premiums, proceeds, and beneficiaries

Three Primary Factors in Premiums

Mortality, interest, and expense.

Mortality Factor

The rate of death; mortality tables predict life expectancy and probability of death.

Interest Factor in Premiums

Earnings from investing premium payments before claims, which helps lower premium rates.

Expense Factor

Operating expenses of insurance companies factored into premium rates, also called the loading charge.

Lump-Sum Cash Option

A settlement option where proceeds are paid in cash, usually not taxable as income.

Interest-Only Option

A settlement option where the insurer retains proceeds and pays interest to the recipient at regular intervals.

Fixed-Period Option

Proceeds are paid in equal installments over a specified period of years.

Fixed-Amount Installment Option

Pays a fixed specific amount in installments until the proceeds are exhausted.

Life Income Option

Provides guaranteed installment payments for the recipient's entire life based on life expectancy.

Section 1035 Exchange

Allows certain exchanges of life insurance policies and annuities to be nontaxable.

Beneficiary

The person, business, trust, estate, or charity to whom policy proceeds are paid upon death.

Primary Beneficiary

The person with the first claim to policy proceeds following the death of the insured.

Secondary (Contingent) Beneficiary

Has second claim to proceeds if the primary beneficiary dies before the insured.

Per Stirpes

Distributes benefits of a deceased beneficiary to their heirs (by the bloodline).

Per Capita

Evenly distributes benefits among the living named beneficiaries (by the head).

Revocable Beneficiary

A beneficiary the policy owner can change at any time without their consent.

Irrevocable Beneficiary

Cannot be changed without written consent; owner cannot borrow against cash value.

Uniform Simultaneous Death Act

Law assuming the primary beneficiary died first in a common disaster.

Spendthrift Clause

Requires benefits to be paid in fixed installments to prevent reckless spending.