LIFE INSURANCE Flashcards
ANNUAL RENEWABLE TERM (ART)
TYPE OF TERM INSURANCE THAT PERMITS THE POLICYHOLDER TO PURCHASE TERM INSURANCE IN SUBSEQUENT YEARS WITHOUT EVIDENCE OF INSURABILITY, BUT PREMIUMS ON THE POLICY INCREASE EACH YEAR TO REFLECT THE INCREASING MORTALITY RISK BEING UNDERTAKEN BY THE INSURER
ANNUITY
PERIODIC PAYMENT TO AN INDIVIDUAL THAT CONTINUES FOR A FIXED PERIOD OR FOR THE DURATION OF A DESIGNATED LIFE OR LIVES
ASSET ACCUMULATION PHASE
THIS PHASE IS USUALLY FROM THE EARLY 20s TO LATE 50s WHEN ADDITIONAL CASH FLOW FOR INVESTING IS LOW AND DEBT-TO-NETWORTH IS HIGH
ASSIGNMENT
THE PROCESS OF TRANSFERRING ALL OR PART OF THE POLICYS OWNERSHIP RIGHTS
BENEFICIARY
A PERSON OR INSTITUTION LEGALLY ENTITLED TO RECEIVE BENEFITS THROUGH A LEGAL DEVICE, SUCH AS A WILL, TRUST OR LIFE INSURANCE POLICY
CAPITALIZED-EARNINGS APPROACH
METHOS TO DETERMINE LIFE INSURANCE NEEDS THAT SUGGESTS THE DEATH BENEFITS OF A CLIENTS LIFE INSURANCE SHOULD EQUAL AN INCOME STREAM SUFFICIENT TO MEET THE FAMILYS NEEDS WITHOUT DEPLETING THE CAPITAL BASE
CONSERVATION (RISK MANAGEMENT) PHASE
THIS PHASE IS FROM LATE 20s TO EARLY 70s, WHEN CASH FLOW ASSETS AND NET WORTH HAVE INCREASED AND DEBT HAS DECREASED SOMEWHAT. IN ADDITION, RISK MANAGEMENT OF EBVENTS LIKE EMPLOYMENT, DISIBILITY DUE TO ILLNESS OR ACCIDENT, AND UNTIMELY DEATH BECOME A PRIORITY
CONTINGENT BENFICIARIES
PERSON(S) OR ORGANIZATION NAMED TO RECEIVE THE DEATH BENEFIT IF THE PRIMARY BENEFICIARY IS NOT AVAILABLE TO RECEIVE THE POLICY PROCEEDS
DECREASING-TERM INSURANCE
TYPE OF TERM INSURANCE THAT ALLOWS THE OWNER TO PAY THE SAME PREMIUM FOR THE INSURANCE PROTECTION EACH YEAR. THE DEATH BENEFIT ON THE POLICY WILL, HOWEVER, DECREASE EACH YEAR TO OFFSET THE INCREASING MORTALITY COST DUE TO THE PASSAGE OF TIME
DISTRIBUTION (GIFTING) PHASE
THIS PHASE IS FROM THE LATE 40s TO END OF LIFE AND OCCURS WHEN THE INDIVIDUAL HAS HIGH ADDITIONAL CASH FLOW, LOW DEBT, AND HIGH NET WORTH
FIRST-TO-DIE
TYPE OF JOINT LIFE INSURANCE POLICY THAT COVERS TWO INDIVIDUALS, BUT THE DEATH BENEFIT IS PAID UPON THE DEATH OF THE FIRST INDIVIDUAL
GRACE PERIOD
A PROVISION IN MOST INSURANCE POLICIES THAT ALLOWS PAYMENT TO BE RECEIVED FOR A CERTAIN PERIOD OF TIME AFTER THE ACTUAL DUE DATE WITHOUT A DEFAULT OR CANCELLATION OF THE POLICY
GROUP TERM INSURANCE
A TYPE OF LIFE INSURANCE COVERAGE OFFERED TO A GROUP OF PEOPLE (OFTEN A COMPONENT OF AN EMPLOYEE BENEFIT PACKAGE) THAT PROVIDES BENEFITS TO THE BENEFICIARIES IF THE COVERED INDIVIDUAL DIES DURING THE DEFINED COVERED PERIOD
GUIDELINE PREMIUM AND CORRIDOR TEST
ONE OF TWO CONGRESS-IMPOSED TESTS TO DETERMINE WHETHER A LIFE INSURANCE CONTRACT MEETS THE DEFINITION OF A MEC. THIS TEST CALLS FOR THE POLICY TO BE TESTED USING ACTUARIAL PRINCIPLES AND REQUIRES THE PREMIUMS TO REPRESENT NO MORE THAN A SPECIFIED PORTION OF THE DEATH BENEFIT
HUMAN-LIFE VALUE APPROACH
METHOD TO DETERMINE LIFE INSURANCE NEEDS THAT SUGGESTS THE DEATH BENEFIT OF A CLIENTS LIFE INSURANCE SHOULD EQUAL TO THE ECONOMIC VALUE OF THE CLIENTS FUTURE EARNINGS STREAM
ILLUSTRATION
A PROJECTION OF THE FINANCIAL RESULTS THAT CAN BE ACHIEVED WITH A LIFE INSURANCE POLICY, BASED ON ASSUMPTIONS ABOUT PREMIUM PAYMENTS, INVESTMENT EARNINGS, AND DIVIDENDS
IN-FORCE POLICY ILLUSTRATION
ALLOWS THE PLANNER AND CLIENT TO MONITOR THE PERFORMANCE OF THE POLICY VERSUS WHAT WAS EXPECTED, ENABLING THEM TO CORRECT ANY POTENTIAL PROBLEMS BEFORE THEY OCCUR
INSURED
THE PERSON WHOS LIFE IS INSURED BY THE POLICY
JOINT AND SURVIVOR ANNUITY
AN ANNUITY BASED ON THE LIVES OF TWO OR MORE ANNUITANTS, USUALLY SPOUSES. ANNUITY PAYMENTS ARE MADE UNTIL THE LAST ANNUITANT DIES
LEVEL PREMIUM TERM INSURANCE
TYPE OF TERM INSURANCE THAT CHARGES A FIXED PREMIUM EACH YEAR OVER A SPECIFIED PERIOD OF YEARS, SO THE PREMIUM DOES NOT INCREASE OVER THAT PERIOD
LIMITED-PAY POLICIES
TYPE OF WHOLE LIFE POLICY WITH A PAYMENT SCHEDULE (TYPICALLY 10 OR 20 YEARS). AT THE END OF THE PAYMENT PERIOD, THE POLICY IS CONSIDERED TO BE PAID-UP, AT WHICH TIME NO ADDITIONAL PREMIUM PAYMENTS ARE DUE
MODIFIED ENDOWMENT CONTRACT (MEC)
A CASH VALUE LIFE INSURANCE POLICY THAT HAS BEEN FUNDED TOO QUICKLY. UNDER A MEC, THE DEATH BENEFIT PAYABLE TO THE BENEFICIARY IS NOT SUBJECT TO INCOME TAX, BUT POLICY LOANS OR CASH VALUE WITHDRAWALS ARE TAXABLE
MODIFIED WHOLE LIFE POLICIES
TYPE OF WHOLE LIFE POLICY WITH LOWER PREMIUMS THAN A REGULAR POLICY FOR AN INITIAL POLICY PERIOD (OFTEN 3 TO 5 YEARS), WHICH INCREASE TO A HIGHER-LEVEL PREMIUM AT THE END OF THE INITIAL PERIOD
MORTALITY COST
EQUALS THE PROBABILITY OF DYING WITHIN THE YEAR TIMES THE FACE VALUE OF THE POLICY
MORTALITY RISK
THE RISK THAT AN INDIVIDUAL WILL DIE WITHIN THE YEAR
NEEDS APPROACH
METHOD TO DETEMINE LIFE INSURANCE NEEDS THAT SUGGESTS THE DEATH BENEFITS OF A CLIENTS LIFE INSURANCE SHOULD EQUAL THE CASH NEEDS THAT THE FAMILY WILL REQUIRE AT DEATH PLUS INCOME REPLACEMENT NEEDS
ORDINARY (OR STRAIGHT) LIFE
TYPE OF WHOLE LIFE POLICY THAT REQUIRES THE OWNER TO PAY A SPECIFIED LEVEL PREMIUM EVERY YEAR UNTIL DEATH (OR AGE 100)
OWNER
PERSON OR INSTITUTION WHO OWNS THE POLICY AND CAN EXERCISE THE ECONOMIC RIGHTS IN A POLICY, INCLUDING ASSIGNMENT, SALE, ETC. ALSO THE PERSON WHO IS GENERALLY OBLIGATED FOR THE PAYMENT OF THE PREMIUMS
PRIMARY BENEFICIARY
PERSON(S) (MAY BE A GROUP DESIGNATION) OR ORGANIZATION TO RECEIVE THE DEATH BENEFIT UPON THE DEATH OF THE INSURED
RIDERS
PROVISIONS OR ENDORSEMENTS THAT ARE ADDED TO THE LIFE INSURANCE POLICY IN ORDER TO INCREASE OR DECREASE BENEFITS, WAIVE A CONDITION, OR AMEND THE ORIGINAL CONTRACT IN SOME SPECIFIC MANNER
SECOND-TO-DIE
TYPE OF JOINT LIFE INSURANCE POLICY THAT IS OFTEN USED IN ESTATE PLANNING TO PROVIDE LIQUIDITY AT THE DEATH OF THE SECOND SPOUSE. A SECOND-TO-DIE POLICY NAMES TWO INSUREDS AND PAYS THE DEATH BENEFIT ONLY WHEN THE SECOND INSURED DIES
7-PAY TEST
ONE OF TWO CONGRESS-IMPOSED TESTS TO DETERMINE WHETHER A LIFE INSURANCE CONTRACT MEETS THE DEFINITION OF A MEC. THIS TEST STATES THAT IF THE CUMULATIVE PREMIUM PAYMENTS MADE ON THE POLICY ARE IN EXCESS OF THE NET LEVEL PREMIUM FOR THE POLICY DURING THE FIRST SEVEN YEARS (OR FOLLOWING A MATERIAL CHANGE TO THE POLICY), THE LIFE INSURANCE CONTRACT WILL BE DEEMED A MEC
SIMULTANEOUS DEATH PROVISION
PROVISION IN A LIFE INSURANCE POLICY FOR SITUATIONS IN WHICH THE INSURED AND THE BENFICIARY DIE WITHIN A SHORT TIME OF ONE ANOTHER AND IT IS NOT POSSIBLE TO DETERMINE WHO DIED FIRST, GENERALLY THE POLICY DEATH BENEFIT IS DISTRIBUTED AS IF THE BENEFICIARY HAD PREDECEASED THE INSURED
SINGLE-PREMIUM POLICY
TYPE OF WHOLE OR UNIVERSAL LIFE POLICY THAT REQUIRES THE OWNER TO PAY A LUMP SUM FOR INSURANCE PROTECTION THAT WILL EXTEND THROUGHOUT THE INSUREDS LIFETIME. THESE POLICIES WILL ALWAYS BE MECs
SUICIDE CLAUSE
PROVISION IN A LIFE INSURANCE POLICY SPECIFYING THAT THE INSURANCE COMPANY WILL NOT PAY THE BENEFIT IF THE INSURED ATTEMPTS OR COMMITS SUICIDE WITHIN A SPECIFIED PERIOD FROM THE BEGINNING OF THE COVERAGE. THE CLAUSE IS DESIGNED TO HEDGE AGAINST THE RISK THAT INDIVIDUALS WITH SUICIDAL THOUGHTS WILL PURCHASE LIFE INSURANCE AND COMMIT SUICIDE SHORTLY THEREAFTER
SURRENDER CHARGE
A FEE LEVIED ON A LIFE INSURANCE POLICYHOLDER UPON CANCELLATION OF THE POLICY TO COVER THE UP-FRONT COSTS OF ISSUING THE POLICY
SURVIVORSHIP CLAUSE
PROVISION IN A LIFE INSURANCE POLICY SPECIFYING THAT THE DEATH BENEFIT WILL ONLY BE PAID TO THE BENEFICIARY IF THE BENEFICIARY SURVIVES THE INSURED BY A SPECIFIC NUMBER OF DAYS
TERM INSURANCE
A LIFE INSURANCE POLICY THAT STATES THAT IF THE PREMIUM HAS BEEN PAID AND THE INSURED DIES DURING THE TERM OF THE POLICY, THE INSURANCE COMPANY WILL PAY THE SPECIFIED DEATH BENEFIT
UNDERWRITING
THE PROCESS BY WHICH INSURANCE COMPANIES DECIDE WHETHER TO PROVIDE INSURANCE TO AN APPLICANT AND UNDER WHAT TERMS
UNIVERSAL LIFE INSURANCE
TYPE OF TERM INSURANCE WITH A CASH-VALUE ACCUMULATION FEATURE ALLOWING INDIVIDUALS TO MAKE PREMIUM CONTRIBUTIONS IN EXCESS OF THE TERM-INSURANCE PREMIUM. THE EXCESS PREMIUMS ARE DEPOSITED INTO AN ACCOUNT WITH VARIOUS INVESTMENT OPTIONS
VARIABLE LIFE INSURANCE
TYPE OF LIFE INSURANCE POLICY THAT PERMITS THE OWNER OF THE LIFE INSURANCE POLICY TO DIRECT THE INVESTMENT OF THE POLICYS CASH VALUE. VARIABLE POLICIES TYPICALLY OFFER A SERIES OF INVESTMENT OPTIONS THAT OFTEN INCLUDE INVESTMENT FUNDS MANAGED BY THE INSURER AND OUTSIDE INVESTMENT MANAGERS
VARIABLE UNIVERSAL LIFE INSURANCE POLICIES (VULs)
TYPE OF LIFE INSURANCE POLICY THAT COMBINES VARIABLE AND UNIVERSAL LIFE INSURANCE AND GIVES THE POLICYHOLDERS THE OPTION TO INVEST AS WELL AS ALTER INSURANCE COVERAGE
VARIABLE WHOLE LIFE POLICIES
TYPE OF LIFE INSURANCE THAT PROVIDES FOR A FIXED PREMIUM PAYMENT AND PERMITS THE CASH VALUE OF THE POLICY TO BE PROFESSIONALLY MANAGED BY THE INSURANCE COMPANY OR AN OUTSIDE INVESTMENT MANAGER
WHOLE LIFE INSURANCE
TYPE OF LIFE INSURANCE THAT PROVIDES GUARANTEES FROM THE INSURER THAT ARE NOT FOUND IN TERM INSURANCE AND UNIVERSAL LIFE INSURANCE POLICIES
