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Flashcards in Chapter 5 Deck (38):

what are some common personal needs thats life insurance can meet?

dependents support
estate planning
paying debt
final expenses


Are lump sum death benefits paid to the beneficiary taxable?

not typically


define estate

the accumulated assets that an individual owns when he dies. Can include cash, bank, investments account, real estate, personal possessions and possibly ownership interests in a business.


How is an estate divided following a death, and how can an individual control this?

its distributed according to the will, a legal document that directs how the individual property is to be distributed after their death


what is an executer?

the personal representative to appoint and settle the deceased person's estate.


what is the name given to the personal representative, if the person died without a will?

an administrator


What are the two reasons a business / owner may want to purchase life insurance?

1. provide funds to ensure that the business continues in the death of an owner, partner, or key person
2. provide benefits for its employees


What is a business continuation insurance plan?>

a plan designed to enable a business owner to provide for the business' continued operations if the owner or key person dies.


what is key person life insurance

is individual insurance that a business purchases on the life of a key person. When a business purchases this plan they pay the premiums on, and is the beneficiary of the insurance.


define a buy-sell agreement, and both ways it can take place

an agreement in which on party agrees to purchase the financial interest that a second party has in a business following the second parties death and the second party agrees to direct his estate to sell his interest in the business to the purchasing party.


how is term life insurance applied?

provides a death benefit only in the insured dies during the period specified in the policy "during the term"


what are the two conditions that have to be met for a term life insurance policy to be payable?

1. the insured dies during the policy term
2. the policy is in force when the insured dies.


when is the policy anniversary?

the date on which coverage under the policy became effective


what is the most common plan of term insurance, and why?

the level term insurance, which provides a policy benefit that remains the same over the term of the policy.


define decreasing life term insurance

provides a policy benefit that decreases in amount over the term of coverage. the policy benefit begins as a set face amount and then decreases over the policy term according to some stated method that the policy describes.


what are three common reasons/ debt sources that one would buy a decreasing term insurance to cover?

1. mortgage life insurance
2. credit life insurance
3. family income insurance.


what is mortgage life insurance?

is a plan of decreasing term insurance designed to provide a benefit amount that corresponds to the decreasing term insurance desgined to provide a benefit amount that corresponds to the decreasing amount owned on a mortgage loan.
the term is based on the length of the mortgage


What is credit life insurance, and how is it payable?

type of term life insurance desgined to pay the balance due on a loan if the borrower dies before the loan is repaid


which type of life insurance (credit or mortgage) always provide that the policy benefit is payable directly to the lender?



what is family income coverage?

is a plan of decreasing term life insurance that provides to the beneficiary a stated monthly income benefit amount if the insured dies during the term of coverage,.
sometimes the insuere promises to pay the income benefit amount for at least a stated minimum number of years if the insured dies during the policy term


what is the most commonly purchased policy rider to a cash value insurance policy?

family income coverage


what is another name for policy rider, and define it.

an endorsement is an amendment to an insurance policy that becomes part of the insurance contract and either expands of limits the benefit payable under the contract


when would some one use a rider?

to provide supplementary benefit or to increase the amount of a policy's death benefit.


what is included in the family income policy?

a cash value life insurance policy with a family income coverage rider


Define an increasing term insurance plan, and how does it pay out?

provides a death benefit that starts at one amount and increases by some specified amount or percentage at stated intervals over the policy term.


when would someone typically use an increasing term insurance plan?

purchased as rider
usually limited time to meet specific need, such as providing funds for a child education.


is increasing term insurance common?



what is a renewable term policy

a term life insurance policy that gives the policy owner the option to continue the coverage at the end of the specified term without presenting evidence of insurability.


what is renewal provision

give the insured the right to continue coverage without presenting evidence of insurability
- typical right to renew the coverage for the same term and face amount.


what are the most common restrictions to renewable term insurance polices in terms of renewal?

1. coverage may be renewed only until the insured attains a stated age
2. the coverage may be renewed only a stated maximum number of times.


how is the payment affected during a renewal?

the premium increase because the person is older


most one year term insurance policies and riders are yearly renewable term insurance or annyally renewable term insurance. What does that mean?

they are renewable for a stated number of years.
they can get very expensive so now adays most of them have policy terms of 5-30 yrs.


What is a convertible term insurance policy?

it gives the policyownder the right to convert the term policy to a cash value life insurance policy. They contain certain conversion privilege that allows for conversion of term to cash value policy WITHO)UT evidence.


the specified amount of premium charged for the cash value insurance coverage provided following a conversion depends on what?

the effective date of the cash value for the life insurance policy


what is more common when converting- to use an attained age conversion or an original age conversion and why?

attained, because if you use original you ow the lump sum at time of conversion of the difference on premiums between the original and attained age at conversion.


what is return of premium term insurance?

a form of term life insurance that provides a death benefit if the insured dies during the policy term and promises a return of premiums if the insured does not die during the policy term.


when could a person get back the premiums for an ROP if still alive during the policy period?

if they cancel before the end of term; the longer the policy is kept in force the greater the percentage of premium that is returned.


what is a disadvantage of an ROP?

most are only for 15 year terms
premiums are 25% higher than for a comparable term policy without return of premium features.