Insurance Concepts Chapter 5 Flashcards
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Questions and Answers

What would be an expense factor in an insurance program?

Mortality costs

Which settlement option should Pam choose to let the death benefit accumulate and receive only the monthly investment proceeds?

Interest option

Which component is affected by an insured's age and gender when calculating life insurance premium rates?

Mortality

Which clause protects proceeds from a life insurance policy from the beneficiary's creditors?

<p>Spendthrift trust clause</p> Signup and view all the answers

What is the term for the number of deaths in a year compared to the number of people in a select group?

<p>Mortality rate</p> Signup and view all the answers

Under which component does an agent's commission fall when calculating life insurance premium rates?

<p>Insurer's expenses</p> Signup and view all the answers

Which of the following is NOT a life insurance settlement option?

<p>Extended term option (A)</p> Signup and view all the answers

What is the price of insurance for each exposure unit called?

<p>Rate</p> Signup and view all the answers

Which of the following is NOT an insurer policy expense?

<p>Premiums (A)</p> Signup and view all the answers

When would creditors be allowed rights to life insurance policy proceeds?

<p>When the beneficiary is the insured's estate</p> Signup and view all the answers

In which settlement option does a beneficiary receive only the death benefit earnings?

<p>Interest-only settlement option</p> Signup and view all the answers

What does the frequency of an insurance policy's premium payments affect?

<p>Policy's cost</p> Signup and view all the answers

What does a spendthrift clause in a life insurance policy do?

<p>Prevents a beneficiary from recklessly spending benefits</p> Signup and view all the answers

How can premiums be best described?

<p>The amount an insured pays per unit of coverage</p> Signup and view all the answers

How are death benefits received by a beneficiary usually treated for tax purposes?

<p>Exempt from federal income tax</p> Signup and view all the answers

Flashcards

Mortality Rate

The number of deaths in a year divided by the total population exposed to a specific risk.

Premium

The amount paid by an insured for each unit of coverage, reflecting the risk profile and coverage options.

Spendthrift Clause

A clause in a life insurance policy that protects the beneficiary's portion of the death benefit from creditors.

Interest-Only Option

The option chosen by a beneficiary to receive only the interest earnings from the death benefit, not the principal amount.

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Mortality

One of the main factors that influence life insurance premiums, based on the likelihood of death.

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Interest Option

The option chosen by a beneficiary to let the death benefit accumulate while receiving only the monthly interest generated.

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Insurance Rate

The difference in price of insurance calculated between one exposure unit and another. It reflects the risk factors surrounding each client.

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Premium Payment Frequency

The frequency of premium payments affects the overall cost; less frequent payments often mean higher costs.

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Lump Sum Option

A life insurance settlement option where the beneficiary receives the death benefit as a lump sum payment.

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Estate as Beneficiary

If a life insurance policy names the insured's estate as the beneficiary, creditors can access the policy proceeds.

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Tax-Free Death Benefit

Death benefits received by beneficiaries are generally exempt from federal income tax.

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Premium Rate Calculation

The process of calculating the cost of life insurance, which includes factors like mortality, expenses, and commissions.

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Spendthrift Clause Function

The spendthrift clause helps ensure that the proceeds will be used for the intended purpose of the beneficiary.

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Income Option

A life insurance settlement option that allows the beneficiary to receive periodic income payments for a set period or the rest of their life.

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Spendthrift Trust Clause

A trust clause that restricts the beneficiary's ability to spend the benefits recklessly, ensuring they are used responsibly.

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Study Notes

Insurance Expense Factors

  • Mortality costs are a significant expense factor in insurance programs, influencing overall premium rates.

Beneficiary Settlement Options

  • Choosing the interest option allows a primary beneficiary, like Pam, to let the death benefit accumulate while only receiving monthly investment proceeds.
  • The interest-only option permits the beneficiary to receive solely the earnings generated from the death benefit.

Premium Rate Calculations

  • Mortality, influenced by an insured's age and gender, is a critical component in determining life insurance premium rates.
  • Agent commissions contribute to the insurer's expenses, which cumulatively affect premium calculations.

Protection of Proceeds

  • The spendthrift trust clause safeguards life insurance policy proceeds from being claimed by the beneficiary's creditors, ensuring financial protection.

Mortality Rate Understanding

  • The mortality rate is defined as the number of deaths in a year relative to the total population exposed to a given risk.

Life Insurance Settlement Options Overview

  • Common life insurance settlement options include various payout structures, but the "extended term option" is not considered a traditional option.

Insurance Pricing and Costs

  • The rate represents the price of insurance calculated per exposure unit, differing based on underwriting factors such as risk.
  • The frequency of premium payments directly impacts the overall cost of the insurance policy, with less frequent payments typically resulting in higher costs.

Beneficiary Rights and Implications

  • If a life insurance policy names the insured's estate as the beneficiary, creditors can access the policy proceeds.
  • Death benefits received by beneficiaries are generally exempt from federal income tax, providing a financial advantage following a policyholder’s passing.

Spendthrift Clause Functionality

  • The spendthrift clause restricts a beneficiary's ability to spend the benefits irresponsibly, ensuring that funds are preserved for their intended purpose.

Definition of Premiums

  • Premiums are defined as the amount an insured pays for each unit of coverage, reflecting the risk profile and coverage options selected.

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Test your knowledge on key insurance concepts with these flashcards from Chapter 5. Each card covers important definitions and terms related to expense factors and beneficiary options in insurance programs. Perfect for studying or reviewing essential insurance principles.

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