LESSON 4 Flashcards
It refers to the death of the family head with outstanding financial obligations like dependents, mortgages, and other financial commitments.
Premature Death
It is essential when the insured is the primary earner in a family, and others depend on their income.
Life Insurance
“Financial Impact of Premature Death on Different Family Types”
1. Single People - premature death does not pose a major financial problem for others.
2. Single-Parent Families - children under age 18 are vulnerable to financial insecurity if the single parent dies
3. Two-Income Earners with Children - children under age 18 are vulnerable to financial insecurity if the single parent dies
4. Traditional Families - where one parent works and the other stays home, life insurance for the working parent is crucial.
5. Blended Families - where both parents have children from previous marriages and possibly
additional children from the remarriage
6. Sandwiched Families - a person who supports both their children and aging parents
It helps protect the financial well-being of families by providing support when the family head’s income is lost due to premature death.
Life Insurance
It is the next step when life insurance is needed.
Calculate the amount of coverage to secure
It has two main approaches that are used for calculation:
1. Human Life Value Approach - represents the present value of the family’s share of the deceased breadwinner’s future earnings.
2. Needs Approach - analyzing the specific needs the family would have if the family head were to pass away and how much money is required to meet those needs.
Types of Life Insurance
- Term Insurance - temporary coverage for a specific period with no savings component.
- Whole Life Insurance - permanent life insurance that provides lifetime coverage with a cash value component.
Types of Term Insurance
- Yearly Renewable Term Insurance
- Term to Age 65
- Decreasing Term Insurance
- Reentry Term Insurance
- Return of Premium Term Insurance
Types of Whole Life Insurance
- Ordinary Life Insurance
- Limited-Payment Life Insurance
- Endowment Insurance
Variations of Whole Life Insurance
▪ Variable life insurance
▪ Universal life insurance
▪ Indexed universal life insurance
▪ Variable universal life insurance
▪ Current assumption whole life
insurance
It is known as ordinary life insurance
Whole Life Insurance
It discusses the major contractual provisions that life insurance consumers should understand.
Life Insurance Contractual Provisions
Numerous Contractual Provisions:
- Ownership Clause
- Entire-Contract Clause
- Incontestable Clause
- Suicide Clause
- Grace Period
- Reinstatement Clause
- Misstatement of Age or Sex Clause
- Beneficiary Designation
- Assignment Clause
It is owner of a life insurance policy can be the insured, a beneficiary, a trust, or another party.
Ownership Clause
It states that the life insurance policy and attached application constitute the entire contract between the parties.
Entire-Contract Clause
It states that the insurer cannot contest the policy after it has been in force 2 years during the insured’s lifetime.
Incontestable Clause
It is the policyholder has a period of 31 days to pay an overdue premium.
Grace Period
It states that if the insured commits suicide within two years after the policy is issued, the face amount of insurance will not be paid; there is only a refund of the premiums paid.
Suicide Clause
It permits the owner to reinstate the lapsed policy.
Reinstatement Clause
If the insured’s age or sex is misstated, the amount payable is the amount that the premiums paid would have purchased at the correct age and sex.
Misstatement of Age or Sex Clause
It is the party named in the policy to receive the policy proceeds.
Beneficiary Designation
Types of Beneficiary Designation:
- Primary and Contingent Beneficiary
- Revocable and Irrevocable Beneficiary
- Specific and Class Beneficiary
It is the beneficiary who is first entitled to receive the policy proceeds on the insured’s death.
Primary Beneficiary
It is entitled to the proceeds if the primary beneficiary dies before the insured.
Contingent Beneficiary
It is the policyholder reserves the right to change the beneficiary designation without the beneficiary’s consent.
Revocable Beneficiary
It is one that cannot be changed without the beneficiary’s consent.
Irrevocable Beneficiary
It means the beneficiary is
specifically named and identified.
Specific Beneficiary
A specific person is not named but is a member of a group designated as beneficiary, such as “children of the insured.”
Class Beneficiary
It allows the policyholder to transfer ownership of the policy to another party.
Assignment Clause
