Life Premiums and benefits Flashcards
accelerated benefit (option) rider
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
beneficiary
person designated in policy that will receive death proceeds
cash value
equity of savings element of whole life insurance policy
common disaster provision
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
contingent (secondary) benefitiary
benefitiary who receives death benefits if the primary beneficiary passes before the insured
earned premium
amount paid by the policyowner for policy coverage or insurance protection already received
expense factor
aka loading charge, a measure of what it costs for an insurance company to operate
fixed amount installment option
pays death benefits in fixed installments amounts until benefits and interest are exhausted
fixed/level premium
averaging whta would be the total single premium for a policy over periodic payments; more payments=higher premium
graded premium
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
gross (anual) premium
net premiums plus commissions, dividends, and operating misc expenses; actual premium paid by the policyowner for life insurance coverage (net premium+ insurer expenses)
interest factor
a calculation for determining the amount of interest an insurance company can expect to earn from a policy
interest only option
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
irrevocable beneficiary
beneficiary which may not be changed by the policy owner unless obtained written consent from the beneficiary
joint and survival option
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
life income option
settlement option in which the beneficiary is given an income they cannot outlive
life settlement
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
lump sum option
death settlement option where death beneifit is paid in a single payment, minus any outstanding loan balances and over due premiums
modified premium
premium rate is low for the first 5 years, then increases by year 6 and stays consistent until end of policy
morbidity rate
measures extent of disability given a group of a specific population
mortality rate
a measure of number of deaths in a given population
net payment cost index
formula used to determine true cost of policy owner, assuming that the policy will be surrendered at the end of the period
net single premium
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
per capita (by the heads)
evenly distributes benefits among all living beneficiaries
per stirpes (by the bloodline)
evenly distributes benefits among beneficiary’s heirs if beneficiary dies before the insured
premium mode
frequency in which a policy owner elects to pay premiums; aka Mode of Premium Provision
primary beneficiary
first beneficiary to receive death benefits after death of insured
policy proceeds
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
reserves
money set aside to pay future claims (required by state’s insurance laws)
revocable beneficiary
beneficiary that the policy owner may change at any time without notifying or getting permission from the beneficiary
settlement options
optional modes of settlement provided by most life insurance policies; include lump-sum, interest-only, fixed-period, fixed-amount, and like income
single premium funding
policy owner pays a single premium that provides protection for life as a paid-up policy
spendthrift clause
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
surrender cost index
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
tertiary beneficiary
third in line beneficiary to receive benefits proceeds if primary and contingent beneficiaries both die before the insured
unearned premium
premium which as been paid by a policyowner for insurance coverage which has not yet been provided
Uniform Simultaneous Death Act
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
viatical settlement
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”
flexible premium funding
allows policy owner to adjust the premium throughout the life of the contract
minimum deposit financing
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
premium collection and reserves
collect initial premium from applicant at the time of application; earned premium+unearned premium
living benefits
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
1035 exchange
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
