Life Insurance Premiums, Proceeds, and Beneficiaries

Reserves

An insurer's reserves is the money set aside (required by the state's insurance laws) to pay future claims.

Underwriting Department

Is the department within an insurance company responsible for reviewing applications, approving or declining applications, and assigning risk classifications.

Cash Value

Is the equity or savings element of whole life insurance policies.

Primary Beneficiary

Is the first beneficiary in line to receive benefit proceeds upon the death of an insured.

Premium Mode

Is the frequency in which a policyowner elects to pay premiums.

Spendthrift Clause

Prevents creditors from obtaining any portion of policy proceeds upon an insured's death. Additionally, the clause can be selected by the policyowner to prevent a beneficiary from recklessly spending benefits by requiring the benefits to be paid in fixed amounts or installments over a certain period of time.

Accelerated Benefit (Option) Rider:

Allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and is certified by a physician as expected to die within 1-2 years.

Viatical Settlement

Involves someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit.

Class Designation

Is a beneficiary group designation (for EX, all of my children), opposed to specifying one or more beneficiaries by name.

Revocable Beneficiary

Is a beneficiary that the policyowner may change at any time without notifying or getting permission from the beneficiary.

Contingent (Secondary) Beneficiary

Is the beneficiary second in line to receive death benefits if the primary beneficiary dies before the insured.

Interest Factor

Is the calculation for determining the amount of interest an insurance company can expect to earn from investing insurance premiums.

Mortality Rate

Is the measure of the number of deaths (in general, or due to a specific cause) in some population, scaled to the size of that population, per unit time.

Fixed Amount Installment Option

Pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted.

Fixed Period Or Period Certain Option

Pays the death benefit proceeds in equal installments over a set period of years. The dollar amount of each installment depends upon the total number of installments.

Excess Interest

Provision in life insurance which means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate.

Expense Factor

Also known as the loading charge, is a measure of what it costs an insurance company to operate.

PER CAPITA (By the Head)

Evenly distributes benefits among all named living beneficiaries (EX, all living children).

PER STIRPES (By the Bloodline)

Evenly distributes benefits amongst an insured's according the the family line, branch, or root (EX, children and grandchildren).

Tertiary Beneficiary

Is the third beneficiary in line to receive death benefit proceeds. This beneficiary will only receive the death benefits if both the primary and contingent beneficiaries die before the insured.

Uniform Simultaneous Death Act

States that if the insured and the primary beneficiary die at approximately the same time, in a common accident, with no clear evidence as to who died first, the law will assume that the primary died first. Therefore, the death benefit proceeds are paid to the contingent beneficiaries.

Settlement Options

Are optional modes of settlement provided by most life insurance polices. Options include lump-sum cash, interest only, fixed-period, fixed-amount, and life income.

Interest Only Option

As a death settlement option where the insurance company holds the death benefit for a period of time and pays only the interest earned to the named beneficiary. A minimum rate of interest is guaranteed, and the interest must be paid at least annually.

Irrevocable Beneficiary

Is a beneficiary which may not be changed by the policy owner without written consent of the beneficiary.

Morbidity Rate

Demonstrates the incidence and extent of disability that may be expected from a given group of people.

Unearned Premium

Includes the premium that has been paid by the policyowner for insurance coverage that has not yet been provided.

Fixed/Level Premium

Is a concept of averaging what would be the total single premium for a policy over periodic payments. More periodic payments = higher total premium.

Policy Proceeds

Is the amount actually paid as a death, surrender, or maturity benefit. In the case of a death benefit, it includes the face value plus any dividends less any outstanding loans and interest. If the surrender benefit, the amount includes any cash value, minus surrender charges, and outstanding loans and interest. If maturity, the benefit amount includes the cash value less any outstanding loans and interest.

Joint and Survivor Option

Is a settlement option that guarantees that 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.

Surrender Cost Index

Is a cost comparison calculation formula used to determine the average cost-per-thousand for a policy that is surrendered for its cash value. It aids in cost comparisons if the policyowner plans to surrender the policy for its cash value in ten or twenty years.

Life Income Option

Is a death benefit settlement option which 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.

Net (Single) Premium

Is a premium calculation used to calculate an insurer's policy reserves factoring in interest and mortality.

Life Settlement

Is an agreement in which a policyholder sells or transfers ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of the policy.

Gross (Annual) Premium

Is the net premium for insurance plus commissions, operating and miscellaneous expenses, and dividends.

Viator

Is the original policyowner in a viatical settlement.

Beneficiary

Is the person or entity designated in a life insurance policy to receive the death proceeds.

Lump Sum Option

Is a death settlement option where the death benefit is paid in a single payments, minus any outstanding policy loan balances and overdue payments. The lump sum option is considered the automatic or default option for most life insurance contracts.

Net Payment Cost Index

Is a formula used to determine the actual cost of a policy for a policy owner. It helps the consumer compare the cost of death protection between policies that will be held for ten or twenty years.

Single Premium Funding

Is a policy funding option where the policyowner pays a single premium that provides protection for life as a paid-up policy.

Graded Premium

As a premium funding option characterized by a lower premium in the early years of the contract, with premiums increasing annually for an introductory period. After the introductory period, the premium jumps to a higher amount than what the initial level premium would have been. It then remains fixed or constant for the life of the policy.

Modified Premium

Is a premium option characterized by an initial premium that is lower than it should be during an introductory period of time (usually the first three to five years). After this time, the premium will increase to an amount greater than what the initial level premium would have been and then remains level or constant for the life of the policy.

Common Disaster Provision

Is a provision of the Uniform Simultaneous Death Act, which ensures a policy owner 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. It also states that the primary beneficiary must outlive the insured by a specified period of time in order to receive the proceeds.

Earned Premium

Is the amount of premium paid by the policyowner for the policy coverage or insurance protection received up to this point.

Viatical (Viatee)

Is the new third-party in a viatical settlement.