Unit 3 Life and Health

Insurable Interest

A risk of loss assumed in oneself and relationships (spouse, children); must be proven before a policy can be purchased; relationship doesn't need to exist at death

Survivor protection

A personal use of life insurance to provide for dependents

Mortgage payoff

A personal use of life insurance to pay off a mortgage

Estate creation

A personal use of life insurance to create an estate

Estate conservation

A personal use of life insurance to preserve estate value

Liquidity

A personal use of life insurance to provide accessible cash

Cash accumulation

A personal use of life insurance to build savings

Human life value approach

Determines life insurance needs based on current income

Needs approach

Determines life insurance needs based on money for specific needs

Buy-sell funding

Business use of life insurance to fund a business transfer at death

Cross purchase

A buy-sell arrangement where owners buy each other's shares

Entity purchase

A buy-sell arrangement where the business buys the deceased owner's shares

Key person insurance

Business use of life insurance covering a vital employee

Executive bonus

Business use of life insurance as an employee benefit

Deferred compensation

Business use of life insurance to fund future employee compensation

Individual vs. group

A classification of life insurance policies

Term vs. permanent

A classification of life insurance policies

Participating vs. non-participating

A classification of life insurance policies

Fixed vs. variable

A classification of life insurance policies

Industrial and home service

A classification of life insurance policies

Mortality (premium element)

Cost based on expected death rates

Interest (premium element)

Reduces premium due to earnings on invested funds

Expenses (premium element)

Cost of operating the insurance company

Net premium

Mortality minus interest

Net single premium

A one-time net premium payment

Gross premium

Net premium plus expenses

Gross annual premium

The full yearly premium including expenses

Premium Mode

Frequency of premium payment (annual, semi-annual, quarterly, monthly); annual is the lowest cost