Life Insurance Flashcards

Life Insurance Key Concepts

• Term Life Insurance: Temporary protection for a specific period, pays death benefit if insured dies during that term; offers maximum coverage for lowest premiums; pure death protection.
• Level Term Life Insurance: Premiums remain consistent throughout the policy's life.
• Increasing Term Policy: Features a level premium, but the face amount increases annually.
• Face Value: Refers to the death benefit of a life insurance policy.
• Decreasing Term Policy: Consists of level premiums with a decreasing death benefit, commonly used in mortgage protection.

Whole Life Insurance Features

• Whole Life Insurance: Permanent protection as long as premiums are paid; death benefits and premiums are guaranteed.
• Cash Value Accumulation: Premiums remain unchanged through the policy life, allowing cash value growth.
• Straight Life: Continuous premium payment with a guaranteed death benefit; lowest annual premium among whole life options.
• Limited Pay Whole Life: Requires premiums for a specified number of years; remains in force for the lifetime after premium payment.
• Single Premium Whole Life: Requires one lump sum payment for a level death benefit, generating immediate cash value.

Special Provisions and Options

• Disclosure Authorization Notice: Required when an insurer seeks information from an applicant.
• One Year Term Option: Policyowner uses dividends to purchase a term policy for one year.
• Nonqualified Annuity Plan: Offered selectively to certain employees, funded with before-tax corporate dollars, not government-regulated.
• Accelerated Benefit Provision: Allows early payment of part of the face value due to terminal illness, paid without a premium increase.

Annuities and Benefits

• Variable Annuities: Risks are assumed by the annuitant; investment performance varies.
• Paid-Up Option: Dividends accumulated at interest and combined with cash value to pay off policy early.
• Income Benefit Rider: Provides monthly income during a disability period while waiving policy premiums.

Retirement and Tax Considerations

• ROTH IRA: Allows tax-free growth without taxes on contributions after age 70½ for non-covered individuals.
• Tax Deductibility of Premiums: Premiums paid on group term life insurance plans for employees are deductible.

Beneficiary Designations and Rights

• Beneficiary Designations: Beneficiaries do not need insurable interest in the insured; rights vary based on designation (revocable vs. irrevocable).
• Owner's Rights: Include the ability to change beneficiaries, choose options, and receive proceeds.
• Spendthrift Provision: Prevents beneficiaries from changing payment terms, borrowing, or assigning benefits.

Policy Mechanics and Regulations

• Commencement of Coverage: Effective date coincides with the application date if full premium is submitted.
• Fixed Period Settlement Options: Payments liquidate both principal and interest over a selected period.
• Certificate of Authority: Required for insurers to operate in a state; not issued to group participants.

Special Policies and Situations

• STOLI Policy: Life policies purchased by investors with no relationship to the insured for future sale.
• Extended Term Nonforfeiture Option: Converts cash value to term insurance at the same face amount as the whole life policy.
• Profit Sharing Plan: Contributions from employers based on company profits.

Claim Procedures and Finally

• Insurance Coverage: For individuals with no war clause, beneficiaries receive the full death benefit during wartime.
• Policy Summary: Includes important details like premium amounts and surrender values.
• Reactivation of Lapsed Policy: Allowed with timely proof of insurability under specific policy provisions.### Reinstatement Provision
• Allows policyholders to restore a lapsed policy under certain conditions, but may not apply after a cash surrender.

Tax Sheltered Annuity

• A retirement plan that offers tax advantages exclusively to specific groups like nonprofit and educational employees.

Multiple Employer Trust (MET)

• A collaborative agreement among similar small companies that enables them to provide a collective insurance benefit plan for their employees.

Cash Surrender Option

• Termination of the policy occurs when cash value is taken; coverage cannot be reinstated afterward.

Fair Credit Reporting Act Penalty

• Maximum penalty for habitual noncompliance can reach $2,500 for intentional violations.

Accelerated Benefit Provision

• Reduces the total benefits available to beneficiaries when early payout is taken.

Fixed Period Benefits

• Allows beneficiaries to select a guaranteed payout period, with the insurer determining installment amounts.

Extended Term Nonforfeiture Option

• Provides the highest insurance protection by converting cash value into term insurance equivalent to the original policy’s face value.

Compliance with Commissioner Requests

• Individuals must respond to information requests from the Commissioner within 30 days if no time frame is specified.

Deferred Anuity Use

• Best utilized for accumulating retirement income or education funds; not suitable for estate creation.

Payor Benefit Rider

• Waives premiums for the insured child until age 21 if the policyholder becomes disabled.

Nonforfeiture Values

• Required by state law to be included in life insurance policies, with a mandatory disclosure table for the next 20 years.

Notification for Address Change

• Licensed insurance producers must inform the Commissioner within 10 days of a change in address.

Insuring Clause

• Details the insurer's obligation to pay death benefits and specifies the recipient of these benefits.

Keogh Plan Requirements

• An individual must work at least 1,000 hours per year for the plan to be effective.

Fair Credit Reporting Act on Disputes

• Disputes involving consumer information are not classified as negative information under the act.

Credit Life Insurance Structure

• Issued as decreasing term insurance to align repayment with the debt owed to creditors on an installment basis.

Misrepresentation in Insurance

• Involves any false, misleading, or deceptive information regarding policy benefits or terms, which can include oral statements.

Premium Payment Frequency

• "Mode" refers to how often a policyholder must make premium payments.

Automatic Premium Loan

• Prevents unintended policy lapse due to premium nonpayment by automatically borrowing from the policy's cash value.

Cross Purchase Plan

• A buy-sell agreement where partners purchase insurance on each other's lives, serving as owner, payor, and beneficiary.

Equity Indexed Annuities

• Offer higher returns with guaranteed minimum interest rates, carrying less risk than variable annuities.

Other Insurance Provision

• Details the payment hierarchy among multiple insurance policies in effect.

Credit Insurance

• Designed to cover the life of an individual debtor to ensure repayment of debt obligations.

Change Notification Period

• Licensed producers are required to notify the Commissioner of changes in contact information within 10 days.

Insuring Clause Reiterated

• Contains the insurer's promise to pay benefits under the terms of the policy.

Mutual Insurance Company

• Provides dividend checks to its policyholders as a return on surplus.

Types of Insurance Assignment

• Two categories exist: absolute assignment, which transfers full benefits, and collateral assignment, which secures loans against the policy.

Survivorship Benefits

• Allow a surviving beneficiary to receive two-thirds of the benefits paid while both beneficiaries were alive.

Test your knowledge of life insurance terms and concepts with these flashcards. Learn about various types of policies, such as term life insurance and level term life insurance. This quiz is perfect for anyone interested in understanding how life insurance works.