Life Insurance Basics Flashcards
Purpose of Life Insurance
Help a dependent, family member, or other survivor cope with the financial consequences of someone’s death
Life insurance creates an…
Immediate estate and no probate process
Other uses of life insurance
Estate and tax planning, forced savings via cash value, business succession planning
Insurer
Accepts the financial risk of someone’s death and pays death benefits in exchange for compensation
Policyholder/owner
Controls the policy with the insurer, decides how it will be set up and usually needs to pay premium
Insured
Person whose death will result in benefits
Can the owner and insured be the same person?
Yes
Third-Party Ownership
When the owner and insured are different
Beneficiary
Received death benefit when the insured dies
Insurable Interest
Policyholder/owner must have insurable interest in the insured person’s life at the time of application, not necessarily at time of death
Beneficiary generally doesn’t need insurable interest and is usually chosen by…
Owner
Ownership Rights: Choose the amount of insurance and…
Beneficiary
Ownership Rights: Use the life insurance policy as…
Collateral for a loan from the insurer or another lender
Ownership Rights: Withdraw money from…
Policy’s cash value (if had)
Ownership Rights: Terminate life insurance policy or…
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