Life Premiums and Benefits Flashcards
accelerated benefit (option) rider
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
class designation
a beneficiary group designation (ex. all of my children) opposed to specifying one or more beneficiaries by name
common disaster provision
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.
contingent (secondary) beneficiary
second in line to receive death benefits
earned premium
amt of premium paid by the PO for coverage or insurance protection already received
expense factor
aka “loading charge” a measure of what it costs an insurance co. to operate.
fixed amt installment option
pays fixed death benefit in specified installment amts until principal and interest are exhausted
fixed/level premium funding
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
fixed period or period certain option
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.
graded premium
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.
gross (annual) premium
net premium for insurance plus commissions, operating and miscillaneous expenses, and dividends
interest factor
calculation for determining amt of interest an ins. co. can expect to earn from investing insurance premiums
interest only option
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.
irrevocable beneficiary
beneficiary which may not be changed by PO w/out written consent of the beneficiary
joint and survivor option
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.
life income option
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.
life settlement
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
lump sum option
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
modified premium
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.
morbidity rate
demonstrates the incidence and extent of disability that may be expected from a given group of persons.
mortality rate
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.
net payment cost index
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.
net (single) premium
a premium calculation used to calculate an insurer’s policy reserves factoring in interest and mortality
per capita (by the head)
evenly distributes benefits among all named living beneficiaries
per stripes (by the bloodline)
evenly distributes benefits amongst a beneficiary’s heir in the event that a beneficiary dies before the insured.
premium mode
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.
primary beneficiary
first beneficiary in line to receive benefit proceeds upon the death of an insured.
policy proceeds
amt actually paid as a death, surrender, or maturity benefit.
includes face value+ any earned dividends - any outstanding loans and interests.
reserves
money set aside (required by state’s insurance laws) to pay future claims
recovable beneficiary
a beneficiary that the PO may change at any time w/out notifying beneficiary
settlement options
optional modes of settlement provides most life ins. pol. options include lump-sum cash, interest-only, fixed-period, fixed amount and life income.
single premium funding
po. funding option to where the PO pays a single premium that provides protection for life as a paid -up policy.
spendthrift clause
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
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 avg cost-per-thousand for a po. that is surrended for it’s cash value at the end of that period
what happens if there is nonpayment of premium before the expiration of a grace period
will cause a policy lapse
how are life insurance premiums calculated
- mortality factor or mortality rate
- interest factor
- expense factor
what is a way ins. co. can lower premium rates
interest accumulated from investing the premiums they receive.
higher ____ and _____ rates translate to a higher insurance premium
morbidity and mortality
what are some additional factors that may influence the premium
- age
- sex/gender
- health
- occupation
- hobbies
- habits
- benefits
- options and riders
- premium mode
flexible premium funding
allows the PO to adjust the premiums throughout the life of the contract
how can the PO use dividends to affect his/her current policy
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.
what happens if you use the policies CV to pay premiums
it also decreases the value of the policy.
minimum deposit financing
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)
viatical settlement
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
life settlement
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.
