Definitions (Chapter 5) Flashcards

1
Q

Mortality Factor

A

Is a listing of the mortality experience of individuals by age; permits an actuary to calculate, on the average, how long a male or female of a given age group may be expected to live

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2
Q

Interest Factor

A

is a factor that is utilized to provide a simple calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums

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3
Q

Expense factor

A

is a measure of what it costs an insurance company to operate. This is also known as the loading charge.

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4
Q

Premium Mode

A

is the frequency in which a policyowner elects to pay premiums

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5
Q

Viatical Settlement

A

Is an agreement under which the owner of a life insurance policy sells the policy to another person in exchange for a bargained for payment, which is generally less than the expected death benefit under the policy. They typically involve someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit. The new owner continues to make the premium payments and will eventually collect the entire death benefit. The original policyowner is the Viator and the third party owner is the Viatical or the Viatee. With Viatical Settlements, the new premiums are not tax deductible. The death benefit is tax-free if taken as a lump sum to a named beneficiary. Proceeds pass directly to the beneficiary and are not subject to attachment by the insure’s creditors. If the death benefit is paid in installments the principal is tax-free but the interest is taxable.

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6
Q

Class designation

A

is a beneficiary designation. Rather than specifying one or more beneficiaries by name, the policy owner designates a class or group of beneficiaries. For example “My Children.”

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7
Q

Beneficiary

A

The beneficiary of a life insurance policy is the person or entity designated in the policy to receive the death proceeds

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8
Q

Primary Beneficiary

A

The first in line to receive death benefit proceeds

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9
Q

Secondary (Contingent) Beneficiary

A

Is the second in line to receive death benefit proceeds

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10
Q

Tertiary Beneficiary

A

is the third in line to receive death benefit proceeds. If no one named, death benefit will go to insured’s estate.

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11
Q

Revocable Beneficiary

A

is a beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary.

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12
Q

Irrevocable Beneficiary

A

May not be changed without the written consent of the beneficiary. The irrevocable beneficiary has a vested interest in the policy, therefore the policyowner may not exercise certain rights without the consent of the beneficiary.

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13
Q

Per stirpes

A

(by the bloodline) means that in the event that a beneficiary dies before the insured, benefits from that policy will be paid to that beneficiary’s heirs.

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14
Q

Per capita

A

(by the head) evenly distributes benefits among all named beneficiaries.

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15
Q

Simultaneous Death Act

A

states that if the insured and the primary beneficiary die at approximately the same time for a common accident with no clear evidence as to who died first, the Uniform Simultaneous Death Act law will assume that the primary died first, this allows the death benefit proceeds to be paid to the contingent beneficiaries.

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16
Q

Common Disaster Provision

A

ensures a policyowner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured a specified period of time in order to receive the proceeds.

17
Q

Spendthrift Clause

A

Prevents a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time. A spendthrift clause would have no effect if the beneficiary receives the proceeds as one lump sum payment.

18
Q

Facility payment

A

allows the insurance company to pay benefits or proceeds to any relative appearing entitled to it if there is no beneficiary or if the insured or beneficiary is a minor or legally incompetent.

19
Q

Level Premium

A

Policies that have a level premium average premiums over the policy period. The policy owner pays more in the early years for protection to help cover the cost in later years, which allows the premiums to remain level throughout the life of the policy.

20
Q

Single Premium Funding

A

the policy owner pays a single premium that provides protection for life as a paid-up policy. This is normally associated with whole life insurance.

21
Q

Reserves

A

is money set aside (required by the state’s insurance laws) to pay future claims

22
Q

Cash Value

A

applies to the savings element of whole life insurance policies that are payable before death. Cash Value provisions are found in whole life policies and some long-term care policies. These policies must begin to build cash value after a certain number of years. In most states this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy’s cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured’s policy proceeds.

23
Q

Death Benefits or Policy Proceeds

A

is simply the money paid to the beneficiary at the time of the insured’s death. Death benefits are paid out in a variety of ways. These methods are known as settlement options.

24
Q

Settlement options

A

are optional modes of settlement provided by most life insurance policies in lieu of lump-sum payment. Usual options are lump-sum cash, interest-only, fixed-period, fixed-amount, and life income. The policyowner may select a settlement option at the time of application and may change the option at anytime during the life of the insured. Once selected, the settlement option cannot be changed by the beneficiary.

25
Q

Lump Sum Option

A

With a lump sum option the death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums. The lump sum option is considered the automatic (or default) option for most life insurance contracts.

26
Q

Interest only Option

A

With the interest only option the insurance company holds death benefit for a period of time and pays only the interest earned to the named beneficiary. A minimum rate of interest is guaranteed and the interest must be paid at least annually.

27
Q

Fixed Period or period certain Option

A

with a fixed period or period certain option, the death benefit proceed is paid in equal installments over a set period of years. Part of the installments paid to a beneficiary consists of interest calculated on the proceeds of the policy. The dollar amount of each installment depends upon the total number of installments.

28
Q

Fixed amount Option

A

the fixed amount installment option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted. The larger the installment payment, the shorter the payout period.

29
Q

Life income Option

A

The life income option provides the beneficiary with an income that they cannot outlive. Installment payments are guaranteed for as long as the recipient lives. The amount of each installment is based on the recipient’s life expectancy and the amount of principal. This gives the potential for a greater return, or the potential for greater loss, based on how long the insured lives.

30
Q

Joint and Survivor option

A

A joint and survivor option guarantees that benefits will be payed on a life-long basis to two or more people. This option may include a period certain and the amount payable is based on the ages of the beneficiaries.

31
Q

Accelerated Benefit (option) Rider

A

allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness an expected to die within 1-2 years. Whatever amount is withdrawn is an accelerated death benefit will decrease the death benefit when death occurs.

32
Q

Surrender Cost Index

A

uses a complicated calculation formula where the net cost is averaged over the number of years the policy was in force to arrive at the average cost-per-thousand for a policy that is surrendered for its cash value at the end of that period.

33
Q

Net Payment Cost Index

A

uses the same formula as the Surrender Cost Index with the exception that it doesn’t assume that the policy will be surrendered at the end of the period. The net payment cost index is useful if one’s primary concern is the amount of death benefits provided in the policy. It is helpful in comparing future costs, such as in 10 to 20 years, if one will continue to pay premiums and does not take the policy’s cash value.