Life Insurance Basics

Group Life Insurance

written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group

Policy Summary

written statement summarizing the features and elements of a policy. must includes name and address of agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider

Needs Approach

A method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death

Individual Life Insurance

Written on a single life. The rate and coverage is based upon the underwriting of that individual.

Buy-Sell Funding

a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled; obligates business owners or partners (or their heirs) to withdraw from the business and sell their interest to a surviving partner(s) or key person at a predetermined price

Survivor Protection

aim to protect survivors in event of loss of an income earner

Natural Premium

amount of a premium that must be collected from each member of a group composed of the same age, sex, and risk in order to pay $1,000 for each death that will occur in the group each year

Cash Accumulation

an amount of cash accessible to the policyowner

Participating Mutual Life Insurance Policy

any policy that distributes its non-taxable dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance

Executive Bonuses

arrangement where employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee, employee owns policy and has control, tax deductible for employers and taxable income for employee

Liquidity

availability of cash to the policyowner

Variable Life Insurance or Annuities

cash values accumulate based upon a specific portfolio of stocks without guarantees of performance

Fixed Life Insurance or Annuities

contracts that offer guaranteed minimum or fixed benefits that are stated in the contract

Gross Annual Premium

cost of 1 year of mortality + loading (commissions + taxes + advertising + profit margin)

Non-Participating Stock Policy

does not pay dividends to policyowner

Bequests

funds left to church, school, or other organization at time of their death

Education Funds

funds used to pay for children's education expenses, or a surviving spouse who needs to receive an education in order to re-enter the job market

Mortality Tables

indicated the number of individuals within a specified group (e.g. males, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age

Preferred Risks

individuals who meet certain requirements and qualify for lower premiums that standard risk

Paramdeical Exam

often includes blood work and urine sample conducted by a registered nurse or a paramedic

Standard Risks

persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions

Net Single Premium

premium includes the mortality and interest components necessary to keep the policy in force until maturity

Gross Premium

premium with the cost of operating the company (called loading) Net Premium + Expense (loading)

Net Premium

premium without operating costs factored in Mortality - Interest

Illustration

presentation or depiction that includes non-guaranteed elements of a policy of individual or group life insurance over a period of years

Buyer's Guide

provides basic, generic information about life insurance policies

Estate Conservation

provides money to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured's estate

Comparative Interest Rate

rate of return that must be earned on a "side fund" in a buy term invest the difference plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time

Unconditional Binding Receipt

receipt, coverage begins immediately for a specific length of time, until the policy is issued (property and casualty insurance)

Approval Conditional Receipt

receipt, coverage begins only when the pre-paid application is approved by the insurer, but before the policy is delivered

Conditional Receipt

receipt, the applicant is covered by the insurance as of the date of the application providing that the insurer subsequently determines the applicant to be insurable at the rating for which the policy was applied

Term Life Insurance

temporary life insurance provided for a specific period of time

Key Person Insurance

the business is the applicant, owner, premium payer, and beneficiary

Insurable Interest

the policyowner must face the possibility of losing money or something of value in the event of loss

Backdating

the practice by which an insurer calculates premiums under the policy based on an earlier age for the proposed insured, max of 6 months

Underwriting

the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge

Substandard Risks

those that reflect an increased risk of loss, may be insured at an increased premium

Blackout Period

time during which the surviving spouse and children do not receive any social security survivor benefits

Entity Purchase Method

used when partnership buys the policies on the partners. partnership then pays the heirs money

Debt Cancellation

Insurance may be used to create a fund to pay off debts of the insured such as home mortgage or auto loans. (Most lenders require a collateral assignment of life insurance as a condition for a loan.)

Emergency Reserve Funds

Insurance proceeds may be used to assist in paying for sudden expenses following the death of insured, such as travel expenses and lodging for family members coming from a distance.

Permanent Life Insurance

various forms of whole life insurance policies that remain in effect to age 100, as long as the premium is paid

Stock Redemption Method

when the corporation buys only policy on each shareholder. corporation pays heirs and partner receives shares

Cross Purchase Method

when each partner buys a policy on the other. the partner would pay the heirs

Stock Purchase Method

when each stockholder buys a policy on each of the others. stockholder receives stocks and pays heirs money

Attending Phsician's Statement (APS)

underwriter sees answers to certain questions that could indicate greater risk, the underwriter will request a statement from the applicant's treating physician paid for by the insurance comapny

Human Life Value Approach

used to determine how much life insurance is needed to replace insured annual income. This approach looks at annual income, working expectancy, income tax expenses, and effects of inflation.

Estate Creation

when an insured purchases a life insurance policy, he/she will have an estate of at least that amount the moment the first premium is paid