Ch. 5- life insurance premiums, proceeds, and beneficiaries
Expense
Insurance companies have operating _____________. These are factored into the premium rates. This is also known as the loading charge.
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.
Interest
Since premiums are paid before claims are incurred; insurance companies invest the money in an effort to earn ____________. This is also a primary factor in lowering premium rates.
Spendthrift trust clause
Prevents the beneficiaries reckless spending of benefits by requiring that the benefits be paid in fixed installments.
Uniform simultaneous death act
The law will assume that the primary beneficiary died first in a common disaster. This is done to make sure the contingent beneficiary receives the death benefit proceeds.
Mortality
Means the rate of death, which also help insurance companies predict life expectancy and the probability of death for a given group.
Three primary factors used in determining premiums
Mortality Interest Expense
Revocable
The policy owner may change a ____________ beneficiary at any time and without the knowledge or consent of the beneficiary.
Irrevocable
The policy owner may not change the beneficiary without written consent of the beneficiary. The policy owner cannot borrow against the policy's cash value.
Interest only option
With this option the insurance company retains the policy proceeds and pays interest on the proceeds to the recipient beneficiary at regular intervals. The insurer usually guarantees a certain rate of interest and will often pay interest in excess of the guaranteed rate.
Fixed period option
Also known as period certain, proceeds will be paid out in equal investments over a specified period of years.
Fixed amount option
Installment option that pays a fixed specific amount in installments until the proceeds are exhausted.
Primary beneficiary
This has first claim to the policy proceeds following the death of the insured. The policy owner may name more than one as well as how the proceeds are to be divided.
Beneficiaries
This is a person to which the policy proceeds will be paid upon the death of the insured. This could be individuals, businesses, estates, or even charities.
Death benefit proceed
This is also known as settlement options, are the methods used to pay the death benefit to a beneficiary upon the insured's death. The policyowner may select a settlement option at the time of the policy application and may also change that option at any time during the life of the insured.
Life income option
This provides the recipient with an income that he or she cannot outlive. Installment payments are guaranteed for as long as the recipient lives. The amount of each installment is based on the recipient's life expectancy.
Lump-sum cash option
Upon the death of the insured the policy is designed to pay the proceeds in cash called a ____________. As a rule this is not taxable as income.
Per Stirpes
Which means bloodline, distributes benefits of the beneficiary who died before the insured to the beneficiaries heirs.
Who can be a beneficiary
There are very few restrictions on who maybe named a beneficiary of a life insurance policy. The decision rest solely with the policy owner.
Secondary beneficiary
Also known as contingent or tertiary beneficiary has the additional claim in the event of the primary beneficiary dies before the insured. These don't receive anything if the primary beneficiary is still living at the time of the insured's death.
1035 exchange
In accordance with the Internal Revenue code certain exchanges of life insurance policies and annuities may occur in a nontaxable exchange. When a cash value life insurance policy is exchanged for another cash value policy or an annuity there will be no income tax on these transactions.
Per Capita
Which means by the head, evenly distributes benefits among the living named beneficiaries.