Life Premiums and Benefits

Question 1

accelerated benefit (option) rider

Answer 1

allows insured to receive a portion of death benefit prior to death if PO has terminal illness and is certified by a physician they’re expected to die within 1-2 years

Question 2

class designation

Answer 2

a beneficiary group designation (ex. all of my children) opposed to specifying one or more beneficiaries by name

Question 3

common disaster provision

Answer 3

a provisions of the Uniform Simultaneous Death Act which ensures PO if both the insured and primary beneficiary die within a short period of time, the death benefits will be paid to contingent beneficiary.

also states that primary beneficiary must outlive the insured a specified period of time in order to receive the proceeds.

Question 4

contingent (secondary) beneficiary

Answer 4

second in line to receive death benefits

Question 5

earned premium

Answer 5

amt of premium paid by the PO for coverage or insurance protection already received

Question 6

expense factor

Answer 6

aka “loading charge” a measure of what it costs an insurance co. to operate.

Question 7

fixed amt installment option

Answer 7

pays fixed death benefit in specified installment amts until principal and interest are exhausted

Question 8

fixed/level premium funding

Answer 8

averages the “single premium” over the policy period. PO pays more in the early years to help cover the cots in the later years. allows premiums to remain level throughout the life of the policy

Question 9

fixed period or period certain option

Answer 9

pays the death benefit proceed in equal installments over a set period of years.

the dollar amt of each installment depends upon the total number of installments.

Question 10

graded premium

Answer 10

a premium funding option characterized by a lower premium in early years and increases annually for an introductory period.

after introductory period, the premium jumps to an amt higher than what the initial level premium would have been then remains fixed or constant for the life of the policy.

Question 11

gross (annual) premium

Answer 11

net premium for insurance plus commissions, operating and miscillaneous expenses, and dividends

Question 12

interest factor

Answer 12

calculation for determining amt of interest an ins. co. can expect to earn from investing insurance premiums

Question 13

interest only option

Answer 13

a death settlement option where the ins. co. holds death benefit for a period of time and pays only the interest earned to the named beneficiary. a min. rate of interest is guaranteed and the interest must be paid at least annually.

Question 14

irrevocable beneficiary

Answer 14

beneficiary which may not be changed by PO w/out written consent of the beneficiary

Question 15

joint and survivor option

Answer 15

a settlement option which guarantees that beenfits will be paid on a life-long basis to two or more people. this option may include a period certain and the amt payable is based on the ages of the beneficiaries.

Question 16

life income option

Answer 16

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 amt of each installment is based on recipient’s life expectancy and the amt of principal.

Question 17

life settlement

Answer 17

an agreement in which a PO sells/transfer ownership in all or part of a life ins. po to a 3rd party for compensation that is less than the expected death benefit of the policy

Question 18

lump sum option

Answer 18

death settlement option where 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 ins. contracts

Question 19

modified premium

Answer 19

a premium funding option characterized by an initial premium that is lower than it should be during an introductory period of time (normally the first 3-5yrs).

after this time, the premium will increase to an amt greater than what the inital premium would have been, and then remains level or constant for the life of the policy.

Question 20

morbidity rate

Answer 20

demonstrates the incidence and extent of disability that may be expected from a given group of persons.

Question 21

mortality rate

Answer 21

a 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.

based on a large risk pool of people and time.

Question 22

net payment cost index

Answer 22

formula used to determine the true cost of a policy for the PO. uses same formula as the surrender cost index with the exception that it doesn’t assume that the policy will be surrended at the end of the period. the net pay cost index is useful if one’s primary concern is the amount of death benefits provided in the policy.

Question 23

net (single) premium

Answer 23

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

Question 24

per capita (by the head)

Answer 24

evenly distributes benefits among all named living beneficiaries

Question 25

per stripes (by the bloodline)

Answer 25

evenly distributes benefits amongst a beneficiary's heir in the event that a beneficiary dies before the insured.

Question 26

premium mode

Answer 26

frequency in which a PO elects to pay premiums the higher the frequency of payments the more the policy will cost the insured in total.

Question 27

primary beneficiary

Answer 27

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

Question 28

policy proceeds

Answer 28

amt actually paid as a death, surrender, or maturity benefit. includes face value+ any earned dividends - any outstanding loans and interests.

Question 29

reserves

Answer 29

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

Question 30

recovable beneficiary

Answer 30

a beneficiary that the PO may change at any time w/out notifying beneficiary

Question 31

settlement options

Answer 31

optional modes of settlement provides most life ins. pol. options include lump-sum cash, interest-only, fixed-period, fixed amount and life income.

Question 32

single premium funding

Answer 32

po. funding option to where the PO pays a single premium that provides protection for life as a paid -up policy.

Question 33

spendthrift clause

Answer 33

clause which prevents creditors from obtaining any portion of po. proceeds upon an insured's death. the clause can be selected by the PO to prevent a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amts. or installments over a certain 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 avg cost-per-thousand for a po. that is surrended for it's cash value at the end of that period

Question 35

what happens if there is nonpayment of premium before the expiration of a grace period

Answer 35

will cause a policy lapse

Question 36

how are life insurance premiums calculated

Answer 36

1. mortality factor or mortality rate 2. interest factor 3. expense factor

Question 37

what is a way ins. co. can lower premium rates

Answer 37

interest accumulated from investing the premiums they receive.

Question 38

higher ____ and _____ rates translate to a higher insurance premium

Answer 38

morbidity and mortality

Question 39

what are some additional factors that may influence the premium

Answer 39

1. age 2. sex/gender 3. health 4. occupation 5. hobbies 6. habits 7. benefits 8. options and riders 9. premium mode

Question 40

flexible premium funding

Answer 40

allows the PO to adjust the premiums throughout the life of the contract

Question 41

how can the PO use dividends to affect his/her current policy

Answer 41

could choose to pay down premiums on the existing po. or buy additional coverage in the form of paid up whole life additions or one-year term.

Question 42

what happens if you use the policies CV to pay premiums

Answer 42

it also decreases the value of the policy.

Question 43

minimum deposit financing

Answer 43

method of financing life ins. best suited for ppl in high tax brackets. allows PO to use policy loans to pay premiums due each year. ex. PO allowed each year to borrow, subject to certain tax restrictions, that year's cash value increase and use it to pay the premium. the PO only pays the diff. btween the premium due and the amt borrowed (plus interest on the loan)

Question 44

viatical settlement

Answer 44

allows someone with a terminal illness to sell their existing life insurance policy to a third party for a percentage of the face value. new owner pays the premiums and eventually will collect the death benefit. original owner called Viator and new owner called the Viatical or the Viatee. most states req. special license for viatical settlement providers, and a min. req. a viatical co. recommend the client consult a tax adviser as the proceeds could be taxable in certain situations

Question 45

life settlement

Answer 45

the sale of existing life ins. po to third party for more than its cash surrender value, but less than its death benefit. unlike Viatical, insured doesn't need to be dying to qualify. need special license to broker this.