Personal uses of Life Insurance

Standard risks

Individuals who have the same health habits, sex/fencer, occupational characteristics as those reflected in the mortality table Average life expectancy

Preferred Risks

Individuals who meet certain requirements and qualify for lower premiums because of ideal Heath, height, and weight Higher than average life expectancy

Total premium paid to insurer

Mortality - interest + expenses

2 years

Within this period of a policy, the insurer may contest a claim and void a contract upon proof of material misstatement or fraud

What insurance companies can do if an insured is substandard risk?

1. Grades (lien) plan 2. Rate up age 3. Flat rate 4. Tabular rate

Except for nonpayment of premiums, the policy will be incontestable for

2 years

Backdating max amount of time is

6 months

Rider

An added benefit attached to the policy that modified existing coverage. A rider is usually added at the time of application and typically requires an increase in premium

Cash accumulation

An amount of cash accessible to the policy own from within permanent life insurance

Policy Loan Provisions

Fixed rate is maxed at 8%

Liquidity

Immediate funds available upon death to pay creditors, taxes & final expenses, as well as cash values available for policy loans, withdraws & full surrenders

Graded (lien) plan

Initially only premium refunded in case of death; death benefit increases over rime

Estate creation

Life insurance paid in lump sum provide financial sssets to create immediare estatw rhe insured can pass to survivors

Endow

Maturity; the maturity date or time at which the policy's cash value equals the face amount and the proceeds are paid to the policy owner

Net premium equation

Mortality - interest

Gross premium equation

Net premium + Expenses

Absolute assignment

Original owner (the assignor) will name a new owner (the assignee) of the policy, and the new owner becomes permanent. Common with juvenile policy when naming the insured the owner at age 18

Security

Peace of mind, knowing that future insurability is not an issue, & benefits will be in place of premiums are paid

Exemption from creditor claims/probate

Policy's values usually exempt from creditor claims, unless policy was assigned as collateral for a loan that still exists upon their death

Survivor protection

Provides funds for survivig spouses and dependents

Estate conservation

Provides money to pay any estate taxes or loans which must be satisfied upon death of insured to preserve estate

Rated-up age

Rates an insured at an older than actual age

Tabular rate

Surcharge calculated using a table with last claim history of similar people

Collateral Assignment

Temporary - the assignee does not become permanent. Rights of the owner will be subject to the assignment. For example, typically used when an insurance policy is used as collateral for a loan; is temporary until the debt is paid in full; must be paid 1st, in case of death assignee has priority

Face amount

The death benefit amount payable on a life insurance policy. In other words, the amount of coverage a policy provides Sometimes called the limit of liability

Charities

To help fund charitable organization upon insured's death

Pre-need plan

Type of coverage with small face amount, typically purchased to pay the burial expenses of the insured

Flat rate

Constant dollar amount added to the rate annually

Viatical Settlements

A terminally ill insured/owner selling their policy to a 3rd party for less than death benefit but greater than the cash value to obtain fast funds

What is gross premium?

Additional charges/expenses added to net premium rate to enable an insurer to meet all costs under the contract