Kaplan - Unit 6 Flashcards
Life Insurance Policy Options
Interest Income (Only) Option
The insurer retains the death benefit and pays a stated amount of interest on the money at regular intervals. A good choice if the death benefit is not needed until a later date.
Fixed Period Option
Pays an amount of principal and interest to the beneficiary over a stated period of time. If the primary beneficiary dies, remainder will be paid to the contingent beneficiary.
Three factors to calculate each payment:
1. Amount of death benefit
2. A guaranteed interest rate; and
3. The length of the chosen period
Fixed Amount Option
Proceeds will be paid out in a fixed amount over time until principal and interest are completely paid to beneficiary. Recipient can increase or decrease payment amount or change to a different option.
Three factors to determine minimum length of payment period:
1. Amount of death benefit
2. A guaranteed interest rate; and
3. The chosen payment amount
If the beneficiary dies before the money runs out, payment may continue to another person or go to their estate.
Life Only Option
Also known as straight life will pay the largest amount for as long as they live.
- Based upon beneficiary’s life expectancy
- Guaranteed for life
- Payments stop upon death of beneficiary
Life With Period Certain
Pays for as long as the beneficiary is alive during a payment period selected by the beneficiary, typically 5, 10, or 20 years, guaranteed for that time. If beneficiary dies before then, payments continue to another person for the rest of that payment period.
Life with Refund
Pays an income for as long as the beneficiary is alive but also guarantees total payments will be at least the amount of the death benefit. If beneficiary dies before then, payments continue to another person for the rest of that payment period.
Joint-and-Survivor Life
Continues paying a benefit for as long as either beneficiary lives. Most often used when married couple is beneficiary. After the death of 1st beneficiary, the same or reduced amount is paid to the surviving beneficiary.
Access to Cash Values
Access to Cash Values While Insured is Living
- Policyowner makes decision
- Loan reduces the death benefit
+ Fixed or variable interest - If interest is not paid
+ Loan taken to pay interest - Automatic premium loan
+ Prevents lapse
+ Interest is charged - Insurer must notify policyowner
+ Policy lapse
+ No cash value - Universal life withdrawals
+ No interest or repayment
+ Fees
Dividend Options
CARPPO
CASH (insurer sends a check to the policyowner)
ACCUMULATE INTEREST (dividend can be left with insurer to earn interest. Dividend is not taxable but interest is)
REDUCED PREMIUM (dividend can reduce the next premium due)
PAID UP ADDITIONS (uses each annual dividend to buy additional amount of life insurance. Cash value build-up is tax-deferred)
PAID UP INSURANCE (dividends plus interest on dividends are applied to the annual premium and may cover out-of-pocket premiums.
ONE-YEAR TERM INSURANCE (dividend may be used to buy one-year term insurance equal to the policy’s cash value)
Nonforfeiture Clause
An insurance policy that allows for the insured to receive all or a portion of the benefits or a partial refund of the premiums paid if the insured misses premium payments, causing the policy to lapse. There are 3 options:
- Cash surrender
- Reduced paid-up insurance
- Extended term insurance
If policyowner fails to select an option when premiums cease, Extended Term goes into affect automatically.
Nonforfeiture Option - Cash Surrender
The policy is canceled and the policyowner receives the current cash value
Nonforfeiture Option - Reduced Paid-up Insurance
The policyowner obtains a reduced amount of paid-up whole life insurance based on the insured’s attained age and the amount of guaranteed cash value available to buy a single premium policy. The policy will the reduced death benefit whenever the insured dies.
Nonforfeiture Option - Extended Term Insurance
The net cash surrender value is used to buy a term insurance policy with a death benefit the same as the original whole life policy and is based on the insured’s attained age. The policy will terminate after a stated number of years found in the non-forfeiture table.
