LUTCF Course 2 key terms

A legal requirement that the person buying a policy would suffer genuine financial or emotional loss if the insured died. It must exist when the policy is issued, or the contract is generally void from the start.

The owner controls the policy, pays premiums, names beneficiaries, and may surrender or borrow against it. The insured is the person whose life is measured. They are often the same person but need not be, as with a parent insuring a child.

A window, usually two years from issue, during which the insurer may rescind a policy or deny a claim if the application contained material misstatements. After it closes, most misstatements no longer void coverage.

A provision stating that after the contestability period the insurer cannot challenge the validity of the contract based on application errors. It protects beneficiaries from late rescission but does not excuse nonpayment of premium.

A false or incomplete statement on an application that would have changed the insurer's decision to issue coverage or the premium charged. Examples include omitted smoking, unreported heart disease, or understated income on a large policy.

A short span, commonly 30 or 31 days after a premium due date, during which the policy stays in force even though payment is late. A claim arising in this window is paid, with overdue premium deducted.

Restoring a lapsed policy to full force by paying overdue premiums with interest and providing evidence of insurability. The new contestability and suicide periods typically restart from the reinstatement date.

The savings component inside permanent life insurance that builds over time and belongs to the owner. It can be accessed by surrender, policy loan, or partial withdrawal, and it reduces the death benefit if borrowed against.

Choices available when a permanent policy with cash value is surrendered or lapses: take the cash, convert to reduced paid-up coverage, or continue the same face amount for a limited term. They prevent forfeiture of accumulated value.

A nonforfeiture choice that uses the cash value as a single premium to buy term coverage equal to the original face amount for whatever period that money will purchase. No further premiums are due.

A borrowing of cash value from the insurer, secured by the policy, that accrues interest and need not be repaid on a schedule. Unpaid loan balance plus interest is subtracted from the death benefit or surrender value.

An optional rider that directs the insurer to pay an overdue premium from available cash value to keep the policy from lapsing. It creates a loan with interest and can erode the death benefit over time.

A rider that suspends premium payments while the insured is totally disabled beyond a waiting period, keeping coverage in force. The insurer effectively pays the premiums during the disability.

A provision allowing the insured to receive part of the death benefit early when diagnosed with a terminal illness or qualifying condition. The payout is discounted, and the remaining benefit paid to beneficiaries is reduced.

A beneficiary whose designation cannot be changed without that person's written consent. The owner loses the ability to redirect proceeds or take certain policy actions while the designation stands.

A beneficiary distribution method in which a deceased beneficiary's share passes to that person's descendants. It keeps a family branch's share intact rather than redistributing it among surviving named beneficiaries.

Converting an accumulated sum into a guaranteed stream of income for a set period or for life. Once elected, the decision is usually irrevocable and the underlying principal is no longer accessible.

The period during which an annuity makes payments to the annuitant, in contrast to the accumulation phase when money grows. Payment size depends on account value, interest assumptions, and the chosen payout option.

A contract in which the insurer guarantees a minimum interest rate on the accumulation and a fixed payment amount during payout. The insurer bears investment risk, and the buyer gives up upside market participation.

A fee deducted when an annuity or cash value policy is cashed out during the early contract years. Charges typically step down annually and disappear after a set period, discouraging early withdrawal.

Sale of an existing life policy to a third party by someone with a terminal illness for less than face value. The buyer pays premiums and collects the death benefit later, providing the seller cash while living.

Rules determining which of two health plans pays first when a person is covered by more than one. The primary plan pays its normal share, and the secondary plan considers the remaining balance, preventing duplicate payment.

The amount a covered person must pay for covered services before the insurer begins paying its share. Higher deductibles generally lower the premium, and some preventive services may be exempt.

A yearly cap on the deductibles, copayments, and coinsurance a covered person pays for in-network essential benefits. Once reached, the plan generally pays covered costs in full for the rest of the year.

The waiting time after a disability begins before benefits become payable, expressed in days or weeks. It functions like a deductible measured in time and reduces premium when lengthened.

The maximum length of time disability income benefits continue for a single claim, such as two years or to age 65. A longer benefit period raises premium because the insurer bears more risk.

A disability standard that pays benefits when the insured cannot perform the duties of their specific occupation, even if able to work elsewhere. It is broader and costlier than an any-occupation standard.

A stricter disability standard that pays only when the insured cannot perform the duties of any occupation for which they are reasonably suited by training or experience. Insurers often apply it after an initial own-occupation period.

A benefit that pays a proportionate share of the monthly amount when the insured returns to work at reduced income because of disability. It encourages partial return to work rather than full absence.

The conditions that must be met before long-term care benefits pay, typically inability to perform two of six activities of daily living or cognitive impairment. Triggers are defined in the contract and verified by assessment.

Basic self-care tasks such as bathing, dressing, eating, toileting, transferring, and continence. Insurers use the number a person cannot perform without help to determine eligibility for long-term care benefits.

A tax-advantaged account available to people enrolled in a qualifying high-deductible health plan. Contributions are deductible, growth is tax deferred, and withdrawals for qualified medical expenses are tax free.

A retirement plan such as a 401(k) in which the contribution amount is set and the eventual benefit depends on investment performance. The employee bears investment risk, unlike in a defined benefit pension.

A pension promising a specified benefit at retirement, often based on salary and years of service. The employer funds and bears investment risk and typically manages the plan's assets.

The schedule under which an employee gains nonforfeitable rights to employer contributions. Before full vesting, leaving the job can mean losing some or all of the employer-provided money, though the employee's own contributions are always theirs.

The minimum amount that must be withdrawn annually from most tax-deferred retirement accounts after a certain age. Failing to take it triggers a substantial excise tax on the shortfall.

Moving funds from one retirement account to another, such as from a 401(k) to an IRA, without triggering current tax if done properly. A direct trustee-to-trustee transfer avoids mandatory withholding on the amount moved.

The age at which a worker qualifies for unreduced retirement benefits, set by birth year and generally between 66 and 67. Claiming earlier permanently reduces the monthly amount; delaying past it increases it.

The court-supervised process of validating a will and distributing assets that pass by will or intestacy. Assets with named beneficiaries or held in trust generally bypass it, which is a common estate planning goal.

A trust created during life that holds assets, avoids probate, and can direct management if the grantor becomes incapacitated. Because the grantor keeps control and benefit, trust assets remain in the taxable estate.

A trust that owns a life policy and is designed to keep proceeds out of the insured's taxable estate. The insured gives up ownership rights, and strict rules govern contributions used to pay premiums.

The amount one person may give another each year without gift tax or use of lifetime exemption. Gifts above it require filing and count against the lifetime exemption unless an exclusion applies.

The adjustment of an inherited asset's cost basis to its fair market value at the owner's death. It can erase capital gains tax on appreciation during the decedent's life when heirs later sell.

An estate and gift tax provision allowing unlimited transfers between spouses without tax, provided the recipient spouse is a citizen or special trust rules apply. It postpones rather than eliminates tax.