Chapter 6

Question 1

What is Class Designation?

Answer 1

A class designation is a beneficiary group designation (for example, all of my children), opposed to specifying one or more beneficiaries by name.

Question 2

What is Common Disaster Provision?

Answer 2

To provide a sequence of beneficiaries for the distribution of proceeds in the event of the simultaneous death of both the insured and primary beneficiary. If the primary beneficiary dies along with the insured and there is no contingent beneficiary, the proceeds go to the insured estate.

Question 3

What is Earned Premium?

Answer 3

Earned premium is the amount of premium paid by the policyowner for policy coverage or insurance protection received up to this point.

Question 4

What is Expense Factor?

Answer 4

The expense factor, also known as the loading charge, is a measure of what it costs an insurance company to operate.

Question 5

What is Excess Interest?

Answer 5

The excess interest provision in life insurance means that the cash value will increase faster than the guaranteed rate if the insurer earns a greater return than the guaranteed rate.

Question 6

What is Cash Value?

Answer 6

The cash value is the equity or savings element of whole life insurance policies.

Question 7

What is Excess interest?

Answer 7

Excess interest refers to the difference between the interest rate the Life Insurance Company offers and the guaranteed interest rate specified in the life insurance policy contract. This difference represents an opportunity to earn higher returns on your policy.

Question 8

What is the Fixed Amount Installment Option?

Answer 8

A fixed-amount installment option pays a fixed death benefit in specified installment amounts until the principal and interest are exhausted.

Question 9

Fixed/Level Premium?

Answer 9

A fixed premium remains constant throughout the life of an insurance policy. In contrast, a variable premium can change over time based on various factors such as the insured’s age, health, and claims history.

Question 10

Fixed Period Or Period Certain Option?

Answer 10

A fixed-period or certain settlement option pays the death benefit proceeds in equal installments over a set number of years. The dollar amount of each installment depends upon the total number of installments.

Question 11

Graded Premium

Answer 11

A graded premium is a premium funding option characterized by a lower premium in the contract’s early years. After the introductory period, the premium jumps to an amount higher than the initial level premium. It then remains fixed or constant for the life of the policy.

Question 12

Gross (Annual) Premium

Answer 12

An insurer’s gross premium is the net premium for insurance plus commissions, operating and miscellaneous expenses, and dividends.

Question 13

What is the Interest Factor?

Answer 13

The interest factor calculates the interest an insurance company can earn from investing in insurance premiums.

Question 14

Interest Only Option

Answer 14

The interest-only option is a death settlement option in which the insurance company holds the death benefit for a period of time and pays only the interest earned to the named beneficiary. A minimum interest rate is guaranteed, and the interest must be paid at least annually.

Question 15

What is Joint And Survivor Option?

Answer 15

The joint and survivor option is a settlement option that guarantees that benefits will be paid on a life-long basis to two or more people. This option may include a certain period, and the amount payable is based on the beneficiaries’ ages.

Question 16

What is the Life Income Option?

Answer 16

The life income option is a death benefit settlement option that provides the beneficiary with an income they cannot outlive. Installment payments are guaranteed for as long as the recipient lives. The amount of each installment is based on the recipient’s life expectancy and the principal amount.

Question 17

What is Life Settlement?

Answer 17

A life settlement is an agreement in which a policyholder sells or transfers ownership in all or part of a life insurance policy to a third party for compensation that is less than the expected death benefit of the policy.

Question 18

Lump Sum Option:

Answer 18

The lump sum option is a death settlement option where the death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums. The lump sum option is considered the automatic (or “default”) option for most life insurance contracts.

Question 19

Modified Premium

Answer 19

Modified premium is a premium funding option characterized by an initial premium that is lower than it should be during an introductory period of time (usually the first three to five years). After this time, the premium will increase to an amount greater than what the initial level premium would have been and then remains level or constant for the life of the policy.

Question 20

Morbidity Rate

Answer 20

Morbidity rate refers to the rate at which a disease or illness occurs in a population. This can be used to determine the health of a population and its health care needs. Illnesses can range from acute conditions to chronic, long-lasting conditions.

Question 21

Mortality Rate

Answer 21

A mortality rate is the measure of the number of deaths (in general or due to a specific cause) in some population, scaled to the size of that population per unit of time.

Question 22

Net Payment Cost Index

Answer 22

Net payment cost index is a formula used to determine the actual cost of a policy for a policyowner. It helps the consumer compare costs of death protection between policies that will be held for ten or twenty years.

Question 23

Net Premium

Answer 23

The net payment cost index is a formula used to determine the actual cost of a policy for a policy owner. It helps the consumer compare the costs of death protection between policies that will be held for ten or twenty years.

Question 24

What is the Net (Single) Premium?

Answer 24

Net premium is a premium calculation used to calculate an insurer’s policy reserves, factoring in interest and mortality.

Question 25

PER CAPITA (By The Head)

Answer 25

Per capita evenly distributes benefits among all named living beneficiaries (i.e., all living children).

Question 26

PER STIRPES (By The Bloodline)

Answer 26

Per Stirpes, benefits are evenly distributed among insureds according to the family line, branch, or root (i.e., children and grandchildren).

Question 27

Premium Mode

Answer 27

The premium mode is the frequency at which a policy owner elects to pay premiums.

Question 28

Reserves

Answer 28

An insurer's reserve is the money set aside (required by the state's insurance laws) to pay future claims.

Question 29

Spendthrift Clause

Answer 29

The spendthrift clause prevents creditors from obtaining any portion of policy proceeds upon an insured's death. Additionally, the policy owner can select the clause to prevent a beneficiary from recklessly spending benefits by requiring them to be paid in fixed amounts or installments over a certain period of time.

Question 30

Surrender Cost Index

Answer 30

The surrender cost index assumes the policy will be surrendered at a particular time. Premiums and dividends are adjusted for interest, and the dividends and the cash surrender value at the end of a specific period are deducted from the net premiums.

Question 31

Tertiary Beneficiary

Answer 31

The tertiary beneficiary is the third beneficiary to receive death benefit proceeds. The tertiary beneficiary will only receive the death benefit if both the primary and contingent beneficiaries die before the insured.

Question 32

Uniform Simultaneous Death Act

Answer 32

The Uniform Simultaneous Death Act states that if the insured and the primary beneficiary die at approximately the same time in a common accident, with no clear evidence as to who died first, the law will assume that the primary died first. Therefore, the death benefit proceeds are paid to the contingent beneficiaries.

Question 33

Viatical Settlement

Answer 33

A viatical settlement involves someone with a terminal illness selling their existing life insurance policy to a third party for a percentage of the death benefit.

Question 34

The standard disaster clause provides that if both the insured and the sole names beneficiary were to die in a common accident. To whom will the proceeding go?

Answer 34

The proceeding will go to the insured estate if there is no contingent beneficiary.

Question 35

What is cash surrender?

Answer 35

Cash surrender value is the amount of money an individual receives when they cancel a permanent life insurance policy before it matures or before they die. It's calculated by subtracting any surrender fees or charges from the policy's cash value. It's not taxable.