4-Life Insurance Premiums, Proceeds and Beneficiaries

Single Premium Funding

The policyowner pays a single premium that provides protection for life as a paid -up policy. Normally associated with whole life insurance

Tertiary

Third in line to receive death benefit proceeds. If no one named, death benefit will go to insured's estate.

Secondary (contingent)

Second in line to receive death benefit proceeds if primary beneficiary dies first.

Reserves

Money that together with future premiums, interest, and survivorship benefits will fulfill an insurance company's obligations to pay future claims

the premium is fixed for the entire duration of the contract.

A level premiums indicates

Mortality Factor

A measure of the number of deaths in a given population. Insurance companies use mortality tables to help predict the life expectancy and probability of death for a given group.

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?

Accelerated Benefit

Allows someone that a physician certifies as terminally ill to access the death benefit. The amount of benefit received will be tax free.

Viatical Settlement

Allows someone with a terminal illness to sell their existing life insurance policy to a third party for a percentage of the death benefit . The new owner continues to make the premium payments and will eventually collect the entire death benefit.

Irrevocable Beneficiary

An irrevocable designation may not be changed without the written consent of the beneficiary.

Joint and Survivor

Benefits will be paid on a life-long basis to two or more people . This option may include a period certain and the amount payable is based on the ages of the beneficiaries

Lump Sum

Death benefit is paid in a single payment , minus any outstanding policy loan balances and overdue premiums. Option is considered the automatic (or "default") option for most life insurance contracts

Primary

First in line to receive death benefit proceeds

If the primary beneficiary dies before the insured

How would a contingent beneficiary receive the policy proceeds in an accidental Death and Dismemberment (AD&D) policy?

Insured's contingent beneficiary

If the insured and primary beneficiary are both killed in the same accident and it cannot be determined who died first, where are the death proceeds to be directed under the Uniform Simultaneous Death Act?

Expense Factor

Insurance companies are just l ike any other business. They have operating expenses which need to be factored into the premiums. The expense factor is also known as the loading charge. Each insurance policy an insurer issues must carry its proportionate share of the costs for employees ' salaries, agents' commissions, utilities, rent or mortgage payments, maintenance costs, supplies, and other administrative expenses.

Interest Factor

Insurance companies invest the premiums they receive in an effort to earn interest.

Interest Only

Insurance company holds death benefit for a period of time and pays only the interest earned to beneficiaries. A minimum rate of interest is guaranteed and the interest must be paid at least annually.

Mortality Factor , Interest Factor, Expense Factor

Life insurance premiums are calculated based on the three primary factors

Spendthrift Clause

Prevents a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time.

Interest to the insurer is decreased while the administrative costs are increased

Quarterly Premium payments increase the annual cost of insurance because

Fixed Amount

The fixed amount installment option pays a fixed death benefit in specified installment amounts until the proceeds are exhausted. The larger the installment payment the shorter the payout period.

Fixed Period (Period Certain)

The fixed period option is when the insurer pays proceeds (including interest and principal) in minimum guaranteed dollar payments over a specified number of years. Part of the installments paid to a beneficiary consists of interest calculated on the proceeds of the policy. The dollar amount of each installment depends upon the total number of installments.

Policy Surrender

When a policy is sur rendered for the cash value, some of the cash value received may be taxable, if the value was more than the amount of the premiums paid for the policy.

1035 Exchange

When an existing life insurance policy is assigned to another insurer for a new contract, the transaction may be treated for tax purposes as a Section 1035 exchange. Policy exchanges that qualify as a 1035 exchange are not taxable.

Accelerated Death Benefit

When benefits are paid under a life insurance policy to a terminally ill pe rson, the benefits are received tax- free. To be considered terminally ill, a physician must certify that the person has a condition or illness that will result in death in two years.

Common Disaster Provision

a policyowner can be sure that if both the insured and the primary beneficiary die within a short period of time, the death benefits will be paid to the contingent beneficiary.

Facility of Paymen

allows the insurance company to pay all or part of proceeds to someone not named in the policy that has a valid right. This is usually done on behalf of a minor or when the named beneficiary is dec eased.

Cash Value

applies to the savings element of whole life insurance policies that are payable be fore death. However, during the early years of a whole life insurance policy, the savings portion brings very little return compared to the premiums paid.

Premium mode

is the features that allows the polcyowner to select the timing of premium payment, such as monthly, quarterly, annually etc.

Living Benefits

is the option to use some of the future death benefit proceeds when they may be most needed, before their death, when the insured has a terminal illness.

The policy owner can change the beneficiary

which statement regarding the change of Beneficiary provision is true?

The gross premium is higher on a monthly payment mode as compared to being paid annually

J chooses a monthly premium payment mode on his whole life insurance policy. Which of these statements is correct?

Proceeds will be payable to K's estate if P dies within a specified time.

K is 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?

$0

T and S are named co-primary beneficiary 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?

Life Income

The life income option provides the beneficiary with an income that they 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 and the amount of principal. This gives the potential for a greater return, or the potential for greater loss, based on how long the insured lives.

Revocable Beneficiary

The policyowner may change the beneficiary at any time without notifying or getting permission from the beneficiary.

Level Premium Funding

The policyowner pays more in the early years for protection to help cover the cost in later years, which allows the premiums to remain level throughout the life of the policy.

Surrender Cost Index

Uses a complicated calculation formula where the net cost is averaged over the number of years the policy was in force to arrive at the average cost -per -thousand for a policy that is surrendered for its cash v alue at the end of that period

The early years are charged more than what is needed

What is the underlying concept regarding level premiums?

0%

What percent of personal life insurance premium is usually deductible for federal income tax purposes?

Life Income

Which settlement options pays a stated amount to an annuitant, but no residual value to a beneficiary?

Proceeds will go to the contingent beneficiary

a primary beneficiary has died before the insured in a life insurance policy. A contingent beneficiary is also named in the policy. Which of the following will occur when the insured dies?