Chapter 6 - Life Insurance Premiums, Proceeds and Beneficiaries

Death Benefit Settlement Options

- Lump Sum ; considered default option for most -Interest Only - Fixed period - fixed amount - Life Income

Premiums dependent on what?

-morality factor; number of death in given population -interest factor; invest the premiums they receive in effort to earn interest -expense factor age, occupation, and avocation (hobby), health, sex/gender, occupation,

Spendthrift Clause

A clause that prevents the debtors of a beneficiary from collecting the benefits before he/she receives them. indicates the proceeds of the policy will be free from attachment or seizure by beneficiary's creditors

11. Naming a contingent beneficiary as "all surviving children" is described by which term?

Class Designation

2. What happens to the total amount of premium paid for an insurance policy when the payment frequency increases?

Decreases

10. What is created after policy proceeds are obtained in a lump sum and then immediately invested?

Estate

4. Which of the following enables a life policy to be replaced with another life policy and results in the postponement of the tax consequence?

Section 1035 exchange

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

avocation (hobby)

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

contingent beneficiary

Fixed Period (period certain)

death benefit proceed is paid in equal installments over a set period of years. part of installments paid consists of interest calculated on proceeds of the policy.

Section 1035 Exchange

when an existing life insurance policy is assigned to another insurer for a new contract, the transaction may be treated for tax purposes as a section 1035 exchange. enables the postponement of tax consequences.

3. Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits?

Common disaster clause

Interest Only

Insurance company holds death benefit for a period of time and pays only the interest earned to beneficiaries. minimum rate of interest is guaranteed and the interest must be paid on a monthly basis

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

Interest Only

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

Interest only

9. Sharon is the policyowner of a $50,000 life insurance policy. Her son, Mike, is the beneficiary. If Sharon MUST obtain Mike's signature in order to change the beneficiary, what kind of beneficiary designation is this?

Irrevocable

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

Irrevocable Beneficiary

Lump Sum

Settlement method that pays the beneficiary the entire proceeds of a life insurance policy in one payment rather than in installments. obtained in a lump sum and invested to create an estate

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

Spendthrift Clause

Common Disaster Clause

ensures a policy owner if both the insured and the primary beneficiary die within a short period of time, death benefits will be paid to the contingent beneficiary.primary beneficiary must outlive the insured a specified period of time to receive proceeds

Contingent Beneficiary

entitled to the proceeds if the primary beneficiary dies before the insured

Fixed Amount

installment option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted. larger the installment payment shorter the payout period

Per Capita

is a method of life insurance distribution using total number of individuals.. all living members that are identified in the life insurance policy will receive an equal amount of proceeds.

13.A life insurance claim which involves a per capita distribution of policy proceeds would be payable to the

named living primary beneficiaries

12. A beneficiary change can occur

normally at any time during the policy term

Irrevocable Beneficiary

one that cannot be changed without the beneficiary's consent

7. Mortality is calculated by using a large risk pool of?

people and time

Life Income

provides the recipient with an income that he or she cannot outlive. amount of each installment is based on recipients life expectancy and mount of principal. Joint and survivor option guarantees that benefits will be payed on a life long basis to two or more people