Chapter 5 Life Insurance Premium, Proceeds and Beneficiaries

When can a policy owner 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.

Expense

Insurance Company have operating expenses. These expenses are factored into the premium rates. This is also known as the loading charge.

Calculating Premium

Once the insurance company determines that an applicant is insurable, they need to establish an appropriate policy premium

Irrevocable Beneficiary

Requires the consent and signature of that named beneficiary before a change of beneficiary occurs.

Is Lump Sum Cash taxable?

No.

What else is Fixed Period Option called?

Period Certain

Premium mode

The feature that allows the policy owner to select the timing of premium payment, such as monthly, quarterly, annually etc.

Fixed Period

Under the fixed period option proceeds will be paid out in equal installments over a specified period of years.

A policy owner's rights are limited under which beneficiary designation?

Irrevocable

What are the common death settlement options?

Lump Sum Cash, Interest Only, Fixed Period

3 primary factors used in determining premium?

Mortality, Interest, Expense

Common Disaster Provision

Policy owner 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.

Death Benefits Proceed

The methods used to pay the death benefits to a beneficiary upon the insured's death.

Revocable beneficiary designation

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

Interest Only

With the interest only 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.

Uniform Simultaneous Death Act:

If both insured and primary beneficiary are killed in the same accident and there is insufficient evidence to show who died first, policy proceeds will be paid as if the insured died last. The proceeds will be paid to the secondary or contingent beneficiary.

Is the Entire Cash Surrender value taxable?

No. Not Taxable. Interest gained is taxable.

Interest

Since premium are paid before claims are incurred, insurance company invest the money in an effort to earn interest. This interest is a primary factor for lowering premium rates.

Lump Sum Cash

Upon the death of the insured the policy is designed to pay the proceeds in cash called a lump sum. As a rule this lump sum is NOT taxable as income.

What is the premium used for?

Used to cover the cost and expenses to keep the policy in force.

Can the selected settlement option be changed by the beneficiary?

No. Once the policy owner selects a settlement option it cannot be changed by the beneficiary.

What is Death Benefits Proceed also called?

Settlement Options

Mortality

The rate of death. Mortality tables help insurance company predict life expectancy and the probability of death for a given group.