Chapter 11 - Life Insurance Flashcards
Define Blackout Period
The period during which Social Security benefits are not paid to a surviving spouse - between the time the youngest child reaches age 16 and the surviving spouse’s sixtieth birthday.
Define Capital Retention Approach
The method used to estimate the amount of life insurance to own. Under this method, the insurance proceeds are retained and are not liquidated.
Define Cash-Surrender Value
Amount payable to the owner of the cash value life insurance policy if he or she decides that the insurance is no longer wanted. Calculated separately from the legal reserve.
Define Convertible
The term policy can be exchanged for a cash-value policy without evidence of insurability.
Define Current Assumption Whole Life Insurance
Nonparticipating whole life policy in which the cash values are based on the insurers current mortality, Investment, and expense experience. An accumulation account is credited with the current interest rate that changes over time. Also called interest sensitive whole life insurance.
Define Dependency Period
Period of time following the readjustment period during which the surviving spouse’s children are under 18 and, therefore, dependent on the parent.
Define Endowment Insurance
Type of life insurance that pays the face amount of insurance to the beneficiary if the insured dies within a specified period or to the policyholder if insured survives to the end of the period.
Define Estate Clearance Fund
The fund needed immediately when the family head dies
Define Group Life Insurance
Life insurance provided on a number of persons in a single master contract. Physical examinations are not required, and certificates of insurance are issued to members of the group as evidence of insurance.
Define Human Life Value
For purposes of life insurance, the present value of a family’s share of deceased breadwinner’s future earnings.
Define Indexed Universal Life Insurance
The variation of universal life insurance with certain key characteristics; there is a minimum interest rate guarantee; additional interest is credited to the policy based on the investment gains of a specific stock market index; and a formula determines the amount of enhanced (additional) interest credited to the policy.
Define Industrial (Home Service) Life Insurance
Type of life insurance in which policies are sold in small amounts and the premiums are collected weekly or monthly by a debit agent at the policyholder’s home
Define Legal Reserve
Liability item on the life insurers balance sheet representing the redundant or excessive premiums paid under the level premium method during the early years. Assets must be accumulated to offset the legal reserve liability. Purpose of the legal reserve is to provide lifetime protection.
Define Limited-Payment Policy
Type of full life insurance providing protection through the insured’s lifetime and for which relatively high premiums are paid only for a limited period.
Define Modified Life Policy
A whole life policy in which premiums are lower for the first three to five years and higher thereafter. The initial premium is slightly higher than for term insurance, but considerably lower than for a whole life policy issued at the same age.
Define Needs Approach
Method for estimating mount of life insurance appropriate for family by analyzing various family needs that must be met if the family head should die and converting them into specific amounts of life insurance. Financial assets are considered in determining the amount life insurance needed.
Define Net Amount At Risk
Concepts associated with level premium life insurance policy. Calculated as the the difference between the face amount of the policy and the legal reserve.
Define Ordinary Life Insurance
Type of whole life insurance providing protection through the insured’s lifetime and for which premiums are paid throughout the insured’s lifetime (or until 121 at which time you just get paid the face value).
Define Preferred Risks
Individuals whose mortality experience is expected to be better than average.
Define Premature Death
The death of a family head with outstanding unfulfilled financial obligations.
Define Readjustment Period
One-to-two-year period immediately following the breadwinner’s death during which time the family should receive approximately the same amount of income it received when the breadwinner was alive.
Define Reentry Term
A term life policy in which renewal periods are based on select (lower) mortality rates if the insured can periodically demonstrate acceptable evidence of insurability.
Define Renewable
When a policy can be renewed or additional periods without evidence of insurability.
Define Savings Bank Life Insurance
Life insurance originally sold by mutual savings banks in Massachusetts, New York, and Connecticut. Now sold in other states as well.
Define Second-To-Die Life Insurance
A form of life insurance sensors to her more lives and pays the death benefit upon the death of the second or last insured.
Define Single-Premium Whole Life Insurance
A whole life policy that provides lifetime protection with a single premium payment.
Define Term Insurance
Type of life insurance that provides temporary protection for a specified number of years with no savings element. It is usually renewable and convertible.
Define Universal Life Insurance
A flexible premium whole life policy that provides lifetime protection under a contract that separates the protection and savings components. The contract is an interest sensitive product that unbundles the protection, saving, and expense components.
