Life Insurance Premiums, Proceeds, and Beneficiaries

Tertiary Beneficiary

3rd beneficiary in line to receive death benefits

Reserves

An insurer's reserve is the money set aside (required by the state's insurance laws) to pay future claims

Mortality Rate

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.

Settlement Options

Optional modes of settlement provided by most life insurance policies. Options include lump-sum cash, interest only, fixed-period, fixed-amount, and life income

Class designation

a beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name

Irrevocable Beneficiary

a beneficiary which may not be changed by the policy-owner without the written consent of the beneficiary.

Surrender Cost Index

a cost comparison calculation formula used to determine the average cost-per-thousand for a policy that is surrendered for its cash value. it aids in cost comparisons if the policy-owner plans to surrender the policy for its cash value in 10 or 20 years.

Interest Only Option

a death settlement option where the insurance company holds the 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.

Net Payment Cost Index

a formula used to determine the actual cost of a policy for a policy-owner. It helps the consumer compare costs of death protection between policies that will be held for 10 or 20 years.

Graded Premium

a premium funding option characterized by a lower premium in the early years of the contract, with premiums increasing annually for an introductory period. After the period, the premium jumps to an amount higher than what the initial level premium would have been. It then remains fixed or constant for the life of the policy.

Joint and Survivor Option

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

Life Settlement

agreement in which a policyholder sells or transfers ownership in all or part of a life insurance policy to a third pary for compensation that is less than the expected death benefit of the policy

Expense Factor

aka loading charge, is a measure of what it costs an insurance company to operate

Accelerated Benefit (Option) Rider

allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is certified by a physician as expected to die within 1-2 years.

Fixed/Level Premium

concept of averaging what would be the total single premium for a policy over periodic payments. More periodic payments = higher total premium

Life Income Option

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 amount of each installment is based on the recipient's life expectancy and the amount of principle

Lump Sum Option

death settlement option where the 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 insurance contracts

Morbidity Rate

demonstrates the incidence and extent of disability that may be expected from a given group of people

PER CAPITA (By the Head)

evenly distributes benefits among all named living beneficiaries

PER STRIPES (By the Bloodline)

evenly distributes benefits amongst an insured's according to the family line, branch, or root

Primary Beneficiary

first in line to receive benefit proceeds upon the death of an insured

Viatical Settlement

involves someone with a terminally illness selling their existing life insurance policy to a third party for a percentage of the death benefit.

Gross Premium

is the net premium of insurance plus commissions, operating and miscellaneous expenses, and dividends

Viatical (Viatee)

is the new third-party owner in a viatical settlement

Beneficiary

is the person or entity designated in life insurance policy to receive the death proceeds

Excess Interest

means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate

Fixed Amount Installment Option

pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted

Fixed Period Or Period Certain Option

pays the death benefit proceeds in equal installments over a set period of years. The dollar amount of each installment depends upon the total number of installments.

Single premium Funding

policy fudning option where the policy owner pays a single premium that provideds protection for life as a paid-up policy

Net (Single) Premium

premium calculation used to calculate an insurer's policy reserves factoring in interest and mortality

Modified Premium

premium funding option characterized by an initial premium that is lower than it should be during intro period of time (first 3 to 5 years). After this time, the premim 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

Spendthrift Clause

prevents creditors from obtaining any portion of policy proceeds upon an insured's death. Additionally, the clause can be selected by the policy owner to prevent a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time.

Common Disaster Provision

provision of the Uniform Simultaneous Death Act, which ensures a policyowner if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary. It also states that the primary beneficiary must outlive the insured by a specified period of time in order to receive the proceeds

Contingent (secondary) beneficiary

second in line to receive death benefit proceeds if the primary beneficiary dies before the insured.

Uniform Simultaneous Death Act

states that if the insured and the primary beneficiary die at approximately the same time, in a common accident, with no clear evidence as to who died first, the law will assume that the primary died first. Therefore, the death benefit proceeds are paid to the contingent beneficiaries

Policy Proceeds

the amount actually paid as a death, surrender, or maturity benefit. In case of death, it includes any cash value/dividends and face value minus any outstanding loans or interest.

Earned Premium

the amount of premium paid by the policy-owner for policy coverage or insurance protection received up to this point.

Interest Factor

the calculation for determining the amount of interest an insurance company can expect to earn form investing insurance premiums

Cash Value

the equity or savings element of whole life insurance policies

Premium Mode

the frequency in which a policy owner elects to pay premiums

Viator

the original policy owner in a viatical settlement.

Unearned Premium

the premium that has been paid by a policyowner for insurance coverage that has not yet been provided.