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53 Cards in this Set
- Front
- Back
Insurance Contract |
Insuring Clause (insured, owner, beneficiary, benefit) Consideration Clause (premium and due date) Execution Clause (date started) |
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Entire Contract |
Insurance Contract Copy of Application Endorsements |
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Buy and Sell Agreement |
Legal agreement between business partners; life insurance funds purchase of business by surviving partner |
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Key Person |
Life insurance by business owner on key employee. Benefit offsets revenue decrease from death of key person. |
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Term Life Insurance |
Temporary protection. Only death benefit (no cash value) Riders include renewability (w/o evidence of insurability) and convertibility (to whole life, w/o evidence of insurability) |
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Level Term Life |
Death benefit and premium remain constant |
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Decreasing Term Life |
Death benefit DECREASES while premium stays level. Cheapest term life option. |
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Return of Premium |
Death benefit and premiums are level, but insurer returns portion of premium at end of term. Higher premium vs. other term life options. |
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Whole Life |
Level premiums Constant face amount Coverage to age 100 |
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Advantages of Whole Life |
Cash value Permanent protection |
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Disadvantages of Whole Life |
Higher premium (vs. term) Premiums may outlast income Risk of low return on cash value |
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Non-forfeiture Law |
Created cash value. Cash value also called non-forfeiture value. |
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Ordinary Whole Life |
Endows at age 100 (cash value = face value) If owner is alive at age 100, policy will pay owner cash |
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Limited Pay Whole Life (like LP65) |
Premiums stop at 65, but coverage continue to age 100. Premiums are level, but higher than ordinary. |
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Endowment Whole Life |
Policy ends at age before 100. 20-year endowment and Endowment at 65 are most common. Premium is level, but much higher than other whole life policies. Provides death benefit until specified age or cash at specified age. |
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Life Insurance Rate Making Factors |
Mortality Interest Expenses |
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Participating Policies |
May pay dividends (not taxed, not guaranteed). |
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Joint Life |
"First to die" Death benefit usually paid upon death of first insured. |
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Survivorship |
"Second to die" Death benefit pays on last to die |
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Interest Sensitive Whole Life |
Fixed premiums, minimum cash value. Excess return may increase cash value or lower premium. |
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Indexed Life Insurance |
Earned return determined by index performance. Index increase will increase cash value up to a cap. Index decline does not decrease cash value |
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Variable Whole Life |
Insured determines investments and takes all investment risk. Separate accounts. Cash value can increase or decrease. Agent needs insurance and securities licenses. Regulated by KID and SEC |
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Universal Life aka Flexible Premium Adjustable |
Flexible premium, flexible death benefit Premium recalculated annually, and either paid of out pocket or deducted from cash value |
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Universal Life - Level Benefit Option |
Death benefit includes any cash value. Death benefit must be at least 250% of cash value before age 40. After age 40 the death benefit will shrink gradually until it's 100% of cash value |
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Universal Life - Increasing Benefit Option |
Death benefit is face value + cash value Premiums on this option are MUCH higher |
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Modified Endowment Contract |
If whole life policy is overfunded in first 7 years of contract life, it become a MEC. MECs are subject to taxes. If funds are withdrawn or borrowed before age 59.5, ordinary income tax rates + 10% penalty apply. Policy can also become MEC if it is "substantially modified" (like death benefit is materially reduced). Once a MEC, always a MEC. |
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1035 Exchange |
Non-taxable exchange of contracts (insured must be same). Allowed: Life for life, annuity or endowment Endowment for annuity Annuity for annuity But NOT annuity for life policy. |
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Taxes |
Death benefit included in estate tax but not income tax Accidental death usually tax exempt Earnings on cash value are tax deferred Cash surrender = earnings on premiums are taxed as ordinary income Policy loans: interest is not deductible Withdrawals: return of cost basis is tax free |
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Grace Period |
Usually 30 days after default of premium payment. Death during grace period: insurer will pay but deduct owed premium. |
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Reinstatement |
Allowed within 3 years, providing payment of owed premiums plus interest, proof of insurability, and repayment of any policy loans |
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Incontestibility |
Two years after date of application. If reinstated, two year clock starts on any new information |
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Suicide Clause |
Within two years of policy purchase, insurer can deny claim but must pay back premiums (without interest) |
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Policy loan |
Max interest rate is 8%. Interest can be fixed or variable. Variable rate must be declared annually. If loan + interest > cash value, policy lapses. |
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Accelerated Benefits Clause |
Portion of death benefit paid for "qualifying condition" like disease |
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Misstatement of Age |
Insurer will adjust premium or benefit accordingly |
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Group Life |
Amount of coverage based on non-discriminatory classes 31 day grace period Can convert to individual whole life w/o evidence of insurability if loss of group coverage (31 days to apply) |
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Exclusions |
Policy must state any exclusions like War Hazardous activities/jobs (paragliding) Aviation (small planes, etc.) |
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Irrevocable Beneficiary |
No cash surrender without beneficiary consent. Reversion: policy rights can revert back to owner if beneficiary dies first |
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Common disaster clause |
Primary beneficiary must life for a specified period of time after insured's death or proceeds go to contingent beneficiaries |
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Minor Children as Beneficiaries |
Minor children cannot be direct beneficiaries. Insurer will ask court to name guardian if no trust exists. |
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Accidental Death Rider |
Death from accident--including murder--within 90 days pays an additional amount (double is typical) |
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Payor Waiver of Premium Rider |
On juvenile policy; waives premium if payor (parent) dies or becomes disabled |
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Waiver of Premium Rider |
Premium waived if disabled before age 65 for 6 months or longer |
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Guaranteed Insurability Rider |
Can purchase additional insurance up to face value at specified times/events without underwriting. Premium will adjust to attained age. |
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Cash Value Options |
Assumes policy is in effect and insured is living: 1) Cash 2) Paid up, e.g. buy single premium life with lower face value 3) Extend term, e.g. buy level premium, same face value for Y years. |
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Dividend Options |
1. Cash 2. Reduce premium 3. Accumulate at interest (rate stated in policy; interest is taxable) 4. Paid up, e.g. leave dividends to accumulate until sufficient to pay up policy 5. Paid up additions, e.g. buy more insurance (no underwriting) 6. Annual term, e.g. buy term insurance 7. Accelerated endowment, e.g. increase cash value to move up endowment date |
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Settlement Options |
1. Lump sum payment of death benefit 2. Interest only (money left with insurer to accumulate interest) 3. Fixed period, e.g. payments made for specified no. of periods until exhausted 4. Fixed amount 5. Life income (aka straight or pure annuity): death benefit buys annuity 6. Life income, period certain: annuity with guaranteed no. of periods (beneficiary) 6. joint and survivor; can include period certain |
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Probate Expenses |
Do not reduce life policy death benefit |
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Waiver of Monthly Deductions Rider |
Waives costs (defined in contract; could include premium) if insured is disabled (under 65, disabled for >6 months) |
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Long-term Care Rider |
Accelerated benefit (reduces death benefit) for qualifying conditions |
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Automatic Premium Loan Rider |
Premium automatically paid from cash value after grace period |
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Paid Up Cash Value Option |
Buy single premium (equal cash value) whole life with lower face value. |
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Extended Term Cash Value Option |
Using cash value, buy term insurance for level premium and same face value as original whole life policy for Y years. |