Chapter 4 LI

Net(single) premium

=Mortality Cost-Interest premium that makes provision for mortality cost and interest influenced by interest rate, gender, benefits to be provided, and the mortality rate

Gross Premium

=Net Premium+ insurer expenses premium charged by an insurer by the factors of mortality, interest, and expenses. ACTUAL PREMIUM PAID BY THE POLICYOWNER FOR LIFE INSURANCE COVERAGE

minimum deposit insurance

A cash value life insurance policy having a first-year loan value that is available for borrowing immediately upon payment of the first-year premium.

Single premium funding

A policy funding option where the policyowner pays a single premium that provides protection for life as a paid-up policy.

Joint and Survivor Option

A settlement option which guarantees that benefits will be payed on a life-long basis to two or more people. This option may include a period certain and the amount payable is based on the ages of the beneficiaries.

Mortality Factor

GREATEST FACTOR IN MAKING PREMIUMS Determined form a mortality table which provides the insured's prob of death

fixed period

If a beneficiary wants a guarantee that benefits paid from principal and interest would be paid for a period of 10 years before being exhausted, what settlement option should the beneficiary select?

Interest only

Insurance company holds death benefit for a period of time and pays only the interest earned to beneficiaries

Life Settlement:

PO can sell the policy to a life settlement firm for any reason. doesnt require the seller to be terminally ill

Earned Premium

The amount of the premium for which the policy protection has been given.

Comparative Interest Rate Method

The comparative interest rate (CIR) is the rate of return that must be earned on a "side fund" in a buy term invest the difference plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time.

unearned premium

The portion of premium for which policy protection has not yet been given.

fixed amount

When the policyowner specifies a dollar amount in which installments are to be paid

Expense factor (loading charge)

a measure of what it costs an insurance company to operate.

Accelerated DB

allow po to recieve a portion of the DB if the he is diagnosed as terminally ill. 50% of face value.

net level annual premium

allows for a small adjustment to the interest rate to account for the fact that most people do not pay the policy's required premium in a single payment, but instead over a period of years.

Flexible premium funding

allows policyowner to adjust premiums

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.

refund life income option

also known as the joint life option, guarantees the return of an amount equal to the principal less any payments already made.

Fixed/Level Premium Funding

averages the "single premium" over the policy period.

Premium Mode

policy feature that permits the policyowner to select the frequency of premium payments

Graded Premium Funding

premiums increase annually for the initial period, then jumps to a higher amount and remains level for the rest of the policy life

Policy Dividends

can be used for cash payments, premium payments, purchase additional paid up WL insurance, purchase one year term insurance, or invest to accumulate interest

chronically ill vs terminally ill

chronically: person who needs considerable supervison due to cognitive impairment. unable to preform 2 activities of daily living Terminally ill: not supposed to survive for 2 years longer

Cash Value: living benefit

cv can be borrowed against or used as collateral

Lump sum

db is paid in a single payment mimus any outstanding policy loan balances and overdue premiums

Paying Premiums from Policy Values

depending on the policy, the policyowner may be able to use the policies cash value and dividends to pay the premium.

Mortality Rate

frequency of deaths in a defined population at a specific time interval

Reserves

funds set aside by insurer to pay current and future claims

Gross anual premium

gross premium paid over a period of years

Modified Premium Funding

is characterized by an initial premium that is lower than it should be during an introductory period of time (normally the first three to five years). After this time, the premium will increase to an amount greater than what the initial level premium would have been and then remains level or constant for the life of the policy. For example, John can buy that same $100,000 whole life policy for 36 initial fixed premiums (monthly for 3 years) for $50 each ($1,800 total introductory) and then an additional 804 fixed premiums (monthly for 67 years) for $110 each ($88,440 total remainder). ($1,800 introductory + $88,440 for reminder = $90,240 total).

Single, pure or straight life income option

monthly installments are paid to the beneficiary for as long as they live

Morbidity Rate

occurence of diseases in a defined population at a specific time interval

Interest-Adjusted Net Cost Method

provides info on premiums, death benefits, cash value, and dividends. these must be considered in evaluating cost and are the basis for the LI policy cost comparison method

Interest Factor

reflection on the insured's return on their investments

Life income with a period certain

settlement option guarantees payments for the lifetime of the recipient, but also specifies a guaranteed period, during which, if the original recipient dies, the payments will continue to a designated beneficiary

life income

used to ensure the beneficiary recieves a payment as long as they are alive

Net Payment Cost Index

useful if one's primary concern is the amount of death benefits provided in the policy. isnt concerned with build up of cash value

Life Insurance Surrender Cost Index

uses a calculation formula where the net cost is averaged over the number of years the policy was in force IMORTANT TO PEOPLE WHO HIGHLY VALUE THE GROWTH OF CASH VALUE

Distribution by Descent

• Per Stirpes: (meaning by the bloodline) In the event that a beneficiary dies before the insured, benefits from that policy will be paid to that beneficiary's heirs. • Per Capita: (meaning by the head) Evenly distributes benefits among all named living beneficiaries.