INS 3200 Quiz (Chp. 11,12,13)

Interest-Adjusted Net Cost Method

A method of comparing costs of similar policies by using an index that takes into account the time value of money, unlike traditional net cost method.

Gross Premium

Net Premium plus fees

Universal Life Insurance

Premiums increase with age. Premiums include cost of insurance component and savings component. Cash value earns interest based on the current market or minimum interest rate, whichever is greater. Has policy loan provision, interest on borrowed cash is deducted from accrued cash value..

Death benefits payable to a beneficiary under a life insurance policy are generally

Tax Free

participating policy

life insurance that provides policy dividends

Viatical Settlement

sale of a policy owner's existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. Often the policyholder is terminally ill.

Life Settlement

sale of a policy owner's existing life insurance policy to a third party for more than its cash surrender value, but less than its net death benefit. Owner is not terminally ill.

Incontestable Clause

the insurer cannot contest the policy after it has been in force two years during the insured's lifetime

Absolute Assignment v. Collateral Assignment

Absolute: A permanent and irrevocable transfer of rights and/or benefits by the policyowner. Collateral: A temporary and/or revocable transfer of benefits by the policyowner.

Capital Retention Approach

Income producing assets are not liquidated, unlike in the two other approaches. Determine need for additional capital to supplement cashflows from income producing assets Under this method, the insurance proceeds are retained and are not liquidated entirely.

Revocable vs. Irrevocable beneficiary

Revocable - changeable anytime w/ Change of Beneficiary Form; Irrevocable - not changeable w/out beneficiary permission.

Ordinary (Whole) Life Insurance

a level-premium policy that accumulates cash values and provides lifetime protection to age 121. Benefit cannot exceed policy value. Fixes premiums.

Suicide Clause

states that if the insured commits suicide within two years after the policy is issued, the face amount of insurance will not be paid; there is only a refund of the premiums paid

Human Life Approach

the present value of the family's share of the deceased breadwinner's future earnings

Extended Term Insurance

Non-forfeiture option 3: cash value is used to make a single premium payment on a Term Insurance Policy of the same face amount as the original policy. The original policy can be reinstated.

Reduced Paid-Up Insurance

Nonforfeiture option 2: the cash-surrender value is applied as a net single premium to purchase a reduced value paid-up policy

Needs Approach

a method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death

Policy Loan Provision

allows the policyholder to borrow the cash value

Grace Period Provision

prevents policies from lapsing if a policyowner forgets or neglects to pay their premium it gives them a grace period of 30 days

Cash Surrender Value

Non-forfeiture option 1: the quantity that the owner is able to get if the policy does not remain in force until the insured's death.

Settlement Options

Alternative payout methods for life insurance policy: Interest option - the insurer holds the proceeds and pays interest to the beneficiary until such time as the beneficiary withdraws the principal Fixed period option - the future value of the proceeds is calculated and paid in installments for a specified number of years Fixed amount option - a fixed dollar amount is paid in periodic installments until the principal and interest are exhausted Life income option - stipulated amount is paid periodically to the beneficiary throughout his or her life.

Net Payment Cost Index

An interest-adjusted net cost method that excludes the cash value and only predicts the average annual premium cost. Useful if planning to keep policy and collect death benefit.

Reinstatement Provision

Applies to the timeframe that an insurer hasn't paid premium but wants the policy back. - You have 3-5 years to reinstate - proof of insurability and back premiums plus interest would have to be paid - If you havent heard back in 45 days, then the policy has been reinstated - policy premium is based on original age, so it may be cheaper for policy owner to reinstate than get new policy with higher premiums

Term Life Insurance

Insurance that provides financial protection from losses resulting from a death during a definite period. Premiums are fixed and cheaper than cash value life insurance.

Variable Life Insurance

Insured makes investment choices Can exceed policy amount Increasing premiums

Surrender Cost Index

It measures the cost of an insurance policy by projecting the total amount of cash value in a policy and deducting the total cost of premiums after a certain number of years. Useful if planning to surrender.

Legal Reserve

The minimum reserve which a company must keep to meet future claims and obligations as they are calculated under the state insurance code.

Group Life Insurance

provides lower rates for the employer or employee and includes all employees on a single master contract

Net Amount at Risk (NAR)

Difference between accrued cash value and death benefit/policy value