Life Premiums and benefits

Question 1

accelerated benefit (option) rider

Answer 1

allows insured to receive a portion of death benefits if diagnosed with terminal illness by doctor and is expected to die within 1-2 years

Question 2

beneficiary

Answer 2

person designated in policy that will receive death proceeds

Question 3

cash value

Answer 3

equity of savings element of whole life insurance policy

Question 4

common disaster provision

Answer 4

under the Uniformed Simultaneous Death Act, states that if the insured and primary beneficiary dies within a short period of time, death benefits will be paid to secondary beneficiary; also states primary beneficiary must out live insured by a certain period of time before receiving death benefits

Question 5

contingent (secondary) benefitiary

Answer 5

benefitiary who receives death benefits if the primary beneficiary passes before the insured

Question 6

earned premium

Answer 6

amount paid by the policyowner for policy coverage or insurance protection already received

Question 7

expense factor

Answer 7

aka loading charge, a measure of what it costs for an insurance company to operate

Question 8

fixed amount installment option

Answer 8

pays death benefits in fixed installments amounts until benefits and interest are exhausted

Question 9

fixed/level premium

Answer 9

averaging whta would be the total single premium for a policy over periodic payments; more payments=higher premium

Question 10

graded premium

Answer 10

low premium payment at first for instroduction period, then increases every year; after instroduction period, payment jumps to certain percentage and remains until end of policy

Question 11

gross (anual) premium

Answer 11

net premiums plus commissions, dividends, and operating misc expenses; actual premium paid by the policyowner for life insurance coverage (net premium+ insurer expenses)

Question 12

interest factor

Answer 12

a calculation for determining the amount of interest an insurance company can expect to earn from a policy

Question 13

interest only option

Answer 13

a death settlement option where the insurance company holds death benefits for a certain period of time and pays only interest earned to beneficiary.

• min interest gaurunteed
• interest must be paid at least annually

Question 14

irrevocable beneficiary

Answer 14

beneficiary which may not be changed by the policy owner unless obtained written consent from the beneficiary

Question 15

joint and survival option

Answer 15

settlement which gauruntees that benefits will be paid on a life-long basis of 2 or more people; amount payable is based on the age of beneficiaries

Question 16

life income option

Answer 16

settlement option in which the beneficiary is given an income they cannot outlive

Question 17

life settlement

Answer 17

agreement in which policyowner sells or transfer ownership in all or part of life insurancy policy to a third party for compensation that is less than expected of death benefit policy

Question 18

lump sum option

Answer 18

death settlement option where death beneifit is paid in a single payment, minus any outstanding loan balances and over due premiums

Question 19

modified premium

Answer 19

premium rate is low for the first 5 years, then increases by year 6 and stays consistent until end of policy

Question 20

morbidity rate

Answer 20

measures extent of disability given a group of a specific population

Question 21

mortality rate

Answer 21

a measure of number of deaths in a given population

Question 22

net payment cost index

Answer 22

formula used to determine true cost of policy owner, assuming that the policy will be surrendered at the end of the period

Question 23

net single premium

Answer 23

premium calculation used to calculate insurer’s policy reserves factoring in interest and mortality; influenced by the interest rate assumed, gender, benefit to be provided and the mortality rate

Question 24

per capita (by the heads)

Answer 24

evenly distributes benefits among all living beneficiaries

Question 25

per stirpes (by the bloodline)

Answer 25

evenly distributes benefits among beneficiary’s heirs if beneficiary dies before the insured

Question 26

premium mode

Answer 26

frequency in which a policy owner elects to pay premiums; aka Mode of Premium Provision

Question 27

primary beneficiary

Answer 27

first beneficiary to receive death benefits after death of insured

Question 28

policy proceeds

Answer 28

amount paid as a death, surrender, or maturity benefit

• death benefit: includes face value plus any earned dividends less any outstanding loans/interest
• surrender benefit: amount includes any cash value less surrender charges and outstanding loans/interest
• maturity benefit: amount includes the cash value less any outstanding loans/interest

Question 29

reserves

Answer 29

money set aside to pay future claims (required by state’s insurance laws)

Question 30

revocable beneficiary

Answer 30

beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary

Question 31

settlement options

Answer 31

optional modes of settlement provided by most life insurance policies; include lump-sum, interest-only, fixed-period, fixed-amount, and like income

Question 32

single premium funding

Answer 32

policy owner pays a single premium that provides protection for life as a paid-up policy

Question 33

spendthrift clause

Answer 33

prevents creditors from obtaining any portion of policy proceeds upon insured’s death. also prevents reckless spending of beneficiary by requiring benefits to be paid in fixed amounts/installments over a period of time

Question 34

surrender cost index

Answer 34

cost comparison calculation formula where the net cost is averaged over the number of years the policy was in force to arrive at the average cost-per-thousand for a policy that is surrendered for its cash value at the end of that period

Question 35

tertiary beneficiary

Answer 35

third in line beneficiary to receive benefits proceeds if primary and contingent beneficiaries both die before the insured

Question 36

unearned premium

Answer 36

premium which as been paid by a policyowner for insurance coverage which has not yet been provided

Question 37

Uniform Simultaneous Death Act

Answer 37

states if both the insured and primary beneficiary die at the same time for a common accident and there is no clear evidence who died first, the law will assume that the primary died first, allowing death benefits to be paid to contingent beneficiaries

Question 38

viatical settlement

Answer 38

someone with terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit. Owner of the policy sells the policy to another person in exchange for a bargained for payment, which is less than the expected death benefit under the policy.

• policyowner: called “viator”
• new 3rd party owner: called “viatical” or “viatee”

Question 39

flexible premium funding

Answer 39

allows policy owner to adjust the premium throughout the life of the contract

Question 40

minimum deposit financing

Answer 40

policyowner to use policy loans to pay premiums due each year, method of financing life insurance best suited for individuals in high marginal tax brackets

Question 41

premium collection and reserves

Answer 41

collect initial premium from applicant at the time of application; earned premium+unearned premium

Question 42

living benefits

Answer 42

option for a policy owner to use some of the future death benefit proceeds prior to the insured’s death; ONLY the insured can do this, and beneficiaries do not receive this. types: cash value, accelerated (death) benefit, policy dividends, viatical settlement, life settlement

Question 43

1035 exchange

Answer 43

when an existing life insurance policy is assigned to another insurer for a new contract, the transaction may be treated for tax purposes; enables postponement of tax consequences