XCEL Testing Chapter 5: Life Insurance Premiums, Proceeds, and Beneficiaries

Maturity Policy Proceeds

Policy proceeds include the cash value less any outstanding loans and interest.

Earned Premium

The amount of premium paid by the policyowner for policy coverage or insurance protection already received.

Contigent (Secondary) Beneficiary

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

Cash Value

The equity or savings element of whole life insurance policies.

Class Designation

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

Revocable Beneficiary

A beneficiary that the policyowner may change at any time without notifying or getting permission from the beneficiary.

Irrevocable Beneficiary

A beneficiary which may not be changed by the policyowner without the written consent of the beneficiary.

Interest Factor

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

Joint and Survivor Option

A settlement option which guarantees that benefits will by 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.

Expense Factor

Also known as the loading charge, and is a measure of what it costs an insurance company to operate.

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.

Fixed Period (Period Certain Option)

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

Uniform Simultaneous Death Act

States that if the insured and the primary beneficiary die at approximately the same time for a common accident with no clear evidence as to who died first, the law will assume that the primary died first, this allows the death benefit proceeds to be paid to the contingent beneficiaries.

Policy Proceeds

The amount actually paid as a death, surrender, or maturity benefit.

Reserves

The money set aside (required by the state's insurance law) to pay future claims.

Tertiary Beneficiary

The third beneficiary in line to receive death benefit proceeds if the primary and contingent beneficiaries both die before the insured.

Interest Only Option

A death settlement option where the insurance company holds death benefit a period of time and pays only the interest earned to the named beneficiary. A minimum rate of interest is guaranteed and the interest must be paid at least annually.

Mortality Rate

A measure of the number of deaths (in general, or due to a specific clause) in some population, scaled to the size of that population, per unit time.

Single Premium Funding

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

Net (Single) Premium

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

Modified Premium

A premium finding option 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.

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 introductory period, the premium jumps to an amount higher than what the initial level premium would have been, and then remains fixed or constant for the life of policy.

Common Disaster Provision

A 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 a specified period of time in order to receive the proceeds.

Per Capita (by the head)

Evenly distributes benefits among all named living beneficiaries.

Per Stirpes (by the bloodline)

Evenly distributes benefits amongst a beneficiary's heirs in the event that a beneficiary dies before the insured.

Accelerated Benefit Rider

Life insurance rider which 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.

Surrender Benefit Policy Proceeds

Policy proceeds include any cash value less surrender charges and outstanding loans and interest.

Death Benefit Policy Proceeds

Policy proceeds include the face value plus any earned dividends less any outstanding loans and interest.

Unearned Premium

Premium which has been paid by a policyowner for insurance coverage which has not yet been provided.

Primary Beneficiary

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

Gross (Annual) Premium

The net premium for insurance plus commissions, operating and miscellaneous expenses, and dividends.

Beneficiary

The person or entity designated in a life insurance policy to receive the death proceeds.

Net Payment Cost Index

A formula used to determine the true cost of a policy for a policyowner. It uses the same formula as the Surrender Cost Index with the exception that it doesn't assume that the policy will be surrendered at the end of the period. The net payment cost index is useful if one's primary concern is the amount of death benefits provided in the policy.

Life Settlement

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

Morbidity Rate

Demonstrates the incidence and extent of disability that may be expected from a given group of persons.

Fixed Amount Installment Option

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

Premium Mode

The frequency in which a policyowner elects to pay premiums.

Viatical Settlement

Involves someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit. In this agreement, the owner of a life insurance policy sells the policy to another person in exchange for a bargained for payment which is generally less than the expected death benefit under the policy. The original policyowner is called the Viator and the new third-party owner is called the Viatical, or sometimes referred to as the Viatee.

Spendthrift Clause

A clause which prevents creditors from obtaining any portion of policy proceeds upon an insured's death. Additionally the clause can be selected by the policyowner 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.

Fixed/Level Premium

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

Surrender Cost Index

A cost comparison calculation formula where the net cost is averaged over the number of years the policy was in force to arrive at the average cost-per-thousand for a policy that is surrendered for its cash value at the end of that period.

Life Income Option

A 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 principal.

Lump Sum Option

A death settlement option where 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.