)

decreasing term insurance - decreasing to keep pace with the principal balance

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11
Q

permanent life insurance

A

purchased to cover life long needs (funeral, taxes, etc)

has level premiums (same premium over life time of policy)

reserves (or higher amounts paid) are referred to as cash value - which are paid to policy holder after giving up on life insurance

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12
Q

cash value of life insurance

A

amount received after giving up on life insurance policy, used if unable to pay premium or borrowed against as loan

can be withdrawn from full or partially tax free.

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13
Q

characteristics of whole life policy in permanent life insurance

A

whole life (pays specified premiums as long as they live, pays given to benficiary upon death, cash value paid) - aka straigh life policy, cash value life policy, or ordinary life policy - emphasis on cash value and forced savings.,

higher premium in beginning but held as reserves to pay for other expenses when at greater risk for dying in old age.

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14
Q

characteristics of universal life policy in permanent life insurance

A

variable payments

flexible cash value and reflects interest earned

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15
Q

group life insurance

A

insures large numbers of people, under terms of isngle policy witout medical examinations , between employer and employees so that the cost of insurance is the same for each employee - older employees pay a larger part of it

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16
Q

credit life insurance

A

specialized version of group insurance

  • cover lives of a group of borrowers
  • insurer reimburses creditor any outstanding debt in event of debtor’s death // this is created by high premiums
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17
Q

beneficiary

A

person who receives something from insured

can also name contingent beneficiaries

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18
Q

policy reinstatement

A

if your payment is late depending on your policy you just have to pay whats due since you missed your premium and if it hasn’t been given up for cash value.

19
Q

non forfeiture clause

A

prevents the forfeiture of future benefits if you drop the policy; exercise specified options with your cash value

20
Q

incontestability caluse

A

after the policy has been in effect for a period of time the company cannot dispute its validity

21
Q

suicide clause

A

provides that if the insured dies by suicide during the first two years, the policy is in force - the benefit equals the amount in premiums paid.

22
Q

automatic premium loan

A

uses the cash value to pay the premium if you do not pay it - inadvertently allows policy to lapse

23
Q

misstatement of age provision

A

will pay benefits premium would have bought if age were correct -

24
Q

policy loan provision

A

permits you to borrow any amount up to the cash value of the policy

25
Q

rider

A

a document attached to a policy that modifies its coverage

26
Q

rider: waiver of premium disability benefit

A

waives any premiums that are due after injury that prevent you from paying your premiums

27
Q

rider: accidental death benefit or double indemnity

A

super expensive, chances of you dying like this are unlikely, paying double the face cash value of your policy

28
Q

rider: guaranteed insurability option

A

aka future increase option - buy additional amounts of life insurance without proof of insurability - if you do not remain in good health you can add more

29
Q

rider: critical illness

A

paid directly to policy holder before he or she dies

30
Q

rider: joint, last to die

A

aka survivorship life, insures two lives - paid when the second spouse dies - usually intended to pay for estate taxes when both spouses die -

31
Q

interest adjusted index

A

a method of evualting the cost of life insurance by taking into account the time value of moeny

32
Q

health insurance

A

medical expense insurance

33
Q

disability income insurance

A

regular cash earnings to replace income when an injured person is unable to work

34
Q

own occupation disability

A

the inability to perform the duties of your ordinary occupation

35
Q

regular occupation disability

A

can’t perform job, but benefits are reduced if you return to an alternative occupation

36
Q

any ocupation disability

A

full benefits paid only if you cannot perform the duties of any occupation given due to your experience and training

37
Q

total disability

A

unable to work at all

38
Q

residual or partial disability

A

benefits apply if you are able to work but at a reduced workload.

39
Q

purchasing disability insurance trade offs:

waiting or elimination period

A

don’t engage immediately

40
Q

purchasing disability insurance trade offs:

duration of benefits

A

max amount of time

41
Q

purchasing disability insurance trade offs:

amount of benefits

A

general rule where benefits = 70-70% of gross pay

42
Q

purchasing disability insurance trade offs:

accidents and sickness coverage

A

some insurance only pays for accidents, insured for illness too

43
Q

purchasing disability insurance trade offs:

guaranteed renewability

A

high cost but covers people who are in such bad health their health insurance drops them.

hecol finance (12 decks)

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