Life Insurance Chapter 5 Quiz & Flashcards

Questions and Answers

What is an irrevocable beneficiary?

A policyowner can make changes without consent.

Beneficiary designation allows flexibility.

A policyowner cannot make changes without consent. (correct)

A beneficiary can change the policy.

Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident?

to the contingent beneficiary.

What does a life insurance policy guarantee to the stated beneficiary upon the death of the insured?

a specified amount of money.

Which of these is affected by the frequency of an insurance policy's premium payments?

Cost Signup and view all the answers

Mortality is calculated by using a large risk pool of?

people and time. Signup and view all the answers

If the beneficiary dies from the same accident as the insured individual, how will the insurer proceed?

as if the insured outlived the beneficiary. Signup and view all the answers

What do level premium term life insurance policies have?

premiums that are averaged over the policy period. Signup and view all the answers

Over the course of a year, which premium payment mode is most expensive?

Monthly Signup and view all the answers

An example of naming a beneficiary by class would be?

'To the children born of my union with Ned Jackson'. Signup and view all the answers

Naming a contingent beneficiary as 'all surviving children' is described by which term?

class designation. Signup and view all the answers

What type of contract allows a policyowner to receive a percentage payment of the death benefits prior to death?

viatical settlement agreement. Signup and view all the answers

A tax-free Section 1035 Exchange of a life insurance policy is permitted if it occurs?

from insurer to insurer and no cash is received by the policyowner. Signup and view all the answers

What would be an expense factor in an insurance program?

mortality costs. Signup and view all the answers

How does life insurance create an immediate estate?

After first premium is paid, the face amount may be available to the beneficiary. Signup and view all the answers

Which type of beneficiary should be named if the insured wants to give explicit directions on how the policy proceeds should be paid?

Individual. Signup and view all the answers

Which of these ensures that proceeds of a life insurance policy will be free from attachment or seizure by the beneficiary's creditors?

Spendthrift Clause Signup and view all the answers

What happens to the total amount of premium paid for an insurance policy when the payment frequency increases?

Increases. Signup and view all the answers

What is the primary feature of a viatical settlement?

Reduced death benefit prepayment. Signup and view all the answers

Income tax is typically owed on proceeds paid directly to a beneficiary.

False Signup and view all the answers

Study Notes

Life Insurance Concepts

Irrevocable Beneficiary: Changes to the policy require written consent from the beneficiary, preventing unilateral alterations by the policyowner.
Contingent Beneficiary: In the event of simultaneous deaths of the insured and primary beneficiary, policy proceeds are allocated to this entity.
Specified Amount: Life insurance guarantees a predetermined sum to the stated beneficiary upon the insured's death.

Premium Payments

Cost Impact: The frequency of premium payments affects the overall cost of the policy.
Most Expensive Payment Mode: Monthly premium payments incur the highest annual cost.
Level Premium Term Life Insurance: This type has premiums averaged over the policy period, ensuring consistent payment amounts.

Mortality Calculations

Mortality and Risk Pool: Mortality rates are determined by analyzing a large pool of individuals, assessing their risk profiles over time.
Increase in Premium with Frequency: As the frequency of premium payments increases, the total premium expense also increases.

Beneficiary Designation

Naming Beneficiaries: Specific phrases like "To the children born of my union with Ned Jackson" exemplify class beneficiary designations.
Class Designation: Referring to a contingent beneficiary as "all surviving children" illustrates this concept.

Viatical Settlements

Viatical Settlement Agreement: Allows policyowners to receive a percentage of death benefits prior to the insured's death, providing immediate financial relief.
Reduced Death Benefit Feature: The primary characteristic of viatical settlements is the prepayment of a decreased death benefit.

Estate Creation

Immediate Estate Formation: Life insurance can create an immediate estate, making the face amount available to the beneficiary right after the first premium is paid.

Tax Considerations

Tax-Free Exchanges: A Section 1035 Exchange allows tax-free policy transfers between insurers without cash being received by the policyowner.
Tax Advantages of Proceeds: Beneficiaries typically do not owe income tax on life insurance proceeds, representing a significant financial benefit.

Protecting Beneficiaries

Spendthrift Clause: Ensures policy proceeds remain secure from creditors’ claims against the beneficiary's estate.

Specific Directions

Individual Beneficiary: Naming an individual allows for explicit instructions on the payment distribution of policy proceeds, ensuring the insured’s wishes are fulfilled.

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Description

Test your knowledge of key terms and concepts from Chapter 5 on life insurance. These flashcards cover important definitions such as irrevocable beneficiaries and contingent beneficiaries. Improve your understanding of life insurance policies and their implications.

Life Insurance Chapter 5 Flashcards