Life Insurance and Its Applications

These flashcards cover key concepts of life insurance, including its purposes, third-party ownership, insurable interest, personal and business uses, and premium determination.

What is the primary reason for life insurance?

To protect a family when a family member dies.

What are the three parties involved in third-party ownership of a life insurance policy?

The insurer, the insured, and the owner/applicant.

What is 'insurable interest' in life insurance?

It must be proven that the person applying for the policy is at risk of suffering a significant loss if the insured dies.

List two personal uses of life insurance.

1) Survivor Protection 2) Mortgage Payoff

What defines liquidity in the context of life insurance assets?

Liquidity refers to how easily an asset can be turned into cash without loss of value.

What is the 'Needs Approach' in determining personal life value?

It categorizes survivors’ financial needs into cash needs and income needs.

What is 'Human Life Value' in life insurance?

The purpose of life insurance is to replace an individual’s economic value.

What are the categories of cash needs in the Needs Approach?

Final expenses, debt payoff, children's education, and emergency fund.

What is buy-sell funding in business life insurance?

Agreements that provide for the sale of a business interest at the death or disability of an owner.

What is the difference between group life insurance and individual life insurance?

Group life insurance is a single contract that covers an entire group of people, whereas individual life insurance covers one person.

What are the elements in determining life insurance premiums?

Mortality, interest, and expenses.

Define net premium in life insurance.

The premium before loading, calculated as mortality minus the interest element.

What happens to gross premium in relation to net premium?

Gross premium is the net premium plus the expense element.