risk and insurance 3

premature death

death of family head with outstanding unfulfilled financial obligations

human life value

present value of the family’s share of the deceased breadwinner’s future earnings

needs approach

analyses the needs that must be met if family head should die

term insurance

temporary protection (1, 5, 10, 20, 30 years)

cash value life insurance

savings component and builds cash values

whole life insurance

cash value policy that provides lifetime protection with level premiums

ordinary life insurance

level premium policy that accumulates cash values and provides lifetime protection to age 121

endowment insurance

pays face amount of insurance if the insured dies within a specified period, if the insured survives to the end of the endowment period the face amount is paid to the beneficiary at that time

variable life insurance

fixed premium policy in which the death benefit and cash values vary according to the investment experience of a separate account

universal life insurance

flexible premium policy that provides protection under a contract that separates the protection and saving components

ownership clause

policyholder possesses all contractual rights in the policy while the insured is living

entire contract clause

life insurance policy and attached application constitute the entire contract between the parties

incontestable clause

insurer cannot contest the policy after it has been in force two years during the insured’s lifetime

suicide clause

if the insured commits suicide within two years after the policy is issued, the face amount of the insurance isn’t paid, there is only a refund of the premiums paid

grace period

policyholder has a period of 31 days to pay overdue premium

primary beneficiary

beneficiary who is first entitled to receive the policy proceeds on the insured’s death

contingent benficiary

entitled to the proceeds if the primary beneficiary dies before the insured

change of plan provsion

allows policy owners to exchange present policies for different contracts

absolute assignemnt

all ownership rights in the policy are transferred to a new owner

collateral assignment

policy holder temporarily assigns a life insurance policy to a creditor as collateral for a loan

policy loan provision

allows the policy holder to borrow the cash value

automatic premium loan provision

overdue premium is automatically borrowed from the cash value after the grace period expires, if the policy has a loan value sufficient to the premium

nonforfeiture laws

require insurers to provide minimum nonforfeiture value to policy holders who surrender their policies

settlement options

various ways that policy proceeds can be paid (cash, interest options, fixed-period option)

term life

insurance for a specific amount of time, greatest coverage for lowest premiums

always has convertible and renewable riders

Preexisting condition

physical or mental condition that existed during some specified time period prior to the effective date of the policy

affordable care act (obamacare)

provides substantial subsidies to uninsured individuals and small business firms and contains numerous provisions to lower healthcare costs in the long run

copayment

flat amount that the insured must pay for certain benefits

preferred provider organization

plan that contracts with physicians, hospitals and other healthcare providers to provide covered medical services to policy holders at discounted fees

health savings account

tax-exempt or custodial account established exclusively for the purpose of paying qualified medical expenses of the account beneficiary who covered under a high deductible health insurance plan

partial disablity

you can perform some but not all of the duties of your occupation

residual disability

you are gainfully employed and not totally disabled but, because of your sickness / injury, your loss of income is at least 15 percent of your prior income

waiver-of-premium provision

if the insured is totally disabled for 90 days, future premiums will be waived as long as the insured remains disabled

guaranteed renewable policy

insurer guarantees to renew the policy at each anniversary date, however, the insurer has the right to increase premium rates for the underwriting class in which the insured is placed

noncancellable policy

insurer cannot change, cancel or refuse to renew the policy as long as premiums are paid on time

conditionally renewable

renew the policy until a specified age, insurer can decline renewal under conditions specified

employee benefits

benefits that enhance the economic security of individuals and famileis

master contract

contract formed between group policyholder and insurer for the benefit of the indivudual member

noncontributory

employer pays the entire premium, and 100 percent of the eligible employees are covered

probationary period

waiting period

self-insurance

the employer pays part or all of the cost of providing health insurance to the employees

indemnity plans

insured incurs a loss and the insurer indemnifies the insured

point of service plan

managed care plan that combines basic characteristics of HMO

HMO

organized system of health care that provides comprehensive medical services to its members on a prepaid basis

cheaper and more broad

cannot go out of network

PPO

contracts with healthcare providers to provide certain medical services to members at discounted fees

coordination of benefits

specifies the order of payment when an insured is covered under two or more group health insurance plans

normal retirement age

65

full, unreduced pension benefits

early retirement age

62

some but not all benefits

vesting

employee’s right to the employer’s contributions or benefits attributable to the contributions, if employment terminates prior to retirement

defined benefits plans

the retirement benefit is known in advance, but the contributions will vary depending on teh amount needed to fund the desired benefit

pension benefit guaranty corporation

federal corporation that guarantees the payment of vested or nonforfeitable benefits up to certain limits if a private defined benefit pension plan is terminated due to the employer’s bankruptcy

cash balance plan

defined benefit plan in which the employer defines the benefit in terms of guaranteed fund balance at retirement rather than a pension

401(k)

cash or deferred arragngemnt, under which participants can voluntarily elect to receive salary or other compensation as it is earned or allocate compensation to the plan on a tax deferred basis

Roth 401(k)

410(k) with :
1. you make contributions with after-tax dollars

2. taxes are not levied on investment earnings in the accounts

   1. qualified distributions at retirement are received income-tax free

Cliff vesting

worker must be 100 percent vested after x years of service

Graded vesting

worker must be 20% vested by the 2nd year and minimum vesting increases another 20 percent each year until the worker is 100% vested at year x