Chapter 6: Life Insurance Premiums Proceeds And Beneficiaries

Question 1

Accelerated benefit (option) rider

Answer 1

This rider allows the insured to receive a portion of the death benefit prior to death. If the insured has a terminal illness that’s certified by a physician and is expected to die within one to two years.

Question 2

Beneficiary

Answer 2

This is the person (or entity) who is designated in a life insurance policy to receive the death proceeds.

Question 3

Cash value

Answer 3

This is the equity or savings element of whole life insurance policies.

Question 4

Class designation

Answer 4

This is a beneficiary group designation (e.g., all of a persons children) opposed to specifying one or more beneficiaries by name.

Question 5

Common disaster provision

Answer 5

This is a provision of the uniform simultaneous death act, which ensures a policy owner that death benefits will be paid to the contingent beneficiary if both the insured and the primary beneficiary die with a short period of time of one another. It also states that the primary beneficiary must outlive the insured by a specified Period in order to receive the proceeds.

Question 6

Contingent (secondary) beneficiary

Answer 6

This is the beneficiary who second in line to receive death benefit proceeds if the primary beneficiary dies before the insured.

Question 7

Earned premium

Answer 7

This is the amount of premium that’s paid by the policy owner for policy coverage or insurance protection up to a specific point.

Question 8

Expense factor

Answer 8

Also referred to as the loading charge, this is a measure of what it costs an insurance company to continue to operate.

Question 9

Excess interest

Answer 9

In life insurance, this provision means that the cash value will increase faster than a guaranteed rate if the insurer earns a greater than the guaranteed rate.

Question 10

Fixed the amount installment option

Answer 10

This option pays a fixed death benefit and specified installment amounts until the principal and interest are exhausted.

Question 11

Fixed/level premium

Answer 11

This is a concept which averages what the total single premium would be for a policy over a periodic payments.
More periodic payments = higher total premium.

Question 12

Fixed period or period certain option

Answer 12

This payment option pays the death benefit, proceeds, and equal installments over a certain number of years. The dollar amount of each installment is dependent on the total number of installments.

Question 13

Grated premium

Answer 13

This premium funding option is characterized by a lower premium in the early years of the contract with premiums in increasing annually for an introductory period.

After the introductory period, the premium increases to an amount thats higher than the initial level premium would have been thereafter. It remain fixed or constant for the life of the policy.

Question 14

Gross (annual) premium

Answer 14

An insurers gross premium consists of the net premium for insurance plus commissions operating and miscellaneous expenses and dividends.

Question 15

Interest factor

Answer 15

This is the calculation for determining the amount of interest and insurance company. You can expect to earn from investing insurance premiums.

Question 16

Interest only option

Answer 16

This is a death settlement option in which the insurance company holds the death benefit for a period and pays only the interest that’s earned to the named beneficiary. A minimum rate of interest is guaranteed, and the interest must be paid at least annually.

Question 17

Irrevocable beneficiary

Answer 17

This is a beneficiary that cannot be changed by the policy owner without the written consent of the beneficiary.

Question 18

Joint and survivor option

Answer 18

This is a settlement option which guarantees that benefit will be paid on a lifelong basis to two or more people. This option may include a period certain, and the amount payable is based on the ages of the beneficiaries.

Question 19

Life income option

Answer 19

This is a death benefit settlement option, which provides the beneficiary with an income that she cannot outlive installment payments are guaranteed for as long as the recipient is alive. The amount of each installment is based on the recipient life expectancy in the amount of principle.

Question 20

Life settlement

Answer 20

This is an agreement in which policy owner sells or transfers ownership, and all or part of a life insurance policy to a third-party for compensation that’s less than the expected death benefit of the policy.

Question 21

Lump – some options

Answer 21

This is a death settlement option in which the death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums.
The lump sum option is considered the automatic or default option for most life insurance contracts.

Question 22

Modified premium

Answer 22

This is a premium funding option, which is characterized by an initial premium that’s lower than it should be during an introductory period typically the first 3 to 5 years. After this period, the premium will increase to an amount that greater than the initial level premium would have been, and then remain level or constant for the life of the policy.

Question 23

Morbidity rate

Answer 23

This rate demonstrates the incidence and extent of disability that may be expected from a giving group of people.

Question 24

Mortality rate

Answer 24

This rate is the measure of the number of deaths (in general or due to a specific cause) in some population, scale to the size of that population per unit time.

Question 25

Net payment cost index

Answer 25

This is a formula that’s used to determine the actual cost of a policy for a policy owner that helps the consumer compare costs of death protection between policies that will be held for 10 to 20 years.

Question 26

Net (single) premium

Answer 26

This is a premium calculation that’s used to calculate an insurers policy reserves factoring in interest and mortality.

Question 27

Per capita (by the head)

Answer 27

This form evenly distributes benefit benefits among all named living beneficiaries(i.e., all living children).

Question 28

Per stirpes (by the bloodline)

Answer 28

This form, evenly distributes benefits among an insured beneficiaries, according to the family line, branch, or root (.e., children and grandchildren)

Question 29

Premium mode

Answer 29

This is the frequency in which a policy owner elects to pay premiums.

Question 30

Primary beneficiary

Answer 30

This is the first beneficiary in line to receive benefit proceeds upon the death of an insured.

Question 31

Policy proceeds

Answer 31

This is the amount actually paid as a death, surrender, or maturity benefit. In the case of a death benefit, it includes the face value, plus any earned dividends, less any outstanding loans and interest. In the case of a surrender benefit, the amount includes any cash value minus surrender charges, outstanding loans and interest in the case of maturity. The benefit amount includes the cash value less any outstanding loans and interest.

Question 32

Reserves

Answer 32

This is the money and insurer set aside (as required by the states insurance laws) to pay future claims.

Question 33

Revocable beneficiary

Answer 33

This is a beneficiary that the policy owner may change at any time with without notifying or getting permission from the beneficiary.

Question 34

Settlement options

Answer 34

These are optional modes of settlement that are provided by most life insurance policies. Options include lump-sum cash, interest only, fixed period, fixed amount, and life income.

Question 35

Single premium funding

Answer 35

This is a policy funding option in which the policy owner pays a single premium that provides protection for life as I paid-up policy.

Question 36

Spendthrift clause

Answer 36

This clause prevents creditors from obtaining any portion of policy, proceeds upon an insured death. Additionally, the clause can be selected by the policy owner to prevent a beneficiary from recklessly spending benefits by requiring the benefits to be paid and fixed amounts or installments over a certain period

Question 37

Surrender cost index

Answer 37

This is a cost comparison calculation formula which is used to determine the average cost per thousand for a policy that’s surrendered for its cash value. It aids in cost comparisons if the policy owner plans to surrender the policy for its cash value in 10 or 20 years.

Question 38

Tertiary beneficiary

Answer 38

This is the third beneficiary in line to receive death benefit proceeds. The tertiary beneficiary will only receive the death benefit of both the primary and contingent beneficiaries die before the insured.

Question 39

Underwriting department

Answer 39

This is the department with an insurance company that’s responsible for reviewing applications, approving, or declining applications, and assigning risk classifications.

Question 40

Unearned premium

Answer 40

This includes the premium that has been paid by a policy owner for insurance coverage, which has not yet been provided.

Question 41

Uniform simultaneous death act

Answer 41

This act states that if the insured and the primary beneficiary die in a common accident at approximately the same time with no clear evidence as to who died first, the law will assumed that the primary died first therefore, the death benefit proceeds are paid to the contingent beneficiaries.

Question 42

Viatical settlement

Answer 42

This settlement involves a person with a terminal illness, selling his existing life insurance policy to a third-party for a percentage of the death benefit.

Question 43

Viatical (viatee)

Answer 43

This is the new third – party owner in a viatical settlement.

Question 44

Viator

Answer 44

This is the original policy owner in a vehicle settlement.

Question 45

Calculating premiums

Answer 45

Once an insurance company determines that an applicant is insurable, they need to establish an appropriate policy premium. The premium will be used to cover the cost and expenses to keep the policy in force.

Question 46

Three primary factors using determining premiums…

Answer 46

Mortality Interest Expense The rate of death