Life insurance premiums, proceeds, and beneficiaries
Interest
Since premiums are paid before claims are incurred; insurance companies invest the money in an effort to earn interest. (Primary factor in lowering premium rates)
Death Benefit Proceeds
Also know as settlement options, are the methods used to pay the death benefit to a beneficiary upon the insured's death.
T is the policyowner for a Life Insurance policy with an Irrevocable beneficiary designationIf T wishes to change the beneficiary T must obtain permission from the
Beneficiary
Life Income Option
provides the recipient with an income that he or she cannot outlive
Contingent Beneficiary
second claim in the event that the primary beneficiary dies before the insured
Interest Only Option
the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient at regular intervals
A level premium indicates
the premium is fixed for the entire duration of the contract
Fixed Period Option
the proceeds are paid to a beneficiary over some fixed period of time
T and S are named co-primary beneficiaries on a $500,000 Accidental Death and Dismemberment policy insuring their father. Their mother was named contingent beneficiary. Five years later, S dies of natural causes and the father is killed in a scuba accident shortly afterwards. How much of the death benefit will the mother receive?
$0
Premium Mode
A policyowner is able to choose the frequency of premium payments through what policy feature?
1035 Contract Exchange
A tax-free exchange of one annuity contract for another, one life insurance policy for another, or one life insurance policy for an annuity. The contracts do not have to be issued by the same company
Life Settlement Contract
A whole life insurance policyowner does not wish to continue making premium payments. Which of the following enables the policyowner to sell the policy for more than its cash value?
Which of the following statements is CORRECT regarding the tax treatment of a lump-sum payment paid to a life insurance policy's primary beneficiary?
All proceeds are income tax free in the year they are received
Expense
Factored into premium rates. (known as loading charge)
Which type of life insurance beneficiary requires his/her consent when a change of beneficiary is attempted by the policyowner?
Irrevocable beneficiary
Which settlement option pays a stated amount to an annuitant, but no residual value to a beneficiary?
Life Income
lump sum
Not taxable as income
A primary beneficiary has died before the insured in a insurance policyA contingent beneficiary is also named in the policy . Which of the will occur when the insured dies?
Proceeds will go to the contingent beneficiary
A(n) _____ beneficiary may be changed by the policyowner WITHOUT the consent of the beneficiary.
Revocable
J would like to maintain the right to change beneficiaries. Which beneficiary designation should be used?
Revocable
M purchased an Accidental Death and Dismemberment (AD&D) policy and named his son as beneficiaryM has the right to change the beneficiary designation at anytime. What type of beneficiary is his son?
Revocable
Proceeds will be payable to Al's estate if P dies within a specified time
K is the insured and P is the sole beneficiary on a life insurance policy. Both are involved in a fatal accident where K dies before P. Under the Common Disaster provision, which of these statements is true?
Mortality
Means rate of death. -mortality tables help insurance companies predict life expectancy and the probability of death for a given group
3 primary factors used in determining premiums
Mortality, Interest, & Expense
Calculating premiums
Once an insurance company determines that an applicant is insurable, they need to establish an appropriate policy premium. -the premium will be used to cover the cost and expenses to keep the policy in force
P and Q are married and have three childrenP is the primary beneficiary on Q's Accidental Death and Dismemberment (AD&D) policy and Q's sister R is the contingent beneficiaryQand are involved in a car accident and and are killed instantlyThe Accidental Death benefits will be paid to:
P only
Spend Thrift Trust Clause
Prevents the beneficiaries reckless spending of benefits by requiring that the benefits be paid in fixed installments
Types of Beneficiaries
Primary,
J chooses a monthly premium payment mode on his Whole Life insurance policy. Which of these statements is correct?
The gross premium is higher on a monthly payment mode as compared to being paid annually
Uniform Simultaneous Death Act
The law assumes that the primary beneficiary died first in a common disaster.
Beneficiaries
The person to which the policy proceeds will be paid upon the death of the insured. (Individuals, businesses, trusts, estates, or charities)
Which statement regarding the Change of Beneficiary provision is true?
The policyowner can change the beneficiary
Per Stirpes
Which means by the bloodline, distributes benefits of the beneficiary who died before the insured to the beneficiaries heirs.
Annual
Which premium schedule results in the lowest cost to the policyowner?
Primary Beneficiary
a beneficiary who has the first claim to the policy proceeds after the death of insured.
Fixed Amount Option
a fixed amount is periodically paid to the beneficiary until the principal and interest are exhausted
When can a policyowner change a revocable beneficiary?
anytime
Per Capita
evenly distributes benefits among all named living beneficiaries
Quarterly premium payments increase the annual cost of insurance because
interest to the insurer is decreased while the administrative costs are increased
Common Death Settlement Options
lump-sum cash option, interest-only option, fixed-period option, fixed-amount option, and life-income option
0%
of personal life insurance premiums is usually deductible for federal income tax purposes.