Life Insurance Flashcards
life insurance rider
optional add-ons to a life insurance policy that provide additional terms and conditions that aren’t included in the regular or baseline life insurance policy.
Such extras include the ability to convert a term life insurance policy into a whole life insurance policy, temporarily waiving premiums if you become disabled, and even receiving part of the death benefit early.
Waiver of Premium Rider
an insurance policy clause that waives premium payments if the policyholder becomes critically ill, seriously injured, or disabled.
Costs vary per insurer and applicant. Insurance companies typically add the rider fee to the premium or charge an upfront fee.
A policyholder must be disabled for a specific period (e.g., six consecutive months) before the premiums waiver goes into effect
Cost of Living Rider
The cost of living rider adjusts the amount of total benefit you receive based on the inflation rate.
Without evidence of insurability
Tied to an inflation index
Earned Premium (EP)
portion of a policy’s premium that applies to the expired portion of the policy. Although insurance premiums are often paid in advance, insurers typically “earn” the premium at an even rate throughout the policy term. The unearned portion of the premium that has been paid is kept in the “unearned premium reserve.”
Life Settlement
A life settlement refers to the sale of an existing insurance policy to a third party for a one-time cash payment. Payment is more than the surrender value, but less than the actual death benefit. After the sale, the purchaser becomes the policy’s beneficiary and assumes payment of its premiums. By doing so, he or she receives the death benefit when the insured dies.
Modified Premium (Whole Life)
the amount of premium due is lower in the first years of the policy. This period of lower premiums usually lasts through the first five to ten years of a policy’s life, depending upon the issuing company. After the period of lower premiums expires, the cost of the policy is typically a bit higher than a traditional level whole life policy for the remainder of the insured’s life. Premium amounts typically only rise once (this is clearly spelled out in the illustration and policy data page).
Net Payment Cost index
The Net Payment Cost index method measures the cost of life insurance assuming that the policy will not be surrendered. Under this method, the time value of money is applied to each element of cost.
Surrender Cost Index
The surrender cost index is a metric that establishes the cash surrender values of life insurance policies at given times in the future, should the insured decide to surrender their policy for a cash payout. A useful index, it helps potential buyers compare cash value life insurance plans and choose a suitable one.
Premium Mode/Mode of Premium
Mode of premium is the schedule of payments for insurance. The higher the frequency of the payments, the higher the premiums.
Insurable Interest
reasonable concern to secure insurance to protect against some form of loss. Thus, a person has an insurable interest in their own life, their family, their property, and their business.
- Only needs to exist at the time of the application
- An insurance contract is not enforceable without insurable interest
- A person is considered to have unlimited insurable interest.
Medical information bureau
a non-profit organization that stores the health or medical information of people who were previously insured. Insurance companies in the U.S. use this information to determine the premium price for individual health and life insurance policies.
Policy Summary
an abbreviated overview of the key aspects of a life insurance policy. This can include the premium amounts, coverage limitations, conditions, and other details.
Often used in life insurance, long-term care insurance, and annuities.
The Application
First source of information for an insurance company to determine an applicant’s insurability. It has 3 parts: 1) general; 2) medical; 3) agent’s report.
