Life Insurance Flashcards
Life Insurance Application signatures required
Proposed insured
Policy owner (if not the insured)
Agent
Life Insurance Application required information
Name Address Date of birth Gender Occupation Hobbies Habits Medical history
Conditional Receipt
Coverage conditional until all conditions are satisfied (e.g. Take & pass a physical examination)
Binding Receipt
Assuming the insured has paid their initial premium, a limited amount of coverage starts right away
Participating Policies
Mutual Insurance Companies are owned by policy holders. The company pays a dividends to policyholders & those dividends are not taxable (IRS considers these a return of a portion of the premium)
Non-Participating Policies
Stock owned companies - the policy owners do not participate in the company’s profits in the form of dividends. Stock insurers pay dividends to their stock holders who must pay taxes on these.
Surrender charges
Early withdrawal penalties known as surrender charges.
IRS also adds premature distribution penalties of 10%
Non-Forfeiture options for a lapsed Whole Life Insurance policy
1) Cash surrender - cash value of policy paid out w/no further coverage or chance for reinstatement
2) Reduced paid-up - purchase of a single premium Whole Life Insurance policy that is paid up to death or age 100. The cash value would be more than the $40K of the premium on this policy, but less than the $100K face value of the last policy.
3) Extended Term - use the $40K to buy a Term policy for a value determine for however long the amount would buy. If they die w/in the term, their beneficiary gets the $100K, but if they die after the term their beneficiary gets nothing
Automatic Premium Loan
Rider addition to a Whole Life policy to prevent a policy lapse. Automatic payment of unpaid premium after expiration of grace period. Cost of premium, plus loan and accrued interest deducted from payout value
5 Settlement Options
1) Lump sum - receive the total cash value of the policy tax-free
2) Fixed amount - Insurer pays beneficiary a specified amount monthly until proceeds are exhausted
3) Fixed period - Beneficiaries select the period of time they want to receive payments
4) Life income - Purchase a life income annuity that pays out the settlement for the life of the beneficiary. They could receive more than the settlement if they live longer than the payout amount.
5) Interest only - Withdraw only the interest from the the settlement earns. They could receive more than the face value if they live longer than the pay out
5 Dividend Options
When a Mutual Insurer pays out a dividend, the policy owner chooses what to do with it
1) Cash Payment
2) Insurer keeps the dividend and pays the insured interest on it.
3) Paid-up additions - use dividend as a small single premium to buy additional life insurance (no evidence of insurability needed)
4) Reduced premium payment - credited against the premium of their policy
5) One-year term - use dividend to buy 1-year term life policy. cheaper than whole life, used by a person who is sick and needs more life insurance but couldn’t pass a physical
Life Insurance Policy exclusions
1) Suicide in first 2 years of policy
2) War - if death under wartime or military service, company only responsible for return of premiums or cash value
3) Aviation - concerned about student pilots, not commercial flight
Exclusion Ration
The formula used for how much of the Annuity or Life Insurance payout is taxable as ordinary income. The part of your face value that is more than your premium payments (interest)
Group Policy
Insurance policy
Master contract
Certificate of insurance
Master policy issues to the employee
Certificate of insurance given to employee
Benefits cannot go to employer
ART
Annual Renewable Term insurance
