Chapter 14 & 15 (Policy decisions & life insurance in the family setting)
One year term insurance (dividend option)
Dividends are used to fund a miniature policy - term of 1 year •dividend buys as much term coverage as possible given the insured attained age
What is the automatic default nonforfeiture option?
Extended term
Dividends are never?
Guaranteed Automatic Or; necessarily the same from year to year
Interest settlement option
Insurance company invests policy proceeds & earns interest that accumulated over time •policy owner can dictate when beneficiary will gain access to funds
Reduced paid up insurance (nonforfeiture options)
Insured exchanges cash value for a "reduced paid up whole life policy" of the same policy that lapsed
Nonforfeiture (cash value options)
State law requires the policy owner choose from a list of nonforfeiture options to determine what happens to the cash value if insured stops making premium payments
Cash nonforfeiture option
A permanent policy is surrendered, the insurance company will pay the policy owner for the total accumulated cash value minus outstanding loans
Reinstatement triggers a start of a new?
2 year contestable period
Paid-up life (dividend option) aka accelerated endowment
Dividend is used to reduce the total length of time the owner has to pay on the whole life policy
Family policy
A collection of individual policies grouped together (different death benefit amounts for each member)
In a reduced paid up insurance policy, the company used the cash value to fund?
A net single premium to purchase a policy with as large of a death benefit as the cash will buy - given insured attained age
Which policy is taxable by IRS
Accumulate at interest
Which policy is a automatic choice and provides new small whole life policy?
Additional paid up insurance
Which dividend option involves a single premium net payment?
Additional paid-up insurance
Which is the automatic dividend option?
Additional paid-up insurance
Why are dividends not taxed?
Because they are simply a refund of premium
Cash settlement option
Beneficiary received lump sum payment; automatic default if none was selected
Cash (dividend option)
Company sends policy owner a check when the policy dividend is issued (usually policy's anniversary date)
Joint life policy (first to die)
Covers the lives of two (or more) people w one death benefit that is paid upon the death of the first insured (death benefit is taxed)
Survivorship life policy (last to die)
Death benefit is paid when the last insured dies; usually beneficiary is the estate of last to die & death benefit is used to pay estate taxes •Insures two or more people w one policy
Accumulate at interest (dividend option)
Money will earn interest at a rate specified in the policy & the owner may withdrawal funds at any time; The company holds the dividends in a delegate savings account for insured
Dividends are not taxable income when?
Paid out by the insurance company
Which policy pays policy off early
Paid up life
What will be paid the named beneficiary if dividends and accumulated interest are left with the insurance company until insured dies?
The death benefit plus the dividends & accumulated interest
Reduced premium (dividend option)
The dividend is applied towards the next years premium
Additional paid-up insurance dividend option (paid-up additions dividends option)
The owner elects to buy a miniature paid up whole life policy; DIVIDEND is used as a single bet premium payment to purchase as much insurance S the money will buy, given attained age
Who owns a mutual insurance company?
The pilicy owners
Extended term insurance (nonforfeiture options)
Used the cash value to purchase a term life policy that will: •have the same face value as the canceled whole life policy •extend coverage for as long as the money will take it
Family maintenance policy (level term policy)
Whole life insurance combined w level term
Dividend options
an overcharge in premiums assessed for the policy period *the company charged more than it needed to so they "dividends" are returns that money to policyholders
Family income policy (whole life policy w a decreasing term rider)
this is term insurance; provides gradually decreasing amount of family income in case "breadwinner" dies during the period income is needed
The owner of the policy can choose how they want their Dividends received. These options are:
•Additional paid-up insurance •One year term insurance •Accumulate at interest •Cash •Reduced premium •Paid-up life
Cash value options: other than dying or reaching 100 there are 3 ways to access cash from a whole life policy
•borrow against the cash value • use the living benefit option •surrender (terminate) the policy - which leads to nonforfeiture option
Settlement options
•cash settlement •interest settlement •annuity settlement
To reinstate a lapsed policy, the insured must:
•complete reinstatement application w/n 3 years of lapsation (no reinstatement fee) •pay the back premiums w interest •repay loans w interest •provide proof of insurability
What are the 3 nonforfeiture options?
•extended term insurance •reduced paid up insurance •cash
One life policy insuring a couple: buy 1 of 2 whole life policies
•joint life policy (first to die) •survivorship life policy (last to die)
In a reduced paid up insurance, what will the new policy feature?
•smaller death benefit than original policy, but no more premiums to pay
