Non-forfeiture Values
Additional Rights or Optional Benefits: Change of Contract Provision
-Allows the policy owner the option to change the contract.
Accidental Death & Dismemberment benefit (AD&D) Rider
-An optional rider on a life insurance policy providing a benefit in addition to the underlying NATURAL death benefit if death, loss of limbs, sight, speech or hearing occurs due to an accident. Additional sums of benefit dependent upon the results of the accident. *Policy could pay a benefit more than once, but death normally must occur within 90 days of the accident in order for the death benefit to be paid.
Expense Charge
-Covers the administration costs of the policy and operation costs of the insurance company such as premium taxes, insurance producers' commissions, and marketing costs. Also known as load charge.
Common Disaster and Short term Survivorship Provision
-Indicates that if an insured and the primary beneficiary are in a common disaster (auto accident) and the insured dies before the primary beneficiary, the policy benefits will go to a contingent beneficiary unless the primary OUTLIVES the insured by a specified period such as 30 days.
Options for Disposition of Proceeds
-Lump Sum Cash Settlement: Insurer immediately pays all policy proceeds to the named beneficiaries or the estate of the deceased. NO INCOME TAXES. -Interest-Only Income: the insurer retains the death benefits until a later agreed upon time but pays an income based on the interest earned on the death benefits to the beneficiary until the agreed upon time. MAY BE TAXES DUE. -Fixed Period Installment: benefit is divided by a fixed pay-out period. If interest is earned, taxes may be due. -Fixed amount installments: benefit is divided by a fixed installment such as $2k per month. If interest is earned, taxes may be due. -Life income Option: Provides the beneficiary with a payment of the proceeds through the use of an annuity. If interest is earned, taxes may be due.
Beneficiary Categories
Estate, Named Party, Class
Premium Modes (Frequency)
premium modes are frequency of premium payments. -Annually (most cost effective) -Semi-annually -Quarterly -Monthly (direct bill or bank draft) Premium Modes affect premium amounts. those split into semi-annually, quarterly or monthly are more expensive.
Explanation of Non-forfeiture benefit provision
-Whole Life and Endowment policies have higher premiums than Term Life. The addition premiums paid are placed into a "cash account." This account will eventually be equal to the death benefit and the policy will mature. -Although it is said that those funds belong to the policy owner, they actually belong to the insurer. Any use of those accumulated funds are nothing more than an advance from the insurer on the values of the policy. EX: I have a $100k Straight whole life policy with an accumulated value of $9500. I borrow that amount from the policy, and if I were to die the next day, my insurance company would pay $100k minus the $9500 that I borrowed.
Named Party
-requires the policy owner to name each beneficiary (person or entity) individually. Eliminates confusion.
Beneficiaries
A person or entity to which life insurance proceeds are paid upon the insured's death. DOES NOT HAVE TO BE A HUMAN BEING.
Extended (Term) Insurance
Allows policy owner to maintain the full death benefit amount as a Level Term insurance policy instead of the original whole Life policy. -For example: If you have a $100k Whole Life policy and want to keep the death benefit unchanged but do not want to pay more premiums, you use the cash in your cash account to purchase Term Life insurance with a benefit period based on age, gender and current cash value. Once the benefit period ceases, coverage ceases. If insured dies during that period, the insurer will pay full death benefit. ***If policy lapses due to unpaid premiums and the policy owner failed to exercise another non-forfeiture option, the policy will automatically be converted to Extended term Life.*****
Dividend Options
Cash Option: Dividend paid directly to policy owner -Paid Up Additions: Provides an additional amount of death benefit without requiring evidence of insurability (good health). -Accumulation at Interest: Dividend is left to accumulate and earn interest. The accumulated amounts plus interest can be distributed at a future date, or paid as part of death benefit. -One year term: Dividend is used to purchase a one year Term Life. -premium payments: Dividend is used to pay future policy premiums.
Endorsement method
Changes are made directly on the policy in the home office. Policy owner is required to send the policy to the company or insurance produce along with the prescribed form. Unlikely used today.
Front-End Load charge
Deducts the expense from the premiums throughout the premium paying period.
Life Insurance Policy Dividends
Dividends are essentially refunds that an insurer pays to a policy owner who has a participating policy. Life insurance policy dividends are really a return of a portion of the premium paid into the policy.
Irrevocable beneficiary
Does not allow the policy owner to change the beneficiary. *Once made irrevocable, the beneficiary acquires rights similar to the policy owner, and the policy owner cannot exercise any ownership rights without permission of the beneficiary.
Per Capita
Equal distribution of proceeds between all individuals in the named class. (BY THE HEAD) *EX: Policy owner has 2 children and 3 grandchildren and names these groups per capita, then the proceeds will be split equally amongst the 5.
Per Stirpes
Equal distribution of proceeds between named groups which may not result in equal distribution of proceeds amongst individuals. (BY THE BRANCH) EX: 2 kids, 3 grandchildren. Half of the proceeds go to the kids to be split equally, half goes to grandchildren to be split equally.
Estate
If a beneficiary is not named, the estate of the deceased insured will receive the life insurance policy proceeds. Estate could be named to provide money to pay estate obligations. Naming an estate, the benefits of the policy become available to creditors of the estate. (Naming and individual or an entity other than the estate keeps the proceeds from creditors.)
Waiver of Monthly Deduction (Optional Rider on Universal Life Policies)
If the insured meets the definition of disabled as stated in the rider, the insurer discontinues deductions of the mortality charges subtracted regularly from the cash account of the UL Policy.
Non-Forfeiture Table and Options
Illustrates accumulated values in the cash account and how policy owner may use them by: 1. Make a cash surrender of the policy 2. Take a cash value loan from the policy 3. create a paid up reduced death benefit 4. Place the policy on Extended Term insurance
Minor Designation
Minors (those under 18) may be named as a beneficiary on a life insurance policy. benefits will be placed in the care of a trustee such as a bank if under age when benefits are given.
Changing the Beneficiary
Policy owner has the right to change beneficiaries provided that they are revocable. Policy owner must provide notification to the insurer by Filing Method or Endorsement Method
Principle Sum
The death benefit that is paid.
Capital Sum
The dismemberment/loss of use benefit.
Effects of Non-Payment
failure to pay could result in termination of the insurance contact. "LAPSED" is used for non-payment.
Cash Value Loan Option
the policy owner borrows funds against the policy. -With this, the policy serves as collateral and the policy owner is charged interest on the borrowed funds. -If one chooses not to pay back the loan and interest, it will be deducted from the policy benefits. Interest is applied annually and charged to the policy owner on a fixed or variable basis. The rate and type will be indicated in the insurance contract.
Filing method
Policy owner makes a written request on the insurer's prescribed form. Change is effective on the date the form is signed.
Beneficiary Order
Primary: first beneficiary to receive policy proceeds. There can be more than one. Contingent: (First Contingent). If there are no surviving primary beneficiaries, the contingent beneficiary receives policy proceeds.
Waiver Of Premium Rider
1. All premiums are waived for as long as there is total disability that began before a specified age (65 ex) 2. Rider has a waiting period before the waiver goes into effect of up to 6 months (eliminates short term disabilities) 3. Premiums are not paid back and there is no affect on the death benefit, increasing cash values or annual dividends.
Automatic Premium Loan (Optional Feature)
Provides and automatic premium payment by use of loan from the cash value of the policy. This will keep the policy from lapsing. If there were no cash value or insufficient cash value, the automatic premium loan would no be available.
Non-forfeiture benefit provision
Required in Whole Life and Endowment policies. It states that the equity in a policy cannot be forfeited by the policy owner to the insurance company.
Revocable Beneficiary
Allows the policy owner to changed the beneficiary designations as he or she needs.
Uniform Simultaneous Death Act
If the insured and primary beneficiary dies so closely that it is impossible to determine who died first, the insured will be deemed to have outlived the primary beneficiary. So Proceeds of the policy will go to a contingent beneficiary or estate.
Cost of Living Rider
Rider is used to increase death benefit of the policy by tying increases to an index such as the Consumer Price Index. Typically increase is 5% annually. Helps keep up with inflation that robs policy benefits of its value. Do not require proof of insurability.
Life Insurance Policy Settlement Options
Settlement options are the methods by with the policy benefit can be disbursed. -Policy benefits consist of the death benefit plus dividends and interest that may be paid on the death benefit.
Interest Credit
Some of the interest earned by the insurance company from investments and loans may be used to reduce the costs of premiums.
Election by Policy Owner
The Policy owner may want to select a particular settlement option to ensure that the policy proceeds are used for the original intended purpose.
Election by beneficiary
The beneficiary selects the Settlement option when the insured dies. No one can overrule this decision.
Mortality Charge
The chance of the insured dying is factored into the premium cost. The younger a person is, the lower the chance of dying, so the mortality charge is lower.
Guaranteed Insurability Rider (GIR)
The optional rider "locks in" the insured's ability to purchase additional life insurance without showing insurability. *Features: 1. Purchases of additional death benefits are allowed up to a specified age. 2. Option to buy addition death benefits are allowed 3. A new policy is issued when utilizing an option with premiums reflecting the current age of the insured.
Class
The policy owner can use the class designation if he or she wants to name a group of beneficiaries. So naming children or grandchildren without having to name each individually. Done by Per capita and Per stirpes.
Premium Payments
The premium payment provision in life insurance details the frequency (mode) and the amount of premiums required to keep the life insurance policy in benefit.
Mutual Insurers issue Dividend Policies
Tradition life Insurance companies are either stock or a mutual insurer. Mutual insurance companies issue a policy dividend and stock does not. Mutual insurers are referred to as participating PAR Insurers.
Cash Surrender Option
With this option, you receive the current accumulated cash value in the contract. Once that is distributed, the policy is terminated. *No income tax unless the amount exceeds investment.
Reduced (Paid-Up) Insurance
Allows the policy owner to reduce the death benefit of the policy to a new amount. The new lower death benefit is purchased with the existing cash value in the policy. EX: you have a $100k policy but decide that's too much and you no longer want to pay those premiums, you can elect to take a paid-up policy with a death benefit that's lower. The cash account will pay for the new policy. The new policy will have a cash value that will continue to grow until the policy matures.
Rear-End load Charge
Applies the expense charges occurred when the policy owner surrenders the policy or makes cash withdrawals from the policy. Such charges are usually highest in early years and often eliminated at the end of a certain number of years. **More advantageous to the consumer since more of the investment is earning interest.
