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Term life insurance
Term life insurance provides temporary protection for a specified, limited time that can be defined in years or by the age of the insured
insurance provides a level death benefit and charges a level premium for the duration of the coverage term. During the term of coverage, neither the death benefit nor the premium change
renewable term life insurance
these policies generally charge slightly higher premiums than nonrenewable term policies to account for the fact that some renewals will involve insureds who have become uninsurable.
age the insurer has reach to date (like today)
lets policyowners exchange their term coverage for a permanent life insurance policy without having to provide evidence of insurability
Decreasing term life insurance
By contrast, with decreasing term insurance the death benefit steadily decreases until it eventually reaches zero at the end of the term
Increasing term life insurance
With this type of insurance, the death benefit increases over the term to a preset amount or at a preset rate. The premium normally remains level, though at a higher level than either level term or decreasing.
whole life insurance
permanent insurance till age 120
ordinary whole life or straight whole life policy
With whole life, benefits and premiums remain level straight through the insured’s whole life. Death benefits remain level, and level premiums are paid until the insured dies or until he or she reaches age 120, whichever comes first
limited payment whole life insurance
Limited payment whole life policies appeal to customers who want permanent coverage but wish to pay for it within a finite period of time (not one’s entire life).
modified premium whole life
there is a single increase (typically five years after policy issue) with premiums remaining level thereafter
Graded premium whole life
with an even lower premium, but premiums increase in a series of steps until they, too, become level for the remainder of the premium period. The grade-in period during which premiums increase may range anywhere from 10 to 15 years.
Equity-indexed life insurance
is a fairly recent product innovation. It is a form of permanent insurance in which the interest credited to the contract's cash value is tied to an equity index instead of a rate declared by the insurer.
Specialized life insurance policies
are not so much unique forms of life insurance as they are special uses of life insurance. They are distinguished not by their design or features but by the purpose for which they are configured. This lesson reviews the most common specialized policies.
Joint (First-to-Die) Life Insurance
is permanent coverage that insures two persons under one policy. The policy pays the death benefit when the first insured dies. The main appeal of this policy approach is cost. Specifically, the premium is less than it would be for two separate policies providing the same death benefit
Common Uses of Joint Life
A joint policy is particularly relevant in business partnerships. Here, such a policy provides funds for the surviving partner to buy out the deceased partner's share of the business.
Survivorship (Second-to-Die) Life Insurance
these policies pay the death benefit only when the second insured dies. As with joint life, survivorship life premiums are lower than they would be for two comparable single-life policies.
Common Uses of Survivorship Life
Married couples use these policies to create a sum of money that will be needed when the second spouse dies (which is when estate taxes and other estate settlement costs are due).
Juvenile Life Insurance
Life insurance of any type can be written on the lives of children of any age, beginning at one day old. When the child is under age 15 (16 in Canada), an adult (parent, grandparent, or guardian) must be the applicant and owner of the policy insuring the minor. The adult policyowner is responsible for paying the premiums.
jumping juvenile life insurance (or juvenile estate builder),
designed to be paid up at the insured's age 65. The "jump up" at age 21 recognizes the need for more protection when the child becomes an adult. Juvenile insurance is a way to provide a child with long-term extremely affordable whole life insurance protection.
death benefit and a stream of income for a period of time following the insured’s death. They provide additional coverage during the child-rearing years, when the need for financial resources is especially crucial
family income policy
The income benefit period is usually 5, 10, 15, or 20 years from the date of policy issue. If the insured is alive at the end of the term life period, the monthly income portion of the benefit vanishes. The whole life death benefit protection remains. Family income policies use decreasing term to fund a potential income period that decreases as the policy ages. If the insured dies during the income benefit period, the lump-sum death benefit is paid out at the end of the income period. If death occurs after the end of the income benefit period, the death benefit is paid out immediately.
family maintenance policy
For example, if the insured with a 20-year family maintenance policy dies within the income benefit period, monthly income payments will be made to the beneficiary for 20 years. The whole life death benefit is paid immediately upon the insured’s death (not at the end of the income period, as is done with a family income policy).
family protection policy
- is one in which the entire family receives life insurance coverage under a single policy. Slightly different variations exist, but a family policy generally provideswhole life insurance coverage on the principal insured;
- term life insurance coverage on the spouse to age 65;
- andterm life insurance coverage on each child to age 21.
Endowment Contract vs. Life Policy
- As a distinct product, an endowment contract is a special form of life insurance in which cash values grow rapidly. As a result, the policy endows well before age 120. This type of policy pays in two ways:
- As with any other life policy, if the insured dies before the end of the endowment period, the policy pays a death benefit to the beneficiary.
- If the policy endows while the insured is still alive, the policyowner receives a specified sum as a living benefit. This is the feature that is unique to endowments.
modified endowment contract (MEC).
Created with the same tax legislation that stripped endowments of their favorable tax treatment, MECs are a label assigned to any permanent life insurance policy that is paid-up in seven years or less.
Group life insurance
covers groups of people, unrelated except for their common association with the group, under a single contract. To qualify for any type of group insurance, the group must be a “natural group” created for some other reason than to obtain group insurance.
National Association of Insurance Commissioners (NAIC) model group life insurance
- A group must cover at least ten persons under one master policy.
- Individual medical examinations are generally not required.
- The master policy is issued to the employer, trust, or labor union; the participant receives a certificate of insurance.
- The insurance must be bought for the benefit of the participants.
- Many states prohibit the employer from being named as beneficiary.
- Premiums are based on the experience of the entire group, not individuals.
- Individuals are classified such that they do not choose the benefit levels of the plan. Therefore, the plan is nondiscriminatory.
which indicates the sponsor as policyowner and premium payor
Group Life Standard Policy Provisions
- a grace period (typically 31 days) for paying the premium after the due date;
- incontestability after two years except for nonpayment of premiums and fraudulent misstatements on the application;
- entire contract provision stating that only the application and policy document constitute the policy;
- a provision setting forth conditions, if any, under which the insurer can require an individual participant to provide evidence of insurability;
- a provision giving participants the right to designate their beneficiary;
- and a provision stipulating the right of terminated participants to convert their group life coverage to an individual policy of equal face amount without providing evidence of insurability.
the premium is paid entirely by the employer
If some portion of the premium is paid by the employee, the plan is known as a________________
To qualify for group insurance, a group must be a natural group formed for some reason other than purchasing group insurance
Group Underwriting Requirements
- require a minimum group size;
- make sure that the group is eligible and is a group the insurer does cover;
- determine that the required percentage of group members has enrolled for the insurance;
- confirm that all applications received are complete and accurate;
- and assign rates based on a perceived higher risk posed by the group as a whole or by a sub-class within the group
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.
A beneficiary designation in a life insurance policy that the policyowner cannot change without the beneficiary's written consent.
Viatical settlements are for the benefit of the chronically or terminally ill insured. Their purpose is to gain a sum of money that might be needed to pay medical expenses or to enhance quality of life.
Credit Life Insurance
is designed specifically to cover the life of a borrower in the amount of his or her outstanding loan. If the borrower dies, then the policy pays the policy's death benefit to the creditor