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110 Cards in this Set
- Front
- Back
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Yearly Renewable Term Insurance
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Simplest form of Life Insurance
1 year No medical exam |
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Net Amounted Risk
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The difference between the face amount of a policy and the reserve
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Modifies whole life insurance
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Insurance guaranteed a level premium for the 1st few policy years then a higher guaranteed premium afterwards
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Return of premium term insurance
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Return all premium if insured is alive at end of term
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Decreasing/Increasing term insurance
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Systematic decreases or increases in the amount of insurance during the course of the year
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Whole Life insurance
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Offer permanent protection and accumulates cash value
* Some pay dividends (Participating policies) |
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Ordinary Life Insurance (Whole Insurance)
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Permanent protection
Low premium Flexibility for long lived persons |
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Limited payment life insurance (Whole Life Insurance)
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Premiums to be paid for a specified amount of years listed in the Insurance contract.
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Endowment Life Insurance
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Life policy that allows purchaser may choose policy maturity date
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Current assumption whole life
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Premium varies with changes in the insurers actual mortality expense and investment earning experience.
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Variable Life Insurance
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Policyholder directs how the cash value is invested. Policyholder bears the investment risk and death benefit is linked to performance
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Universal Life Insurance
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Flexible Premiums policy owner does not control investments
Able to withdraw portion of cash value |
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Variable Universal Life Insurance
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Flexible premium after 1st year
Death benefit depends on cash value Policyholder chooses investment accounts |
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Survivor-ship/Second to die policy
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Amount payable upon death of the last 2 or more lives.
Popular among wealthy couples |
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Group Life Insurance
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State law establishes groups
Min 10 employees Conversion available |
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Group Life Benefit amounts
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Earning schedule; flat amount; position schedue
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Grace Period
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Allows policy owner additional time to pay premium after due day
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Late remittance offer
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Offer after grace period expires
Not a right of policy holder or obligation of insurer |
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Policy Loans
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Can borrow up to 90 percent
Fixed or variable interest charge; Unpaid interest added to loan balance; No repayment balance |
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Automatic Premium Loan Option
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Policy owner can select to have delinquent premium paid by new policy loan
Policy will terminate is cash value is exhausted |
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Direct recognition
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Whole life policy where dividends are reduces on policies with outstanding loans
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Incontestable clause
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Provision that prohibits insurer from disputing the validity of a policy after is has been in force for a period of time
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Divisible Surplus Provision
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portion of an insurers surplus that is declared a dividend to be distributed to policyholders and or stockholders
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Purchase of paid up addition
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Dividend used to purchase small amounts fully paid up whole life insurance; No evident of insurability is required
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5th Dividend option
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Portion of dividend used to buy 1 year term insurance; equal to the policy's cash value.
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Reinstatement provision
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*Generally insurers do not permit reinstatement of a policy that has been surrendered for its cash value
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Non-Forfeiture Options
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Paid-up insurance at a reduced death benefit amount
Extended term insurance for the net face amount |
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Settlement Options
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Interest Option
Fixed Period Option Fixed Amount Option Life Income Option |
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human life value approach
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measures human life in terms of present value of future earnings that will be needed to support dependents.
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multiple of income approach
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determines life insurance needs based on client's current annual income
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financial needs analysis approach
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what amount will meet survivors ongoing income needs
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capital needs analysis approach
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amount that will be needed to fund survivors needs while preserving the principle
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Surrender Cost Index
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((Premium - Dividend - Cash Value) / 34.719) / 100
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Surrender Cost Index Interest Factor
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34.719
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Replacement
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Replacing an old Life policy with a new one
All Replacements qualify for 1035 Exchanges |
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1035 Exchange
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IRS Code that permits a policyholder who exchanges one contract for another to receive certain tax advantages
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Rate Up Age Method
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Applicant is assumed to be older
Benefit for companies is simplicity Is attractive to applicant because higher premiums equal higher surrender values and dividends |
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Extra Percentage Tables
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Used for substandard Applicants where higher than normal mortality rate are needed.
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Flat Extra Premium
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Used when hazard is thought to be constant (Deafness or partial blindness) Not reflected in policy dividends and values
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Viatical Settlement
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Sell of a terminally ill insureds life policy in exchange for a percentage of the face amount
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Life Settlement
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Transferring ownership of Life policy to a 3rd party investor
Converts policy into cash Limited to 20 cents on the dollar |
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STOLI
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stranger purchases policy
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Benefits of a Buy-Sell Agreement
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Guarantee there will be a market
Liquidity for the payment Establish estate tax value of the decedent's business interest Continuation of the business Improved Credit Risk |
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Structure of a Buy-Sell Agreement
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Purpose
Commitment Lifetime transfer restrictions Purchase price Funding provision |
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Entity agreement
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Firm enters into an agreement with each owner. Firm owns the policy. On the death of the owner the firm will buy the business interest of the deceased and the deceased estate will sell it.
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Cross-purchase agreement
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Each partner or stockholder is a both a seller and a purchaser. At the death of the owner his or her estate will sell the deceased's interest and the other owner will buy it.
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Sec 79 Plan
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Employer has a tax deduction for premium payments on behalf of a participants.
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Split dollar life insurance
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Corporation and the employee splits the life insurance. Corp pays the annual increase in the cash surrender value and the executive pays the remainder of the annual premium.
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Split dollar life insurance arrangements. (Employee owns the policy and the employer pays part)
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The employers contribution is treated as a loan and the employee is taxed on the difference between market interest rate and any interest being charged by the employer.
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Split dollar life insurance (Employer owns the policy and pays the premium)
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The employee is taxed based on the economic benefit he or she receives. The value is treated as taxable income to the employee.
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Transfer-for-value rule
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Rule that if a policy is transferred from one owner to another for valuable consideration, the income tax exclusion is lost.
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Transfer-for-value rule exclusion
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Transferee-owner is insured
transfer to a partner transfer to a partnership where insured is a partner transfer to corporation tax basis of policy |
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Full exclusion for life insurance death proceeds must satisfy two tests
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Cash value accumulation test
Guideline premium and corridor test |
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Policy loans and taxation
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If policy is surrendered the principle amount of any outstanding loan is includible in the surrender value of the policy for tax purposes.
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Policy dividends and taxation
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Treated as a nontaxable return of premium. Reduce the policyowner's basis. If total dividends exceed total premiums, dividends are taxable.
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Cash surrender taxation
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Taxable amount is the total surrender value minus the policyowner's current basis in the policy.
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Federal Gift Tax components
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completed transfer and acceptance
a transfer for less than full adequate consideration |
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Nontaxable Gifts
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gifts that do not exceed annual exclusion
gifts to the donor's spouse gifts to charities tuition paid to education institution Med expenses gifts to political organization |
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Methods life insurers use for handling substandard risks
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increase in age
extra percentage tables flat extra premium liens |
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accelerated benefits
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also know as living benefits. Under certain circumstances, policyholder can withdraw part of the death benefit.
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annuity
annuitant |
periodic payment that will begin at a specified date and continue throughout a fixed period or for the duration of a designated life.
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annuity certain
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payments are to be made for a definite period of time without being linked to the duration of a specified human life.
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life(whole life) annuity
(single life) |
Payments are to be made for the duration of a designated life.
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temporary life annuity
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Payments are made during a specified period of time, but only as long as the designated person is alive.
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Joint life annuity
Joint and last survivor annuity |
Income ceases at the firs death among the lives covered.
payments continue until the two people die. |
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immediate annuity
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Makes first benefit payment one payment interval after the date of purchase.
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Deferred annuity
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Several years must lapse before payments will be made,
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Longevity insurance
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Typically begins at age 85. Offers bigger payouts, but survivors receive no benefits if the annuitant dies before distribution.
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Accumulation period
liquidation period |
Premiums are paid to the insurer
Benefits are paid by the insurer |
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pure (straight life) annuity
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periodic payments are made until that person dies.
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Refund annuity
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Includes a promise to return all or at least part of the purchase price of the annuity in some manner.
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fixed annuities
variable annuities |
Fixed number of dollars
variable payments are based on the investment performance of assets. |
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installment refund annuity
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If annuitant dies before receiving monthly payments, beneficiaries will receive payments until full cost is recovered. (monthly payments)
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cash refund annuity
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The un-recovered portion of the purchase price is refunded in a lump sum.
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50 percent refund annuity
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50 percent of the purchase price is paid to the beneficiary.
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accumulation units
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Assigned an arbitrary value at the inception of the plan and the initial premiums purchase accumulation units at that price.
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annuity units
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At liquidation period, accumulation units are exchanged for these.
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Indexed annuities
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variation of fixed interest, traditional deferred annuity products. Offers guaranteed minimum interest rates and reflects stock performance.
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Fees that may be associated with an annuity.
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Mortality and expense charge
Investment management fee Admin charge and maintenance fee Front-end load Surrender charge |
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Annuities and taxation
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investment income that is credited to the contract is not taxable until the annuitant or bene receives it.
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Annuities and taxation
(amounts received during accumulation period) |
Loans or withdrawals during accumulation are taxable
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Annuities and taxation
(amounts received during liquidation period) |
Taxable on a portion based on exclusion ratio. (Calculated by dividing the amount invested in the annuity by the total amount expected to be received)
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Benefits of charitable donation of annuities
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-Client gets immediate income
tax deduction -Client gets income stream -Only portion of the income stream is taxable -No commission is involved in transaction. |
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Cost of pure risks
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actual losses that occur
worry and fear less than optimal use of resources costs of managing risks |
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Benefits of insurance
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peace of mind
provides a basis of credit stimulates saving investment capital fosters loss prevention |
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Cost of insurance
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operating costs
profits opp costs increases losses adverse selection |
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speculative risk
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3 outcomes: loss/no loss gain/no gain
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pure risk
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Prospect of loss but no gain. Insurance is concerned with only pure risks
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What is an insurable risk
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Amount of loss must be important
Accidental Calculable Definite Not excessively catastrophic |
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Steps in the risk management process are
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Identification
Measurement Select methods Administration |
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Risk control methods
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Risk avoidance
loss prevention loss reduction noninsurance transfers |
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Loss prevention
Loss reduction |
lower frequency
lower severity |
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captive insurer
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risk financing method. Large org establishes a separate subsidiary insurance company to write its own insurance.
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Insurance equation
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premium payments + investment earnings + other income
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morbidity
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the relative incidence of disease
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Techniques for risk Identification
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survey forms
financial statement analysis person inspections contract analysis |
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Maximum possible loss
Maximum probable loss |
Could happen
Likely to happen |
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TPA
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Third party administrator
Administers self insurance programs for a fee |
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reciprocal exchange
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unincorporated pool of funds owned by the policyholder and managed by an attorney in fact.
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premium-conversion plan
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Cafeteria plan that allows employee to select a before tax salary reduction to pay for their contributions.
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FSA (section 125 plans
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flexible spending accounts
Allows employees to fund certain types of expenses other than insurance premiums on a before tax basis. |
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domestic insurer
foreign insurer alien insurer |
1. doing biz in state where
incorporated 2. doing biz in another state 3. incorporated in another country but doing biz in u.s. |
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treaty reinsurance
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primary insurer agrees in advance to transfer or cede some types of loss exposures.
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facultative reinsurance
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reinsurance contract is written on its own merits. reinsurer is under no obligation to to accept the loss exposure.
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Loss ratio
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Divide losses by earned premium
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major medical insurance
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wide range of covered expenses
use of deductibles use of coinsurance high maximum benefits |
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preexisting condition
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Exists when a person received medical care during the 3 month period prior to the persons effective date of coverage.
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common accident provision
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If one or more fam members are injured, expenses for all are at most subject to one deductible
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stop-loss limit
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a medical expense limit that takes away the burden from the covered person when a major medical catastrophe would occur.
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Managed care characteristics
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controlled access to providers
comprehensive case management preventative care risk sharing high-quality care |
