Life Insurance Basics Rated A

Life Insurance Basics Rated A Insurable Interest ✔✔the policyowner must face the possibility of losing money or something of value in the event of loss Survivor Protection ✔✔aim to protect survivors in event of loss o ...

Life Insurance Basics Rated A Insurable Interest ✔✔the policyowner must face the possibility of losing money or something of value in the event of loss Survivor Protection ✔✔aim to protect survivors in event of loss of an income earner Estate Creation ✔✔when an insured purchases a life insurance policy, he/she will have an estate of at least that amount the moment the first premium is paid Cash Accumulation ✔✔an amount of cash accessible to the policyowner Liquidity ✔✔availability of cash to the policyowner Estate Conservation ✔✔provides money to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured's estate Human Life Value Approach ✔✔used to determine how much life insurance is needed to replace insured annual income. This approach looks at annual income, working expectancy, income tax expenses, and effects of inflation. Needs Approach ✔✔A method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death Debt Cancellation ✔✔Insurance may be used to create a fund to pay off debts of the insured such as home mortgage or auto loans. (Most lenders require a collateral assignment of life insurance as a condition for a loan.) Emergency Reserve Funds ✔✔Insurance proceeds may be used to assist in paying for sudden expenses following the death of insured, such as travel expenses and lodging for family members coming from a distance. Education Funds ✔✔funds used to pay for children's education expenses, or a surviving spouse who needs to receive an education in order to re-enter the job market Bequests ✔✔funds left to church, school, or other organization at time of their death Blackout Period ✔✔time during which the surviving spouse and children do not receive any social security survivor benefits Buy-Sell Funding ✔✔a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled; obligates business owners or partners (or their heirs) to withdraw from the business and sell their interest to a surviving partner(s) or key person at a predetermined price Cross Purchase Method ✔✔when each partner buys a policy on the other. the partner would pay the heirs Entity Purchase Method ✔✔used when partnership buys the policies on the partners. partnership then pays the heirs money Stock Purchase Method ✔✔when each stockholder buys a policy on each of the others. stockholder receives stocks and pays heirs money Stock Redemption Method ✔✔when the corporation buys only policy on each shareholder. corporation pays heirs and partner receives shares Key Person Insurance ✔✔the business is the applicant, owner, premium payer, and beneficiary Executive Bonuses ✔✔arrangement where employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee, employee owns policy and has control, tax deductible for employers and taxable income for employee Individual Life Insurance ✔✔Written on a single life. The rate and coverage is based upon the underwriting of that individual. Group Life Insurance ✔✔written as a master policy, issued to the sponsoring organization, covering the lives of more than one individual member of that group Term Life Insurance ✔✔temporary life insurance provided for a specific period of time Permanent Life Insurance ✔✔various forms of whole life insurance policies that remain in effect to age 100, as long as the premium is paid Participating Mutual Life Insurance Policy ✔✔any policy that distributes its non-taxable dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance Non-Participating Stock Policy ✔✔does not pay dividends to policyowner Fixed Life Insurance or Annuities ✔✔contracts that offer guaranteed minimum or fixed benefits that are stated in the contract Variable Life Insurance or Annuities ✔✔cash values accumulate based upon a specific portfolio of stocks without guarantees of performance Mortality Tables ✔✔indicated the number of individuals within a specified group (e.g. males, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age Natural Premium ✔✔amount of a premium that must be collected from each member of a group composed of the same age, sex, and risk in order to pay $1,000 for each death that will occur in the group each year Net Premium ✔✔premium without operating costs factored in Mortality - Interest Gross Premium ✔✔premium with the cost of operating the company (called loading) Net Premium + Expense (loading) Net Single Premium ✔✔premium includes the mortality and interest components necessary to keep the policy in force until maturity Gross Annual Premium ✔✔cost of 1 year of mortality + loading (commissions + taxes + advertising + profit margin) Buyer's Guide ✔✔provides basic, generic information about life insurance policies Policy Summary ✔✔written statement summarizing the features and elements of a policy. must includes name and address of agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider Illustration ✔✔presentation or depiction that includes non-guaranteed elements of a policy of individual or group life insurance over a period of years Comparative Interest Rate ✔✔rate of return that must be earned on a "side fund" in a buy term invest the difference plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time Underwriting ✔✔the process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge Conditional Receipt ✔✔receipt, the applicant is covered by the insurance as of the date of the application providing that the insurer subsequently determines the applicant to be insurable at the rating for which the policy was applied Approval Conditional Receipt ✔✔receipt, coverage begins only when the pre-paid application is approved by the insurer, but before the policy is delivered Unconditional Binding Receipt ✔✔receipt, coverage begins immediately for a specific length of time, until the policy is issued (property and casualty insurance) Backdating ✔✔the practice by which an insurer calculates premiums under the policy based on an earlier age for the proposed insured, max of 6 months Attending Phsician's Statement (APS) ✔✔underwriter sees answers to certain questions that could indicate greater risk, the underwriter will request a statement from the applicant's treating physician paid for by the insurance comapny Paramdeical Exam ✔✔often includes blood work and urine sample conducted by a registered nurse or a paramedic Preferred Risks ✔✔individuals who meet certain requirements and qualify for lower premiums that standard risk Standard Risks ✔✔persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions Substandard Risks ✔✔those that reflect an increased risk of loss, may be insured at an increased premium