Life Insurance Basics
Group Life Insurance
written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group
Policy Summary
written statement summarizing the features and elements of a policy. must includes name and address of agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider
Needs Approach
A method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death
Individual Life Insurance
Written on a single life. The rate and coverage is based upon the underwriting of that individual.
Buy-Sell Funding
a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled; obligates business owners or partners (or their heirs) to withdraw from the business and sell their interest to a surviving partner(s) or key person at a predetermined price
Survivor Protection
aim to protect survivors in event of loss of an income earner
Natural Premium
amount of a premium that must be collected from each member of a group composed of the same age, sex, and risk in order to pay $1,000 for each death that will occur in the group each year
Cash Accumulation
an amount of cash accessible to the policyowner
Participating Mutual Life Insurance Policy
any policy that distributes its non-taxable dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance
Executive Bonuses
arrangement where employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee, employee owns policy and has control, tax deductible for employers and taxable income for employee
Liquidity
availability of cash to the policyowner
Variable Life Insurance or Annuities
cash values accumulate based upon a specific portfolio of stocks without guarantees of performance
Fixed Life Insurance or Annuities
contracts that offer guaranteed minimum or fixed benefits that are stated in the contract
Gross Annual Premium
cost of 1 year of mortality + loading (commissions + taxes + advertising + profit margin)
Non-Participating Stock Policy
does not pay dividends to policyowner
Bequests
funds left to church, school, or other organization at time of their death
Education Funds
funds used to pay for children's education expenses, or a surviving spouse who needs to receive an education in order to re-enter the job market
Mortality Tables
indicated the number of individuals within a specified group (e.g. males, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age
Preferred Risks
individuals who meet certain requirements and qualify for lower premiums that standard risk
Paramdeical Exam
often includes blood work and urine sample conducted by a registered nurse or a paramedic
Standard Risks
persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions
Net Single Premium
premium includes the mortality and interest components necessary to keep the policy in force until maturity
Gross Premium
premium with the cost of operating the company (called loading) Net Premium + Expense (loading)
Net Premium
premium without operating costs factored in Mortality - Interest
Illustration
presentation or depiction that includes non-guaranteed elements of a policy of individual or group life insurance over a period of years
Buyer's Guide
provides basic, generic information about life insurance policies
Estate Conservation
provides money to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured's estate
Comparative Interest Rate
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
Unconditional Binding Receipt
receipt, coverage begins immediately for a specific length of time, until the policy is issued (property and casualty insurance)
Approval Conditional Receipt
receipt, coverage begins only when the pre-paid application is approved by the insurer, but before the policy is delivered
Conditional Receipt
receipt, the applicant is covered by the insurance as of the date of the application providing that the insurer subsequently determines the applicant to be insurable at the rating for which the policy was applied
Term Life Insurance
temporary life insurance provided for a specific period of time
Key Person Insurance
the business is the applicant, owner, premium payer, and beneficiary
Insurable Interest
the policyowner must face the possibility of losing money or something of value in the event of loss
Backdating
the practice by which an insurer calculates premiums under the policy based on an earlier age for the proposed insured, max of 6 months
Underwriting
the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge
Substandard Risks
those that reflect an increased risk of loss, may be insured at an increased premium
Blackout Period
time during which the surviving spouse and children do not receive any social security survivor benefits
Entity Purchase Method
used when partnership buys the policies on the partners. partnership then pays the heirs money
Debt Cancellation
Insurance may be used to create a fund to pay off debts of the insured such as home mortgage or auto loans. (Most lenders require a collateral assignment of life insurance as a condition for a loan.)
Emergency Reserve Funds
Insurance proceeds may be used to assist in paying for sudden expenses following the death of insured, such as travel expenses and lodging for family members coming from a distance.
Permanent Life Insurance
various forms of whole life insurance policies that remain in effect to age 100, as long as the premium is paid
Stock Redemption Method
when the corporation buys only policy on each shareholder. corporation pays heirs and partner receives shares
Cross Purchase Method
when each partner buys a policy on the other. the partner would pay the heirs
Stock Purchase Method
when each stockholder buys a policy on each of the others. stockholder receives stocks and pays heirs money
Attending Phsician's Statement (APS)
underwriter sees answers to certain questions that could indicate greater risk, the underwriter will request a statement from the applicant's treating physician paid for by the insurance comapny
Human Life Value Approach
used to determine how much life insurance is needed to replace insured annual income. This approach looks at annual income, working expectancy, income tax expenses, and effects of inflation.
Estate Creation
when an insured purchases a life insurance policy, he/she will have an estate of at least that amount the moment the first premium is paid