Life Insurance Flashcards
Automatic insurable interest
- Individuals in themselves
- Spouses in eachother
- Parents in their children
- Children in their parents or grandparents
(or someone else in the case of financial dependency)
Term Life Insurance
Temporary Coverage
(1 to 20 years)
(Does not build cash value)
Permanant Life Insurance
Provides coverage for insured’s entire life
(builds a cash value that belongs to the policyowner and is accessible while the insured is alive.)
Term: Master Policy
In a group life policy, the Master Policy indicates the sponsor as a policy owner nad premium payer
“Natural Group”
- Employer
- Labor Unions
- Trade and professional association group
Term: Association Group
Comprised of members of associations, such as independent school districts, cities and towns.
Joint life insurance
Permanant coverage that insures two persons under one policy.
The policy pays the death benefit when the first insured dies.
Third-party ownership
In a life insurance policy, when the insrured and policyowner are not the same person.
Common examples of permanant life insurance
- Whole life insurance
- Universal life insurance
- Variable life insurance
Participating Policy
(Par)
A class of life (or health) insurance policy in which the owner is paid a divident out of the insurance company’s earnings that are available for distribuiton (the divisble surplus).
Commonly issued by mutual insurance companies
No-participating policy
(nonpar)
A class of life (or health) insurance policy in which the owner is not entitled to be paid a dividend.
(Generally individual health insurance is non-participating)
issued by stock insurance companies
Ordinary life insurance
Generally issued in face ammounts of $25k or more
Premiums are payable
* Monthly
* Quarterly
* Semiannually
* Annually
Industrial Life Insurance
“Burial Insurance”
A class of individual life insurance that offers coverage in small ammoutns, usually around $1-2k
Premiums are paid frequently - weekly is common
Factors for life insurance premiums
- Mortality charge
- Interest credit
- Expense charge
Net premium is calculated
[Mortality charge] - [Interest credit]
Gross premium
(Charged to policy owner)
[Net premium] + [Expense charge]
Term: Premium mode
Frequency of paying premium
* Monthly
* Quarterly
* Semiannual
* Annual
Chosen by policyowner
Term: Mortality
The risk of death posed by the applicant
It is a charge
Interest charge
Premium factor
The amount the insurer can expect to earn on invested premiums
it is a credit
Expense charge
(aka: load factor)
Premium factor
Insurer’s cost of doing business
* Taxes & fees
* Safety margin
* Profits/surplus
NAIC
National Association of Insurance Commissioners
CSO
C
Commissioners Standard Ordinary
CSO table
Statistical table on which rates are based off of
(all policies issued since 2009 must be based on the 2001 CSO table
Level premium payment plan
The premium is fixed over the term of the policy.
Types of policies:
* Whole life insurance
* Variable life insurance
Flexible premium payment plan
The policyowner can change the premium payment amount at will within a range set by the insurer.
Types of policies:
* Adjustable life insurance
* Universal life insurance
* Variable universal life insurance
When a third-party arrangement is used for estate planning purposes, the owner of the life insurance policy is usually:
- An irrevocable life insurance trust (ILIT) created by the insured
- An adult child of the insured
Bring-back rule
If the insured dies within 3 years of transferring the policy, it is included (oor brought back) in the insured’s estate
