Life Insurance Premiums, Proceeds, and Beneficiaries

per capita (by the head)

evenly distributes benefits among the living named beneficiaries.

primary beneficiary

first claim to the proceeds (can be more than one)

expense

insurance companies have operating expenses. these expenses are factored into the premium rates. also known as loading charge.

common death settlement options

lump-sum cash, interest only, fixed-period, fixed-amount, life income

per stirpes

means bloodline, distributes benefits of the beneficiary who dies before the insured to the beneficiary's heirs.

death benefit proceed (settlement options)

methods used to pay the death benefit to a beneficiary upon the insured's death. the policy owner may select a settlement option at the time of the policy application and may also change that option at any time during the life of the insured.

mortality

rate of death. helps predict life expectancy and the probability of death for a given group

lump-sum cash option

upon the death of the insured, the policy is designed to pay the proceeds in cash called a lump sum. NOT taxable income!

1035 exchange

`in accordance with section 1035 of the interval revenue code, certain exchanges of life insurance policies and annuities may occur in a nontaxable exchange. when a cash value life insurance policy is exchanged for another cash value life insurance policy or an annuity for an annuity there will be no income tax on these transactions.

fixed period option

also called period certain, proceeds will be paid out in equal installments over a specified period of years

irrevocable

cannot change the beneficiary without written consent of the beneficiary. the policy owner cannot borrow against the policy's cash value

secondary beneficiary (contingent beneficiary or tertiary)

has the second claim in case the primary beneficiary dies before the insured.

three primary factors in determining premiums

mortality, interest, expense

fixed amount option

pays a fixed specific amount in installments until the proceeds are exhausted.

life income option

provides the recipient with an income that he or she cannot outlive. guaranteed until the recipient dies. amount of each installment is based on the recipient's life expectancy.

inerest

since premiums are paid before claims are incurred; insurance companies invest the money in an effort to earn interest. this interest is the primary factor in lowering premium rates.

revocable

the policy owner may cage a revocable beneficiary at any time and without the knowledge or consent of the beneficiary.

interest only option

insurance company retains the policy proceeds and pays interest on the proceeds to the recipient beneficiary at regular intervals.

beneficiaries

there are few restrictions on who may be named a beneficiary of a life insurance policy. the decision rests solely with the policy owner. (who the proceeds will be paid to upon death.) could be individuals, businesses, trusts, estates, charities