Unit 3 Basics of Life Insurance Flashcards
third-party ownership
a situation where the owner of a life insurance policy is someone other than the insured
insurable interest
personal applying for the policy must be at risk of suffering a significant loss if the insured dies (spouse, business partner). must be proven before policy can be purchased. relationship does not need to exist at death
6 personal uses of life insurance
-survivor protection
-mortgage payoff
-estate creation
-estate conservation
-liquidity (how easy an asset can turn into cash without loss)
-cash accumulation
determining amount of personal life insurance
-human live value (current income)
-needs approach (money for specific needs)
3 types of income needs
-family dependency
-preretirement (also called the blackout period. Social Security stops when child turns 16 and before surviving spouse turns 60)
-retirement
business uses of life insurance
-buy sell funding
+cross purchase
+entity purchase
-key person
-executive bonus
-deferred compensation
buy sell funding
a business use of life insurance. includes cross purchase and entity purchase. provides for the sale of a business interest a the death or disability of an owner. also known as business continuation plan
entity plan
a type of buy sell funding in which the purchaser of a deceased owner’s business interest is the business entity itself. often called a stock redemption plan because the corporation is redeeming the deceased owner’s stock
cross-purchase plan
a type of buy sell funding in which the surviving owner(s) purchase the deceased owner’s interest in the business
key person coverage
a business use of life insurance in which the proceeds can be used to offset direct financial losses and help pay the costs of finding and training a replacement
executive bonus plan
a business use of life insurance in which the business pays the premiums on a life insurance policy which the employee owns
deferred compensation plan
a business use of life insurance in which the employer agrees to pay an employee a stated amount of income beginning at retirement rather than paying the money now
individual life insurance
-cost based upon individual insured
-individual policy issued
-policyowner chooses amount of insurance
group life insurance
-cost based upon the group
-policy issued to employer or group sponsor
-employer determines amount of insurance
term life insurance
-death benefit only
-increasing premiums
-temporary coverage; expires at end of term
-cannot be renewed (extended) after a certain age
