Life Insurance Premiums and Benefits Practice Flashcards

A comprehensive set of vocabulary flashcards covering life insurance premiums, calculation factors, funding methods, settlement options, and beneficiary rules based on the course transcript.

Grace Period

The time after the premium due date during which payment can be made without penalty.

Policy Lapse

The termination of a policy due to non-payment of premiums.

Loading Charge

Another term for the expense factor in premium calculations.

Mortality Table

A table showing the probability of death at each age.

Surrender Value

The amount available in cash upon voluntary termination of a policy before it becomes payable by death or maturity.

Policy Loan

A loan issued by the insurance company using the policy's cash value as collateral.

Settlement Option

The method used to distribute the policy proceeds.

Contingent Beneficiary

The person or entity designated to receive the death benefit if the primary beneficiary predeceases the insured.

Spendthrift Clause

A provision that prevents creditors from claiming any portion of the policy proceeds when left with the insurer.

Common Disaster Clause

A provision that specifies how proceeds are distributed if the insured and primary beneficiary die in the same accident.

Policy Reserves

Funds that an insurer sets aside to pay current and future claims.

Premium Mode

The frequency with which a policy owner elects to pay premiums, such as monthly, quarterly, or annually.

Consideration

The "binding force" in the contract between insurer and policy owner, which includes the premium payment.

Mortality Factor

A calculation factor based on mortality tables showing the probability of death at each age.

Interest/Investment Factor

Reflects the insurer's return on investments of premiums.

Expense Factor

Also known as the loading charge; derived from operating expenses including death benefits, commissions, and administrative costs.

Net (single) premium

Covers mortality cost and interest.

Gross premium

The actual premium paid by the policy owner, calculated as net premium plus insurer expenses.

Single Premium Funding

A one-time lump sum payment covering the entire policy.

Fixed/Level Premium Funding

Premiums are spread evenly over the policy period.

Modified Premium Funding

Features a lower initial premium for a set period, which then increases to a higher constant amount.

Graded Premium Funding

Begins with lower premiums that increase annually for a specified period, then stabilizes.

Flexible Premium Funding

Allows adjustable payments throughout the policy's life.

Earned Premium

The amount an insurer is entitled to for providing coverage.

Unearned Premium

The amount paid for which coverage has not yet been provided.

Interest-Adjusted Net Cost Method

A cost comparison method that considers premiums, death benefits, cash value, and dividends.

Surrender Cost Index

Determines the average cost per thousand for a policy surrendered for cash value.

Net Payment Cost Index

Estimates average annual premium outlay without assuming the policy is surrendered.

Comparative Interest Rate Method

Determines the rate of return required on an investment to yield the same return as a cash value policy.

Viatical Settlements

Enables an individual with a chronic or terminal illness to sell their existing policy to a third party.

Viator

The original policy owner who sells their policy in a viatical settlement.

Life Settlements

The sale of an existing policy to a third party for more than the surrender value but less than the death benefit, without requiring the insured to be ill.

Lump-Sum

The entire death benefit paid at once; it is the most common and default settlement option.

Interest Only

A settlement option where the insurer holds the death benefit and pays only the earned interest to the beneficiary.

Fixed Amount

Proceeds paid in specified installment amounts until principal and interest are exhausted.

Fixed Period

Equal installments paid over a set period of years.

Life Income

Guarantees payments to the beneficiary for the duration of the beneficiary's lifetime.

Life Income with Period Certain

Guarantees lifetime payments, but if the primary beneficiary dies before the specific period ends, payments continue to a secondary beneficiary.

Refund Life Income

Guarantees payment of the remaining death benefit if the beneficiary dies prematurely.

Joint and Survivor

Guarantees benefits to two or more people on a life-long basis.

Revocable Beneficiary

A beneficiary that can be changed by the policy owner without notifying the beneficiary.

Irrevocable Beneficiary

A beneficiary that cannot be changed without their written consent.

Per Capita

A distribution method that evenly distributes benefits among all named living beneficiaries.

Per Stirpes

A distribution method following the family line; a deceased beneficiary's share goes to their heirs.

Uniform Simultaneous Death Act

Mandates that if the insured and beneficiary die together and the order of death cannot be determined, the insured is treated as having survived.

Common Disaster Provision

Requires the beneficiary to survive the insured by a specified period, typically $14-30$ days, to receive proceeds.

Facility of Payment

Permits an insurer to pay a portion of proceeds to anyone equitably entitled.

Transfer-for-value rule

An exception where death benefits may not be income tax-free if the policy was sold before the insured's death.

1035 Exchange

A tax-free exchange of like-kind insurance products.

Modified Endowment Contract (MEC)

A life insurance policy that fails the 7-pay test and receives different tax treatment.