Chapter 5 : Premiums, Proceeds, and Beneficiaries

1035 Exchange

-Internal Revenue code , certain exchanges of life insurance policies and annuities may occur in a nontaxable exchange

Beneficiaries

-you can select whoever you want if you are the policy owner, the proceeds with be paid upon the death of the insured Primary beneficiary: -first claim to the policy proceeds following the death of the insured Secondary beneficiary : -contingent beneficiary has second claim in the event the primary is not living -do not receive anything if the primary is still living in the event of the insured's death

calculating premiums: three main factors -- mortality, interest, expense

Mortality -the rate of death, predicts life expectancy Interest -primary factor in lowering premium rate -insurance companies invest the money in an effort to earn interest Expenses -factored into the premium rate -known as the loading charge

Changing of the beneficiary

Revocable -can change at any time without the knowledge or consent of the beneficiary Irrevocable -cannot change beneficiary in a marriage with kids when you remarry -may not change without the written consent of the beneficiary -policy owner cannot borrow against the policy's cash value

Per stripes

bloodline, distributes benefits to each child

interest only option

insurance company retains the policy proceeds and pays interest on the proceeds to the recipient beneficiary at regular intervals -the money will never run out

Uniform Simultaneous Death Act

law will assume the primary beneficiary died first in a common disaster -second beneficiary will receive the proceeds -nobody on the outside can try to get involved

Death Benefit (Proceeds); settlement options

methods used to pay death benefit to a beneficiary upon the insured's death -may select a settlement option at the beginning and change at anytime

Fixed Amount Option

pays a fixed amount every year -state the amount that you want paid every year -you can select the time as well -depleting the available money

Spendthrift trust clause

prevents beneficiaries reckless spending of benefits by requiring that the benefits be paid in fixed installments -death proceeds will prevent a beneficiary from getting a lump sum and some will be left over

Fixed Period Option

proceeds will be paid out in equal installments over a specified period of years -

Life income option

provides recipient with an income that he or she cannot outlive -not guaranteed that all your money will be used -must be paid as long as the person lives, if they outlive it they insurance company must still pay, if they die the insurance can keep the money

Lump-Sum cash option

upon death of insured, policy is designed to pay the proceed in cash called a lump sum -not taxable as income

Per capital

which means by the heads, evenly distributed benefits amount the living name beneficiaries, example: church 10%, school 5%