Chapter 5 Family First Life Insurance: Life insurance premiums, proceeds, and beneficiaries

Viatical settlement agreement

A policyowner can receive a percentage payment of the death benefits prior to death by using what kind of contract?

Irrevocable beneficiary (An irrevocable beneficiary designation prohibits the policyowner from making any changes to the policy without the beneficiary's written consent.)

A policyowner is prohibited from making any changes to the policy without the beneficiary's written consent under which beneficiary designation?

Naming a beneficiary by class

An example of naming a beneficiary by class: "To the children born of my union with Ned Jackson"

After first premium is paid, the face amount may be available to the beneficiary (. An immediate estate can be created because the face amount may be available to the beneficiary after the first premium is paid.)

How does life insurance create an immediate estate?

Increases (The cost of a policy increases when an insured pays premiums more frequently. As the premium payment frequency increases, the total amount of premium paid for an insurance policy increases)

How is the cost of a policy affected when a policyowner pays premiums more frequently? (What happens to the total amount of premium paid for an insurance policy when the payment frequency increases?)

spendthrift trust clause (The clause in a life insurance policy protecting its proceeds from the beneficiary's creditors is referred to as the spendthrift trust clause.)

Proceeds from a life insurance policy are protected from the beneficiary's creditors by which clause?

Estate conservation (purchasing the life insurance to avoid the forced sale of assets upon death)

Purchasing a life insurance policy in order to avoid the forced sale of assets upon death is called

Monthly premium mode

The premium payment that results in the highest overall cost

1035 Exchange (IRS tax code that allows for the rollover of a non-qualified annuity or transfer of a life insurance policy to a new annuity or life policy of equal or greater value and results in the postponement of the tax consequence).

Tonya has replaced her whole life policy with an annuity without incurring a tax penalty. This transaction is called a(n) Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence?

Specified amount of money (Life insurance guarantees to the beneficiary a specified sum of money in the event of the insured's death.)

What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured?

Spendthrift Clause A Spendthrift Clause is a statement in a settlement agreement that indicates that the proceeds of the policy will be free from attachment or seizure by the beneficiary's creditors.

Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors?

Income tax is typically not owed on proceeds paid directly to a beneficiary ( One of the major tax advantages of life insurance is that the beneficiary generally does not pay income tax on the proceeds.)

Which of these is considered a major tax advantage of life insurance?

interest only (The settlement option that allows proceeds to remain with the insurer and earnings to be paid to the beneficiary on a monthly basis is called interest only.)

Which settlement option involves having the proceeds remain with the insurer and earnings paid on a monthly basis to the beneficiary?

Fixed amount (Fixed amount installment option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted)

Elizabeth is the beneficiary of a life insurance policy. She is receiving the death benefit in payments of $10,000 per month until the principal and interest has been paid out. Which option was chosen?

Lump sum, life income, and fixed period are all settlement options for life insurance policies.

Extended term is NOT a settlement option for life insurance policies. Extended term option is a non forfeiture option, not a settlement option.

Contingent beneficiary (if both insured and primary beneficiary are killed in same accident- common disaster clause-the policy proceeds would be paid to the contingent beneficiary)

Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident?

Individual ( An individual beneficiary designation would be most appropriate in this situation.)

Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid?

avocation (hobby) (Life insurance premiums are determined by several factors pertaining to the insured, such as age, occupation, and avocation (hobby)

Which of these factors help determine an insured's life insurance premium?