Life Insurance Policy Options Flashcards
Settlement Options
define how the policy proceeds will be paid to the beneficiary upon the death of the insured
Cash Payment (lump sum)
not taxable to the beneficiary
Life Income
pays guaranteed installments as long the recipient lives
Interest Only
a temporary option that pays fixed interest until a specified time when the proceeds are paid interest is taxable
Fixed-Amount Installments
pays fixed amount until proceeds are exhausted & interest extends each payment
Fixed-Period Installments
benefits are paid over a specified period of time & interest extends the time it will payout
Nonforfeiture Options
provide the owner to access the policy’s cash value if the policy lapses or is surrendered
3 nonforfeiture options are:
Reduced paid-up: reduced face amount
Extended-term: same face amount/term policy
Cash-cancel the policy interest on cash value taxable (surrender charge may apply)
Extended Term
Provided the most protection but has no cash value
* No forfeiture option is chosen this is the default
Stock Insurers
Issues nonparticipating (nonpar) policies
Mutual Options
Issues participating (par) policies
Dividends
return of excess premium: not taxable/not guaranteed
Tyes Dividend Options
Stock Insurers
Mutuals Insurers
Dividends
Dividend Options (CARPO)
Cash Reduction of Premium Accumulation at interest (interest taxable) Paid-up Additions Paid-up Insurance One-year term
Interest Only
Settlement Option that pays only the earnings on the death benefit to a beneficiary
Emily has chosen to receive the payout from her husband’s life insurance policy so that she will receive an income for at least 15 years. At the end of that time, the entire proceeds from the policy will have been paid out. Emily has selected the
Fixed-Period Option
Paid-up Additions
the dividends are used to purchase additional insurance protection
Policy Dividends
The insurer can send a check for the policy owner in the amount of the dividend
The dividend can be applied against the next premium due, reducing its amount
A dividend can be left with the insurer in a savings account to earn interest
Cash Surrender
Reduced Paid-Up Insurance
Extended-term insurance
Types of nonforfeiture options
Types of Settlement Options
- Interest Only
- Fixed Period
- Fixed Amount
- Life Income
- Life income- period certain
- Life Income - Refund
- Joint Survivor
