Life Insurance Premiums, Proceeds, and Beneficiaries

Question 1

Accelerated Benefit (Option) Rider

Answer 1

The accelerated benefit rider allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is certified by a physician as expected to die within 1-2 years.

Question 2

Beneficiary

Answer 2

The beneficiary is the person or entity designated in a life insurance policy to receive the death proceeds.

Question 3

Cash Value

Answer 3

The cash value is the equity or savings element of whole life insurance policies.

Question 4

Class Designation

Answer 4

A class designation is a beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name.

Question 5

Common Disaster Provision

Answer 5

The common disaster provision is a provision of the Uniform Simultaneous Death Act, which ensures a policyowner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured by a specified period of time in order to receive the proceeds.

Question 6

Contingent (Secondary) Beneficiary

Answer 6

The contingent beneficiary is the beneficiary second in line to receive death benefit proceeds if the primary beneficiary dies before the insured.

Question 7

Earned Premium

Answer 7

Earned premium is the amount of premium paid by the policyowner for policy coverage or insurance protection received up to this point.

Question 8

Expense Factor

Loading Charge

Answer 8

The expense factor, also known as the loading charge, is a measure of what it costs an insurance company to operate.

Question 9

Excess Interest

Answer 9

The excess interest provision in life insurance means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate.

Question 10

Fixed Amount Installment Option

Answer 10

A fixed amount installment option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted.

Question 11

Fixed/Level Premium

Answer 11

Fixed or level premium is a concept of averaging what would be the total single premium for a policy over periodic payments. More periodic payments = higher total premium.

Question 12

Fixed Period Or Period Certain Option

Answer 12

A fixed period or period certain settlement option pays the death benefit proceeds in equal installments over a set period of years. The dollar amount of each installment depends upon the total number of installments.

Question 13

Graded Premium

Answer 13

A graded premium as a premium funding option characterized by a lower premium in the early years of the contract, with premiums increasing annually for an introductory period. After the introductory period, the premium jumps to an amount higher than what the initial level premium would have been. It then remains fixed or constant for the life of the policy.

Question 14

Gross (Annual) Premium

Answer 14

An insurer’s gross premium is the net premium for insurance plus commissions, operating and miscellaneous expenses, and dividends.

Question 15

Interest Factor

Answer 15

The interest factor is the calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums.

Question 16

Interest Only Option

Answer 16

The interest only option as a death settlement option where the insurance company holds the death benefit for a period of time and pays only the interest earned to the named beneficiary. A minimum rate of interest is guaranteed, and the interest must be paid at least annually.

Question 17

Irrevocable Beneficiary

Answer 17

An irrevocable beneficiary is a beneficiary which may not be changed by the policyowner without the written consent of the beneficiary.

Question 18

Joint And Survivor Option

Answer 18

The joint and survivor option is a settlement option that guarantees that benefits will be paid on a life-long basis to two or more people. This option may include a period certain, and the amount payable is based on the ages of the beneficiaries.

Question 19

Life Income Option

Answer 19

The life income option is a death benefit settlement option which provides the beneficiary with an income that they cannot outlive. Installment payments are guaranteed for as long as the recipient lives. The amount of each installment is based on the recipient’s life expectancy and the amount of principal.

Question 20

Life Settlement

Answer 20

A life settlement is an agreement in which a policyholder sells or transfers ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of the policy.

Question 21

Lump Sum Option

Answer 21

The lump sum option is a death settlement option where the death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums. The lump sum option is considered the automatic (or “default”) option for most life insurance contracts.

Question 22

Modified Premium

Answer 22

Modified premium is a premium funding option characterized by an initial premium that is lower than it should be during an introductory period of time (usually the first three to five years). After this time, the premium will increase to an amount greater than what the initial level premium would have been and then remains level or constant for the life of the policy.

Question 23

Morbidity Rate

Answer 23

The morbidity rate demonstrates the incidence and extent of disability that may be expected from a given group of people.

Question 24

Mortality Rate

Answer 24

A mortality rate is the measure of the number of deaths (in general, or due to a specific cause) in some population, scaled to the size of that population, per unit time.

Question 25

Net Payment Cost Index

Answer 25

Net payment cost index is a formula used to determine the actual cost of a policy for a policyowner. It helps the consumer compare costs of death protection between policies that will be held for ten or twenty years.

Question 25

Net (Single) Premium

Answer 25

Net premium is a premium calculation used to calculate an insurer’s policy reserves factoring in interest and mortality.

Question 26

PER CAPITA (By The Head)

Answer 26

Per capita evenly distributes benefits among all named living beneficiaries (i.e., all living children).

Question 27

PER STIRPES (By The Bloodline)

Answer 27

PER STIRPES (By The Bloodline): Per stirpes evenly distributes benefits amongst an insured’s according to the family line, branch, or root (i.e., children and grandchildren).

Question 28

Premium Mode

Answer 28

The premium mode is the frequency in which a policyowner elects to pay premiums.

Question 29

Primary Beneficiary

Answer 29

The primary beneficiary is the first beneficiary in line to receive benefit proceeds upon the death of an insured.

Question 30

Policy Proceeds

Answer 30

Policy proceeds is the amount actually paid as a death, surrender, or maturity benefit. In the case of a death benefit, it includes the face value plus any earned dividends less any outstanding loans and interest. If surrender benefit, the amount includes any cash value, minus surrender charges, and outstanding loans and interest. If maturity, the benefit amount includes the cash value less any outstanding loans and interest.

Question 31

Reserves

Answer 31

An insurer’s reserve is the money set aside (required by the state’s insurance laws) to pay future claims.

Question 32

Revocable Beneficiary

Answer 32

A revocable beneficiary is a beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary.

Question 33

Settlement Options

Answer 33

Settlement options are optional modes of settlement provided by most life insurance policies. Options include lump-sum cash, interest only, fixed-period, fixed-amount, and life income.

Question 34

Single Premium Funding

Answer 34

Single premium funding is a policy funding option where the policyowner pays a single premium that provides protection for life as a paid-up policy.

Question 35

Spendthrift Clause

Answer 35

The spendthrift clause prevents creditors from obtaining any portion of policy proceeds upon an insured’s death. Additionally, the clause can be selected by the policyowner to prevent a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time.

Question 36

Surrender Cost Index

Answer 36

The surrender cost index is a cost comparison calculation formula used to determine the average cost-per-thousand for a policy that is surrendered for its cash value. It aids in cost comparisons if the policyowner plans to surrender the policy for its cash value in ten or twenty years.

Question 37

Tertiary Beneficiary

Answer 37

The tertiary beneficiary is the third beneficiary in line to receive death benefit proceeds. The tertiary beneficiary will only receive the death benefit if both the primary and contingent beneficiaries die before the insured.

Question 38

Underwriting Department

Answer 38

The underwriting department is the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.

Question 39

Unearned Premium

Answer 39

Unearned premium includes the premium that has been paid by a policyowner for insurance coverage that has not yet been provided.

Question 40

Uniform Simultaneous Death Act

Answer 40

The uniform simultaneous death act states that if the insured and the primary beneficiary die at approximately the same time, in a common accident, with no clear evidence as to who died first, the law will assume that the primary died first. Therefore, the death benefit proceeds are paid to the contingent beneficiaries.

Question 41

Viatical Settlement

Answer 41

A viatical settlement involves someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit.

Question 42

Viatical (Viatee)

Answer 42

A Viatee or viatical is the new third-party owner in a viatical settlement.

Question 43

Viator

Answer 43

The Viator is the original policyowner in a viatical settlement.