FI 341 Principles of Risk Management & Insurance Review for Exam 3 Chapters 11, 12, 13, 14

Transcription

1 FI 341 Principles of Risk Management & Insurance Review for Exam 3 Chapters 11, 12, 13, 14 * It is important for you to know all the Key Concepts and Terms for every Chapter. Chapter 11 Life Insurance 1.a.b.c., 3.a.b., 4.a.b., 5.a.b.c.d., 6.a.b.c.d., 7, 8.a.b. 1., 2.a.b., 3.a.b., 4, 5, 6, 7.a.b.c.d.e.f.g., 8.a.b.c.d. Chapter 12. Life Insurance Contractual Provisions 1.a.b.c., 2.a.b., 3.a.b., 4.a.b.c., 5.a.b., 6.a.b., 7.a.b.c., 8.a.b.c., 9.a.b.c.d., 10 1.a.b.c.d.e., 2.a.b.c.d.e., 3., 4.a.b.c.d.e. Chapter 14. Annuities and Individual Retirement Accounts 1, 2, 3, 4, 5, 9. 1.a.b.c., 3, 4.b., 5. (explain for Roth IRAs only) a.b.c.d. Chapter 13. Buying Life Insurance 6.a.b.c.d.e., 7, 8. 4.a.b.c.d.

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3 Reentry term a term insurance policy in which renewal premiums are based on select (lower) mortality rates if the insured can periodically demonstrate acceptable evidence of insurability Renewable the policy can be renewed for additional periods without evidence of insurability Savings bank life insurance (SBLI) a type of life insurance that was sold originally by savings banks in MA, NY, and CN; it provides low cost life insurance to consumers by holding down operating costs and payment of high sales commissions Second to die life insurance (also called survivorship life) is a form of life insurance that insures two or more lives and pays the death benefit upon the death of the second or last insured Single premium whole life insurance provides lifetime protection with a single premium Term insurance provides temporary protection Universal life insurance (also called flexible premium life insurance) a flexible premium policy that provides protection under a contract that unbundles the protection and saving components Variable life insurance a fixed premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer Variable universal life insurance an important variation of whole life insurance; most are sold as investments or tax shelters; the policyholder determines how the premiums are invested, which provides considerable investment flexibility; the policy does not guarantee a minimum interest rate or minimum cash value Whole life insurance a cash value policy that provides lifetime protection : 1. a. premature death can be defined as the death of a family head with outstanding unfulfilled financial obligations b. costs associated with premature death 1) the family s share of the deceased breadwinner s future earnings is lost forever; 2) additional expenses are incurred because of funeral expenses, uninsured medical bills and estate settlement costs; 3) insufficient income; 4) certain noneconomic costs are incurred (intense grief, loss of parental role model, and counseling and guidance for the children) c. economic justification for the purchase of life insurance if the insured has earned income, and others are dependent on those earnings for part or all of their financial support 3. a. human life value the present value of the family s share of the deceased breadwinner s future earnings b. steps in determining the human life value of a family head 1) estimate the individual s average annual earnings over his or her productive lifetime; 2) deduct federal and state income taxes, Social Security taxes, life and health insurance premiums, and the costs of self maintenance; 3) determine the number of years from the person s present age to the contemplated age of retirement; 4) using a reasonable discount rate, determine the present value of the family s share of earnings for the period 4. a. needs approach 1) cash needs funeral expenses, medical services, car loan and credit card debts, probating will and attorney fees; 2) income needs money to keep standard of living, retirement income; 3) special needs house mortgage, emergency fund, and an educational fund b. capital retention approach for determining the amount of life insurance to own 1) prepare a personal balance sheet; 2) determine the amount of income producing capital; 3) determine the amount of additional capital needed

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5 Absolute assignment all ownership rights in the policy are transferred to a new owner Accelerated death benefits policy that allows part or all of the life insurance face amount to be paid to a chronically or terminally ill policyholder Accidental death benefit rider (double indemnity) doubles the face amount of life insurance if death occurs as a result of an accident Automatic premium loan provision an overdue premium is automatically borrowed from the cash value after the grace period expires, provided the policy has a loan value sufficient to pay the premium Aviation exclusion policy excludes death due to aviation Change of plan provision allows policyholders to exchange their present policies for different contracts Class beneficiary a specific person is not named but is a member of a group designated as beneficiary, such as children of the insured Collateral assignment the policy holder temporarily assigns a life insurance policy to a creditor as collateral for a loan; only certain rights are transferred to the creditor to protect its interest, and the policy holder retains the remaining rights Contingent beneficiary entitled to the proceeds if the primary beneficiary dies before the insured Cost of living rider allows the policy holder to purchase one year term insurance equal to the percentage change in the consumer price index with no evidence of insurability Dividend accumulation option 1) cash; 2) reduction of premiums; 3) dividend accumulations; 4) paid up additions Entire contract clause states that the life insurance policy and attached application constitute the entire contract between the parties Extended term insurance option the net cash surrender value is used as a net single premium to extend the full face amount of the policy (less any indebtedness) into the future as term insurance for a certain number of years and days Fixed amount (income of elected amount) option a fixed amount is periodically paid to the beneficiary Fixed period (income for elected period) option the policy proceeds are paid to a beneficiary over some fixed period of time Grace period the policyholder has a period of 31 days to pay an overdue premium Guaranteed purchase option gives policyholders the right to purchase additional amounts of life insurance at specified time in the future without evidence of insurability Incontestable clause the insurer cannot contest the policy after it has been in force two years during the insured s lifetime Interest option the policy proceeds are retained by the insurer, and interest is periodically paid to the beneficiary Irrevocable beneficiary one that cannot be changed without the beneficiary s consent Life income options 1) life income installment payments are paid only while the beneficiary is alive and cease on the beneficiary s death; 2) life income with guaranteed period if the primary beneficiary dies before receiving the guaranteed number of years of payments, the remaining payments are paid to a contingent beneficiary; 3) life income with guaranteed total amount if the beneficiary dies before receiving installment payments equal to the total amount of insurance placed under the option, the payments continue until the total amount paid equals the total amount of insurance; 4) joint and survivor income income payments are paid to two persons during their lifetimes, such as a husband and wife Life settlement a financial transaction by which a policy holder who no longer needs or wants to keep a life insurance policy sells the policy to a third party for more than its cash value