Life Insurance (Unit 4 Exam)

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  1. Premature Death
    the death of a family head with outstanding unfulfilled financial obligations, such as dependents to support, children to educate, or a mortgage to pay off
  2. Human Life Value
    the present value of the family's share of the deceased breadwinner's future earnings
  3. Needs Approach
    this can be used to determine the amount of life insurance to purchase
  4. Estate Clearance Fund
    cleanup fund is needed immediately when the family head dies
  5. Readjustment Period
    one or two year period following the breadwinner's death
  6. Dependency Period
    follows the readjustment period; it is the period until the youngest child reaches ahe 18. The family should receive income during this period so that the surviving spouse can remain at home, if necessary, to care for the children
  7. Blackout Period
    the period from the time that Social Security survivor benefits terminate to the time the benefits are resumed
  8. Capital Retention Approach
    preserves the capital needed to provide income to the family
  9. Term Insurance
    • provides temporary protection and is typically renewable and convertible without evidence of insurability
    • -This is appropriate when income is limited, or when there are temporary needs
    • -This has no cash values, in cannot be used for retirement or savings purposes
  10. Renewable
    the policy can be renewed for additional periods without evidence of insurability
  11. Convertible
    the term policy can be exchanged for a cash-value policy without evidence of insurability
  12. Reentry Term
    a term policy in which renewal premiums are based on select (lower) mortality rates if the insured can periodically demonstrate acceptance evidence of insurability
  13. Whole Life Insurance
    a cash-value policy that provides lifetime protection
  14. Legal Reserve
    • a liability item that must be offset by sufficient financial assets
    • -the purpose of this is to provide lifetime protection
  15. Net Amount at Risk
    the difference the legal reserve and face amount of insurance
  16. Cash-Surrender Values
    the amount paid to a policyowner who surrenders the policy
  17. Single-Premium Whole Life Insurance
    provides lifetime protection with a single premium
  18. Limited-payment policy
    • this insurance is permanent, and the insured has lifetime protection
    • -the premiums are paid only for a limited period, such as 10, 20, or 30 years, or until age 65
  19. Endowment Insurance
    pays the face amount of insurance if the insured dies within a specified periods; if the insured survives to the end of the endowment period, the face amount is paid to the policyowner at that time
  20. Variable Life Insurance
    a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer
  21. Universal Life Insurance
    a flexible premium policy that provides protection under a contract that unbundles the protection and saving components
  22. Variable Universal Life Insurance
    • this is similar to universal life insurance with two major exceptions
    • 1) the cash values can be invested in a wide variety of investments
    • 2) there is no minimum guaranteed interest rate, and the investment risk falls entirely on the policyowner
  23. Current Assumption Whole Life Insurance
    • a nonparticipating whole life policy in which the cash values are based on the insurer's current mortality, investment, and expense experience
    • -an accumulation account is credited with a current interest rate that changes over time
  24. Indeterminate-Premium Whole Life Policy
    • a generic name for a nonparticipating policy that permits the insurer to adjust premiums based on anticipated future experience
    • -the initial premiums are guaranteed for a certain time period and can then be increased up to some maximum limit
  25. Modified Life Policy
    a whole life policy in which premiums are lower for the first three to five years and higher thereafter
  26. Preferred Risks
    these people are individuals whose mortality experience is expected to be lower than average
  27. Second-to-die life insurance
    a form of life insurance that insures two or more lives and pays the death benefit upon the death of the second or last insured
  28. Savings Bank Life Insurance
    to provide low-cost life insurance to consumers by holding down operating costs and payment of high sales commissions
  29. Industrial Life Insurance
    a class of life insurance that was issued in small amounths; premiums were payable weekly or monthly; and an agent of the company collected the premiums at the insured's home
  30. Group Life Insurance
    a type of insurance that provides life insurance on a group of people in a single master contract
  31. At least four costs are associated with premature death
    • -there is a loss of the human life value
    • -additonal expenses may be incurred, such as funeral expenses, uninsured medical bills, and estate settlement costs
    • -because of insufficient income, some families may experience a reduction in their standard of living
    • -noneconomic costs are incurred, such as the emotional grief of the surviving dependents and the loss of a role model and guidance for the children
  32. The purchase of life insurance can be economically justified if...
    a person has an earning capacity, and someone is dependent on those earnings for at least part of his or her financial support
  33. The most important family needs are as follows
    • -estate clearance fund
    • -income during the readjustment period
    • -income during the dependency period
    • -life income to the surviving spouse
    • -special needs: mortgage redemption fund, educational fund, emergency period
    • -retirement needs
  34. Ordinary Life Insurance
    • a form of whole life insurance that provides lifetime protection
    • -the premiums are level and are payable for life
    • -the policy develops an investment or saving element called a cash-surrender value
    • -this is approriate when lifetime protection is desired or additional savings are desired
  35. Universal Life Insurance has the following features
    • -unbundling of protection, savings, and expenses components
    • -two forms of universal life insurance
    • -considerable flexibility
    • -cash withdrawals permitted
    • -favorable income-tax treatment
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Life Insurance (Unit 4 Exam)
Unit 4 Exam
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