Life Insurance ch 11 and 12

Needs approach

Analyze the various needs that must be met if the family head dies

Blackout period

Refers to the period from the time that the Social Security survivor benefits terminate to the time the benefits are resumed (stop when youngest child reaches 16, resume when spouse turns 60)

life settlement

a financial transaction by which a policyholder who no longer needs or wants to keep a life insurance policy sells the policy to a third party for more than its cash value

fixed-amount (income of elected amount) option

a fixed amount is periodically paid to the beneficiary

variable life insurance

a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer; permanent whole life contract with a fixed premium, held in a separate account and is invested in common stocks or other investments, no minimum guaranteed cash values

universal life insurance

a flexible premium policy that provides protection under a contract that unbundles the protection and saving components

Stranger Owned Life Insurance

a large policy acquired by a group of investors with the specific intention of selling the policy in the secondary life insurance market and ultimately making a substantial profit when the insured dies

ordinary life insurance

a level-premium policy that provides cash values and lifetime protection to age 121

legal reserve

a liability item that must be offset by sufficient financial assets

life income options

a way to disburse cash-surrender value; life income, life income with guaranteed period, life income with guaranteed total amount, joint-and-survivior income

waiver-of-premium provision

added to a life insurance policy; if the insured becomes totally disabled from bodily injury or disease before some stated age, all premiums coming due during the period of disability are waived

Estate clearance fund

aka clean up fund: is needed immediately when the family head dies to pay for expenses

absolute assignemnt

all ownership rights in the policy are transferred to a new owner

accelerated death benefits

allow part or all of the life insurance face amount to be paid to a chronically or terminally ill policyholder before he or she dies

change-of-plan provision

allows policy holders to exchange their present policies for different contracts

policy loan provision

allows policyholder to borrow the cash value

cost-of-living rider

allows the policyholder to purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability

cash-surrender values

amount paid to a policyholder who surrenders the policy

specific beneficiary

beneficiary is specifically named and indentified

primary beneficiary

beneficiary who is first entitled to receive the policy proceeds on the insured's death

cash value

can be surrender for its cash value, at which time all benefits under the policy cease

nonforfeiture options

cash value, reduced paid-up insurance, extended term insurance

whole life insurance

cash-value policy that provides lifetime protection

paid-up additions option

dividend used to purchase a small amount of paid-up whole life insurance

accidental death benefit rider

doubles the face amount of life insurance if death occurs as a result of an accident; in some policies, the face amount is tripled

contingent beneficiary

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

aviation exclusions

exclude aviation deaths

war clause

excludes payment if the insured dies as a direct result of war

guaranteed purchase option

gives policyholders the right to purchase additional amounts of life insurance at specified times in the future without evidence of insurability; purpose is to guarantee the insured's future insurability

cash-value life insurance

has a savings component and builds cash values

suicide clause

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

misstatement of age or sex clause

if the insured's age or sex is misstated, amount payable is the amount that the premiums paid would have purchased at the correct age and sex

joint-and-survivor income

income payments are paid to two persons during their lifetimes, such as a husband and wife

life income option

installment payments are paid only while the beneficiary is alive and cease on the beneficiary's death

entire-contract clause

insurance policy and attached application constitutes the entire contract between the parties

incontestable clause

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

Readjustment period

is a one or 2 year period following the breadwinner's death. Family should receive approximately the same amount of income received while the family head was alive

Dependency period

is the period after the readjustment period, until youngest child reaches age 18. Family should receive income during this period so the surviving spouse can remain at hime, if necessary, to care for the children

indexed universal life insurance

minimum interest rate guarantee, additional interest may be credited to the policy based on the investment gains of a specific stock market index, formula for determining the amount of enhanced interest credited to the policy, considerable consumer misunderstanding and unrealistic performance expectations under this type of policy

variable universal life insurance

most variable universal life policies are sold as investments or tax shelters; policyholder determines how the premium are invested (more flexibility); does not guarantee a minimum interest rate or minimum cash value

extended term insurance option

net cash-surrender value is used as a net single premium to extend the full face amount of the policy into the future as term insurance for a certain number of years

irrevocable beneficiary

one that cannot be changed without the beneficiary's consent

automatic premium loan provision

overdue premium is automatically borrowed from the cash value after the grace period expires, provided the policy has a loan value sufficient to pay the premium

endowment insurance

pays the face amount of insurance if the insured dies within a specified period; if the insured survives to the end of the endowment period, the face amount is paid to the policyholder at that time

limited-payment policy

permanent, insured has lifetime protection, premiums are level, but they are paid only for a certain period

reinstatement provision

permits the owner to reinstate a lapsed policy

renewable

policy can be renewed for additional periods without evidence of insurability

dividend accumulations option

policy feature of permanent life insurance that allows policyholders to leave any dividends received with the insurer, where the dividends can earn interest

revocable beneficiary

policy holder reserves the right to change the beneficiary designation without the beneficiary's consent

fixed-period option

policy proceeds are paid to a beneificiary over some fixed period of time

interest option

policy proceeds are retained by the insurer, interest is periodically paid to beneficiary

nonparticipating policy

policy that does not pay dividends

participating policy

policy that pays dividends

grace period

policyholder has a period of 31 days to pay an overdue premium

ownership clause

policyholder possesses all contractual rights int he policy while the insured is living

collateral assignment

policyholder temporarily assigns a life insurance policy to a creditor as collateral for a loan

single-premium whole life insurance

provides lifetime protection with a single permium

term insurance

provides temporary protection

nonforfeiture laws

require insurers to provide at least a minimum nonforfeiture value to policyholders who surrender their policies

class beneficiary

specific person is not named but is a member of a group designated as beneficiary, such as "children of the insured"

second-to-die life insurance

survivorship life; form of life insurance that insurers two or more lives and pays the death benefit upon the death of the second or last insured

reentry term

term insurance policy in which renewal premiums are based on select (lower) mortality rates if the insured can periodically demonstrate acceptable evidence of insurability

convertible

term policy can be exchanged for a cash-value policy without evidence of insurability

reduced paid-up insurance option

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

premature death

the death of a family head with outstanding unfulfilled financial obligations (dependents to support, children to educate, mortgage to pay off)

net amount at risk

the difference between the legal reserve and face amount of insurance

Human Life value

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

viatical settlement

the sale of a life insurance policy by a terminally ill insured to another party, typically to investors or investor groups who hope to profit by the insured's early death

settlement options

various ways that the policy proceeds can be paid