life insurance
modified premium whole life
single increase (typically five years after policy issue) with premiums remaining level thereafter
Cash Surrender Option
under this option, the policy is surrendered and the insurer simply pays the cash value to the policy-owner in a lump sum. at that point, the policy is canceled. the insurer's responsibility under the terms of the contract end. surrendered policies cannot be reinstated
Interest Sensitive Whole Life
Coverage provides flexible premiums based on a changing interest rate. Synonymous with current assumption whole life.
Multiple Employer Trust (MET)
a group of ten or more employers in the same industry who form a trust to provide certain types of benefits for their employees, particularly life insurance. federal rules require that no single employer contribute more than 10 percent of total funding for the plan purchased by the MET
settlement options with a life contingency also known as life income settlement options
a life insurance or annuity settlement option with a life contingency. this type of settlement option is based on the lifespan of the payee. settlement options with life contingencies all have a common element: they involve lifetime income payments
family income policies
a life insurance policy that combines whole life insurance and a decreasing term life insurance rider to provide both a lump-sum death benefit and a stream of income to a date specified in the policy if the insured dies before the date. if the insured (typically the family's main wag earner) dies after the specified date, only the lump-sum death benefit is payable
Life income with period certain
a life insurance settlement option with a life contingency under which a payee receives income payment for life. however, he or she is guaranteed that the payments will be made for a specified term
executive bonus plan
a plan under which an employer agrees to pay some or all of the premiums on a life insurance policy an executive owns. the employer can dediuct the premium payments as compensation paid to an employee.
Guaranteed Insurability Rider
allows the purchase of additional life insurance coverage without requiring insured to provide evidence of insurability
Buy-Sell Agreement
an agreement in which soomeone agrees to buy a decreased business oowner's interest in the business upon the owner's death. these agreements are typical for small businesses, such a s partnerships or close corporations.
Split Dollar Plan
an arrangement under which a permanent life insurance policy is bought on the life of a key executive. either the executive or the employer owns the policy. the premiums for the policy and the death benefits provided under it are split between the employer and the key executive (or other third party)
fully insured
an insured status under social security that entitles a worker to full OASDI benefits. to be considered fully insured a worker must have at least one quarter of coverage for each year since reaching age 21 and the year before dying or reaching age 62; or 40 quarters of coverage
extended term insurance option
an option under which the insurer applies the cash value of a lapsed policy to buy a term insurance policy. the term insurance is bought in an amount equal to the face amount of the lapsed policy. the term coverage lasts for whatever period the cash value buys
if the plan is contributory
at least 75 percent of eligible group members must elect to participate
Waiver of Premium Rider
available with both term and permanent life insurance. wavies the policy's premium if the insured becomes totally disabled.
Ordinary (Straight) Whole Life
benefits and premiums level and payable through the insured's entire life death benefits remain level, and level premiums are payable until the insured dies or reaches age 120, whichever comes first. premiums are guaranteed to remain level despite the insured's increased likelihood of death with older age
Survivorship (Second-to-Die) Life Insurance
commonly known as second-to-die policies. these policies are also called because they insure more than one person but pay the death benefit only when the second insured dies
Convertible Term
conversion privilege that lets policyowners exchange their term life coverage for a permanent life insurance policy without having to provide evidence of insurability.
Family (Family Protection) Policies
covers an entire family under a single policy. slightly different variations exist, but a family policy generally provides: - while life insurance coverage on the principal insured -convertible term life insurance coverage on the spouse to age 65 -convertible term life insurance coverage on each child to age 21
interest sensitive whole life insurance policy-owners
do have some control over changes to the premium and face amount.
Family Term Rider
essentially combines coverage of the insured and children's term riders into a single rider that covers all family members (spouse plus children) equally with term insurance
Aviation Exclusion
excludes coverage if the insured was involved in operating an aircraft as a pilot or crew member. it does not apply to passengers on private aircraft or to fare-paying passengers on commercial and charter airlines
death benefit option 2
features an increasing death benefit that equals the policy's specified amount plus its cash value. the policy's specified amount is the net amount at risk, which remains level (like a level term policy). as the cash value increases, the death benefit increases by the same amount. if the cash value decrease (through withdrawals) the death benefit decreases by the same amount
adjustable life insurance
flexible permanent life products. lets policyowners change thee three elements of a life insurance policy as often as he or she want: premium, cash value, and death benefit. can function as term, ordinary whole, or limited payment life policy
Cost of Living Rider (COL)
gives the policyowner the option to continually increase the face amount on his or her policy to fight inflation tied to an inflation index such as the consumer price index (CPI). as the CPI increases, do does the policyowner's coverage, without requiring the insured to prove insurability
Cross-Purchase Buy-Sell Agreement
is a contract between individual partners or shareholders ("owners") the business itself is not a party to it. in this type of plan the owners agree to buy the interest of any owner who dies. each owneeer buys a life insurance policy on each of the other owners, naming themselvws the policies beneficiary. when an ownere dies, the surviving owners use their policy proceed to buy their share of the decreased owner's interest from his or her heirs.
Deferred Compensation Plan
is an arrangement under which an employee, normally a senior executive, agrees to defer a portion of his or her salary until a future date (typically retirement) when he or she will likely be in a lower marginal income tax bracket
credit life insurance
is designed to cover a borrow for the amount of his or her outstanding loan. if the borrower dies, then the policy pays the policy's death benefit to the creditor. this is usually decreasing term insurance to match the declining loan balance. as the insured's loan balance decreases, so does the coverage
increasing term insurance
is the opposite of decreasing term. with this type of insurance, the death benefit increases over the term to a preset amount or at a preset rate. the premiums normally remains level, though at a higher level than either level term or decreasing term.
Re-entry option
lets the owner renew the policy at current rates that are lower than the guaranteed rates that would be used in a standard renewal. must prove insurability at time of renewal or at periodic intervals
Level Term Insurance
may provide level face amount coverage for a specified number of years or to a specified age
only current assumption whole life guarantees a
minimum interest rate and cash value
unbundled policy components
mortality charge, expense charge, and interest credit
guaranteed level premium term
most common form of level term. guarantee both a level face amount and a level premium for the full coverage term
current assumption whole life insurance policy-owners have
no control over how or when the premiums change, and thee death benefit (face amount) does not
the interest credited to an interest-sensitive whole life policy is
not guaranteed, thus the cash value is not guaranteed
single premium life
paid up with the payment of a single premium at the time of purchase.
Straight Life Income Option
payments last the beneficiary's entire life, and case at the beneficiary's death
return of premium rider
pays the policyowner a sum equal to all or a portion of the premiums paid if the insured is alive at the end of the policy term. interest is not included in the return premium, nor is the cost of the rider.
indeterminate premium term
premiums can increase or decrease between the initial premium and a maximum limit is set by the insurer
attained age
premiums for the converted policy are based on the insured's age at the time of conversion
original age
premiums for the new policy are based on the insured's age when the term policy was originally issued
Accidental Death Benefit Rider
provides additional amount of insurance if the insured dies as a result of an accident.
family maintenance policy
provides an income to surviving family members by combining whole life insurance with level term life insurance. the period for the payment of the term portion of the death benefit begins when the insured dies
Decreasing Term Insurance
provides face amount coverage that decreases over time, eventually reaching zero at the end of the term. decreasing term premiums remain level for the full coverage term. because coverage decreases over time, decreasing term premiums are less than level term premiums when the policy is issued. while decreasing term life insurance can generally be converted to a permanent plan for most of the term period, it cannot be renewed.
limited payment whole life
provides level death benefit protection for the insured's whole life with a level premium. the main diff between ordinary whole life and limited payment whole life is the time over which premiums are paid. higher premiums shorter period
No lapse guarantee rider
provision or rider that prevents the policy from lapsing should policy cash values drop below the minimum amount needed to support the policy (due to a drop in stock price)
Human Life Value Approach
quantifies a person's economic value in a single sum that becomes the basis for a life insurance recommendation. starts by estimating a person's net future earnings, which is then discounts to a lump-sum amount that represents the persons economic value. rarely used b/c it doesn't factor in what it really takes to secure a family's financial future.
minors named as beneficiaries
recommended that a trust is created for minors instead. minors do not have legal capacity to sign a binding receipt for funds. court appoints legal guardian before paying out proceeds to a minor. this is not required if the beneficiary is a trust
death benefit option 1
resembles the policy structure of a traditional whole life policy. the specified amount generally remains level, the net amount at risk decreases over time, and the policy's cash value is part of the policy's death benefit
waiver of stipulated premium
rider wavies an amount identified by the policyowner, at the time of the application, as the premium that will be paid for the policy
joint and survivor life income (j&s) life income
settlement option is most suitable when there are two primary beneficiaries related in some ways to each other. under the j&s option, monthly payments are made until the second of the two beneficiaries dies
Annually Renewable Term
sometimes called yearly renewable term. provide coverage for one year, at the end of which the policyowner may renew the contract for another year without having to provide evidence of continued insurability. face amount remains the same, but premiums increase with each renewal
graded premium whole life
starts with an even lower premium, but increases in a series of steps until they too become level for the remainder of the period. increase range from 10 to 15 yrs.
absolute assignment
the complete transfer of all rights in an insurance policy to a third party; giving up the control of all rights in an insurance policy
corporate-owned life insurance (COLI)
the corporation is the owner and beneficiary of individual policies on individual employees (rank na dfile as well as key employees). it names itself as the beneficiary. the policies can remain in place even after the employee wuits or retires.
Reduced Paid-Up Insurance
the lapsed policy's cash value is applied as a net single premium to buy a paid-up policy of the same type as the lapsed policy. the paid-up death benefit is the amount that the cash value buys as a single premium at the insured's age
adverse selection
the tendency of those who most need insurance (most at risk) to buy insurance. those who do not have as much of a need for a particular type of insurance (least at risk) are less likely to buy it.
Modified Endowment Contract (MEC)
A category of life insurance policy that fails to meet the 7-pay test imposed by the federal government. Because of that, a MEC loses some, but not all, of the favorable tax treatment normally given to life insurance policies
Variable Universal Life Insurance
A form of universal life insurance that allows the policyholder to make fund choices for the investment component but that has no guaranteed cash value and no guaranteed interest rate.
universal life insurance can
-increase premiums -reduce premiums -occasionally skip a premium without the policy lapsing - increase the death benefit (subject to evidence of insurability) or decrease it with or without any change in premium
non-fixed whole life products include
-indeterminate premium whole life -current assumption whole life -interest-sensitive whole life -indexed whole life -variable life insurance
indeterminate premium whole life is issued with two premium rates:
-low introductory rate -guaranteed maximum rate
standard policy exclusions
-war -aviation -hazardous occupations and hobbies -commission of a felony -suicide (within first two years only)
if the plan is noncontributory
100 percent of eligible group members must be covered
grace period
31 days
Fixed Life Insurance
A form of permanent life insurance that features a guaranteed death benefit and a guaranteed minimum rate of return on the policy's cash value. Fixed life insurance can guarantee a fixed death benefit and a minimum rate of return on the policy's cash value by investing premiums in the company's general account.
Indexed Universal Life Insurance
A variation of universal life insurance with certain key characteristics; there is a minimum interest rate guarantee; additional interest is credited to the policy based on the investment gains of a specific stock market index; and a formula determines the amount of enhanced (additional) interest credited to the policy.
Needs Approach
An approach for determining how much life insurance is appropriate for a person. This approach determines personal life insurance needs based on a detailed review of each person's specific situation. It mandates that the person's and family's income, liabilities, and assets be examined to calculate the right amount of life insurance
collateral assignment
Assignment of part of the proceeds of an insurance policy to a bank as collateral to settle the loan balance that may exist at the insured's death.
Common Disaster Provision
Identifies how a life policy's proceeds will be paid if the insured and the primary beneficiary are killed or die in close time proximity. Assumes the insured dies before the beneficiary, so that proceeds are payable to the contingent beneficiary
retained asset account
Option granted beneficiaries to have death benefit payments retained in an interest bearing account on which drafts may be written
living benefits
The funds from cash values that life insurance provides; these cash values are used during the insured's lifetime
accelerated benefit
a benefit, provided through a policy provision or rider, that pays out part of life insurance policy's death benefit while the insured is still living if the insured is terminally ill or suffers a disabling injury. typically pays up to 50 percent of the face amount
Spendthrift Clause
a common clause in life insurance policies that states that creditors cannot claim any death proceeds from the policy before the proceeds are paid out to the beneficiary
salary continuation plan
a common form of deferred compensation arrangement under which the executive does not actually defer any compensation. instead, the employer agrees to continue paying a portion of the employee's salary after he or she retires.
Variable Life Insurance
a form of permanent whole life insurance in which premiums are placed in investment sub-accounts that the policy-owner owns.
Juvenile Life Insurance jumping
it features low premiums and a death benefit that increases when the child becomes an adult with no increase in premium and without requiring evidence of insurability juvenile life policies are typically issued with a death benefit that is measured in units, where each unit represents $1,000 of death benefit at age 21, the value of the unit "jump up" to a higher value, most commonly five times the original value. the increase in the unit value translates into an increase in the face amount
indexed whole life insurance
keeps pace with inflation by typing its death benefit to a cost-of-living index, most commonly the consumer price index (CPI). overtime, the policy's face amount increases automatically with CPI increases.
Renewable Term
lets the policyowner renew coverage for another term without having to provide new evidence of insurability
joint life insurance (first-to-die)
permanent coverage that insurers two persons under one policy. the policy pays the death benefit when the first insured dies
current assumption whole life insurance
premium rates can change in response to the insurer's actual mortality, interest, and expense (unbundle). premiums can decrease or increase
payor benefit rider
wavies premiums if the premium payor dies or becomes disabled while the insured is still a minor
Facility of Payment Clause
Allows the insurer to pay the death benefit to someone other than the beneficiary under certain conditions. This clause generally appears in group life or industrial policies