Life Insurance

Grace Period

1 month in Michigan.

Right to examine

10 days. Return for full premium if displeased. Starts when the policyowner receives the policy.

LIFO

Annuities

Qualified retirement plans

Approved by IRS. Gives employer and employees benefits in deductibility of contributions

SIMPLE Plan

Available to small businesses that employ under 100 employees receiving at least $5000 in compensation from the employer during the previous year. Must not already have plan in place. 3% of employee annual comp. max contribution from employer.

Pure risk

Can only result in a loss or no change. Is insured.

One sum cash surrenders

Cash surrender of an annuity results in immediate taxation of the interest returned.

Modified Life

Charges lower premium then moves to higher premium

Annuity

Contract that provides income for a specified period of years or life. Not life insurance.

Interest Sensitive

Current Assumption Life is fixed premium that provides guaranteed death benefit to age 100.

Universal Life

Flexible premium is adjustable life.

Surrenders

For cash value, some of the cash value received may be taxable for income if it exceeds the amount of the premiums paid for the policy.

Life with guaranteed minimum

If the annuitant dies before the principal amount has been paid out the rest is refunded to beneficiary.

Life insurance is taxable income when

Incidents of ownership, estate as beneficiary, transfer of ownership.

Adjustable Life

Increase or decrease preium or premium paying period, face amount or changing the period. Can convert from term to whole life. Cash value of policy only develops when premiums paid are more than the cost of the policy.

Adverse Selection

Insuring of risk that are more prone to losses than the average risk. Insurance companies can refuse or restrict coverage.

Survivor

Less after the first one dies.

Decreasing Term

Level premium and death benefit decreases. Typically purchase to insure mortgage.

FIFO

Life Insurance

Level Term

Most common for temporary. Death benefit and premium are stable.

Modifications and changes

Must be in writing and over the signature of an exec officers of the insurer.

Cost base

Non-taxable is the anticipated return of the principal paid in.

Premiums

Not deductible

Death Benefit

Not income taxable (except for interest)

Cash Value Increases

Not taxable

Single Premium

One time, lump sum payment. Cash value increases exponentially.

Pure Life

Only or straight life, this payment ceases at the annuitant's death. Provides highest monthly benefits.

Speculative Risk

Opportunity for loss or gain. Can't be insured.

Mutual

Owned by policyholders. Managed by Board of Directors.

Stock

Owned by stockholders who provide capital necessary. Share in profits and losses. Elected. Distributed as dividends or kept as retained earnings.

Joint

Payout arrangement where two or more annuitants receive payments until the first death, then they stop.

Accumulation Period

Pays into annuity.

Policy Loans

Policyowner's can borrow against the policy's cash value. Money borrowed is not income taxable, but the company charges interest. Can be repaid while policy is in force, at maturity subtracted from cash value or at death subtracted from death benefit.

Equity Indexed

Premium is fixed. Cash value is dependent upon the performance of the equity index.

Limited Payment

Premium paid in a certain number of years but the cash value still increases.

Straight Life

Premium stays the same, lowest annual premium and cash value increases.

Graded

Premium whole life. Similar to modified life, premiums start low and then level off at a point in the future. Cash value increases.

Death Benefit Paid in Installments

Principal is tax free, interest is taxable.

Annual Renewable Term

Purest form of term insurance. Death benefit level. Premiums increase.

Profit Sharing and 401(K) Plans

Qualified plans where a portion of the company's profit is contributed to the plan and shared with the employees. Allows employees to take a reduction in their salaries by deferring amounts into a retirement plan. May match dollar contribution or percentage.

Target Premium

Recommended amount that should be paid on a policy in order to cover the cost of insurance protection.

Whole Life Insurance

Refers to various forms of life insurance policies that build cash value and remain in effect for the entire life of the insured.

Dividends

Return of unused premiums, they are not considered income for tax purposes.

Level Premium Term

Same term and death benefit throughout term.

Self-Employed Plan (Keogh Plans)

Self employed person is covered under an IRS qualified retirement plan. Allows them to fund retirement with pre-tax dollars like under a corporate plan. Must own at least 10%. Payout available immediately. Distribution must start between 59.5 and 70.5. Must be 21 and self employed for a year or more. Employer must contribute same amount to employee acct as their own.

Money Purchase Plan

Sets min. contribution that is required of the employer. Employers determine whether employees will contribute to their individual accounts. Businesses of any size may est. a money purchase plan and may have other retirement plans too.

SPIA

Single, lump sum payment.

Viatical Settlements

Somone who might die sells their insurance and uses proceeds. New owner continues payments.

Lump sum to beneficiary

Tax free

Death Benefits

Tax free if taken as a lump sum to beneficiary.

403 (B) and TSAs

Tax-deferred annuity, or tax sheltered account or 403(B) plan. Non-profit orgs and employees of public school. Contribtions can be made through salary reduction.

Transfer of policy

Taxed.

Life with certain period

The annuity payments are guaranteed for the lifetime of the annuitant.

Tax base

The portion that is taxable is the interest earned on principal.

Min. Premium

To keep policy in force.

Insurance

Transfer of financial responsibility associated with a potential of a loss to an insurance company.

SEP

Type of plan suited for small employer or the self employed. Individual retirement account to which the employer contributes. Not in gross income. Bigger contribution allowed than IRA.

Risk

Uncertainty or chance of loss.

Premium Mode

When premium is paid. Annually, semi-annually, quaterly, monthly.

Cash Refund

When the annuitant dies, the beneficiary receives a refund of the principal. Lump-sum payment.

Installment Refund

When the annuitant dies, the beneficiary will continue to receive the guaranteed installments until the principal has been paid out.