Chapter 12
term life insurance
"Pure protection" against early death; pays benefits only if the insured dies within the time period (term) that the policy covers.
Needs-based approach
A superior method of calculating the amount of insurance needed that considers all of the factors that might potentially affect the level of need.
nonforfeiture values
Amounts stipulated in a life insurance policy that protect the cash value, if any, in the event that the policyholder chooses not to pay or fails to pay required premiums.
settlement options
Choices from which the policyholder can choose in how the death benefit payment will be structured.
Social Security survivor's benefits
Government program benefits paid to a surviving spouse and children.
guaranteed minimum rate of return
Minimum rate that, by contract, the insurance company is legally obligated to pay.
Final expenses
One-time expenses occurring just prior to or after a death.
cash-value life insurance
Pays benefits at death and includes a savings/investment element that can provide benefits to the policyholder prior to the death of the insured person. Thus, it includes a cash-value representing the value of the investment element in the life insurance policy.
guaranteed insurability (guaranteed purchase option)
Permits the cash-value policyholder to buy additional stated amounts of cash-value life insurance at stated times in the future without evidence of insurability.
paid up
Point at which the owner of a whole life policy can stop paying premiums.
Universal life insurance
Provides both the pure protection of term insurance and the cash-value buildup of whole life insurance, along with variability in the face amount, rate of cash-value accumulation, premiums, and rate of return. Essentially, this combines annual term insurance with an investment program.
insurance agent
Representative of an insurance company authorized to sell, modify, service, and terminate insurance contracts
owner/policyholder
Retains all rights and privileges granted by the policy, including the right to amend the policy and the right to designate who receives the proceeds.
waiver of premium
Sets certain conditions under which an insurance policy would be kept in full force by the company without the payment of premiums. It usually applies when a policyholder becomes totally and permanently disabled, but it may also apply under other conditions, depending on the policy provisions.
death benefit
The amount paid to the beneficiary under an insurance policy upon the death of the insured.
beneficiary
The person designated to receive money from a life insurance policy.
insured
The person whose life or property is insured.
limited-pay whole life insurance
Whole life insurance that allows premium payments to cease before the insured reaches the age of 100.
Life insurance
an insurance contract that promises to pay a dollar benefit to a beneficiary upon the death of the insured person
face amount
dollar value of protection as listed in the policy and used to calculate the premium
Whole life insurance
form of cash-value life insurance that provides lifetime life insurance protection and expects the insured to pay premiums for life. also called straight life insurance.
Variable-universal life insurance
form of universal life insurance that gives the policyholder some choice in the investments made with the cash value accumulated by the policy. Also called flexible-premium variable life insurance.
interest-adjusted net payment index (IANPI)
if a policy will remain in force until death, this method allows you to effectively measure the cost of cash-value insurance. The lower the IANPI, the lower the cost of the policy.
participating policies
life insurance policies that pay dividends.
premium quote service
offers computer-generated comparisons among 20 to 80 different companies
convertible term insurance
offers policyholders the option of exchanging a term policy for a cash-value policy without evidence of insurability
grace period
period of time during which an overdue insurance premium can be paid to keep the policy
incontestability clause
places a time limit on the right of the insurance company to deny a claim
guaranteed renewable term insurance
protects you against the possibility of becoming uninsurable
automatic premium loan
provision allows any premium not paid by the end of the grace period to be paid automatically with a policy loan if sufficient cash value or dividends have accumulated.
layering term insurance policies
purchasing level-premium term policies so that coverage grows when you need it most and then can be decreased as your needs change
current rate
rate of return the insurance company has recently paid to policyholders
cash surrender value
represents the cash value of a policy minus any surrender charges
insurance dividends
surplus earnings of the insurance company when the difference between the total premium charged exceeds the cost to the company of providing insurance
level-premium term insurance
term policy with long term under which premiums remain constant. also called guaranteed level-premium term insurance.