Traditional Life flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Insurable interest
- A requirement that the policyowner would suffer a financial loss if the insured died; must exist at the time of application, not necessarily at death.
- Cash value
- The savings component of a permanent life insurance policy that grows tax-deferred and can be accessed through loans or withdrawals.
- Term life insurance
- Coverage for a specified period; pays a death benefit only if the insured dies during the term; no cash value accumulates.
- Whole life insurance
- Permanent insurance with guaranteed level premiums, guaranteed death benefit, and guaranteed cash value growth; coverage lasts for the insured's lifetime.
- Variable life insurance
- Permanent insurance with cash value invested in separate accounts; value fluctuates with market performance; considered a security.
- Universal life insurance
- Flexible-premium permanent insurance with unbundled components: cost of insurance, expenses, and interest credited to cash value.
- Incontestability clause
- After two years from issue, the insurer cannot contest the policy for misrepresentation, except for fraud or nonpayment of premium.
- Grace period
- A period (typically 30 or 31 days) after the premium due date during which coverage remains in force before the policy lapses.
- Reinstatement provision
- Allows a lapsed policy to be restored within a specified period upon evidence of insurability and payment of overdue premiums with interest.
- Waiver of premium rider
- Waives premiums if the insured becomes totally disabled for a specified period (usually six months) and remains disabled.
- Accelerated death benefit
- A rider allowing the insured to receive a portion of the death benefit early upon diagnosis of a terminal illness.
- Nonforfeiture options
- Choices for whole life cash value if the policyowner stops paying premiums: cash surrender, reduced paid-up insurance, or extended term insurance.
- Gross premium
- The total premium charged, consisting of the net premium (for mortality and interest) plus expense loading for administrative costs.
- Per stirpes
- A beneficiary distribution method where a deceased beneficiary's share passes to their heirs (by branch).
- Per capita
- A beneficiary distribution method where surviving beneficiaries share the proceeds equally (by head).
- Spendthrift clause
- Protects life insurance proceeds from the beneficiary's creditors by preventing the beneficiary from assigning or encumbering payments.
- Settlement options
- Methods for paying life insurance proceeds: lump sum, interest only, fixed period, fixed amount, or life income.
- Limited-pay whole life
- Whole life insurance with premiums paid over a limited period (e.g., 20 years or to age 65), with coverage lasting for life.
- Modified endowment contract
- A life policy that fails the 7-pay test; withdrawals and loans are taxed LIFO and may incur a 10% penalty before age 59½.
- Indexed universal life
- Universal life where cash value interest is linked to an index with a floor and cap; not a security.
- Policy loan
- A loan from the insurer against a policy's cash value; unpaid loans plus interest reduce the death benefit and can cause lapse.
- Decreasing term insurance
- Term insurance with a face amount that decreases over time, often used for mortgage protection.
- Convertible term
- Term insurance that can be converted to permanent insurance without evidence of insurability before a specified age or time.
- Annual renewable term
- One-year term insurance that can be renewed without proof of insurability; premiums increase each year with age.
- Return of premium term
- Term insurance that refunds premiums if the insured survives the term; premiums are higher than for level term.
- Immediate annuity
- An annuity purchased with a single premium where income payments begin within one payment period (e.g., one month).
- Variable annuity
- An annuity with cash value invested in subaccounts; value fluctuates with market performance; requires a securities license.
- Surrender charge
- A fee for early withdrawal from a deferred annuity, typically declining over 7-10 years.
- Conditional receipt
- Provides coverage when the application and initial premium are submitted, provided the proposed insured is insurable.
- Medical Information Bureau
- A membership organization that provides coded medical information to insurers; cannot be the sole basis for denial.
- Modified endowment contract tax
- Withdrawals and loans from a MEC are taxed LIFO (gain first) and may incur a 10% penalty before age 59½.
- Twisting
- Misrepresenting a policy to induce replacement; an illegal unfair trade practice.