Life: Chapter 4 – Flashcards
Unlock all answers in this set
Unlock answersquestion
Where would policy proceeds be paid if both the insured and primary beneficiary were killed in the same accident?
answer
Contingent beneficiary
question
What does a life insurance policy guarantee to the stated beneficiary up on the death of the insured?
answer
Specified amount of money
question
What is affected by the frequency of an insurance policy's premium payments?
answer
The cost
question
What is the purpose of a Section 1035 exchange?
answer
Enables a life policy to be replaced with another life policy and results in postponement of the tax consequence.
question
A policyowner can receive a percentage payment of death benefits prior to death by using what kind of contract?
answer
Viatical settlement agreement
question
What is the primary feature of a viatical settlement?
answer
Reduced death benefit prepayment.
question
What factors determine an insured's life insurance premium?
answer
Age, occupation, and avocation (hobby).
question
If the beneficiary dies from the same accident of the insured individual, the insurer will proceed as if, what?
answer
The insured outlived the beneficiary, allowing the proceeds to go to the contingent beneficiary.
question
Which policies have premiums that are averaged over the policy period?
answer
Level premium term life insurance policies
question
How does life insurance create an immediate estate?
answer
After the first premium is paid, the face amount may be available to the beneficiary.
question
Define "mortality factor".
answer
The measure of the number of deaths in a given population.
question
What is the "expense factor"?
answer
The "loading charge" aka operating expenses.
question
What is a "paid-up" policy?
answer
A single premium funding policy paid up with a single payment, normally associated with whole life.
question
What is "cash value"?
answer
-A savings element of whole life policies that are payable before death.
-Value during early years typically will be less than the premiums paid.
question
What types of premiums are tax deductible?
answer
-Premiums used for charity
-Paid by ex-spouse as court-ordered alimony
-Employer-paid premiums for group life
question
What types of premiums are NOT tax deductible?
answer
Premiums used for individual life policies or business purposes.
question
What is the tax treatment of cash value?
answer
As long as the policy is not surrendered, it grows tax-free.
question
What is "cost-basis"?
answer
The total of premiums paid into the policy minus the total dividends received in cash or used to offset premiums.
question
How is the cost of a policy affected when a policyowner pays premiums more frequently?
answer
The cost increases
question
What premium payment mode results in the highest overall cost?
answer
Monthly
question
What is considered a major tax advantage of life insurance?
answer
Income tax is typically not owed on proceeds paid directly to a beneficiary.
question
Naming a contingent beneficiary as "all surviving children" is described by what term?
answer
Class designation
question
Pat is insured with a life insurance policy and Karen is his primary beneficiary. They are both involved in an automobile accident where Pat dies instantly and Karen dies 5 days later. Which policy provision will protect the rights of the contingent beneficiary to receive the policy benefits?
answer
Common disaster clause
question
What is a viatical settlement?
answer
A settlement in which a terminally ill viator may sell their life insurance policy to a third party (viatical/viatee) for a percentage of the face value.
question
If no one is named as a beneficiary of the beneficiary dies before the insured, where does the death benefit go?
answer
To the insured's estate.
question
Name, in order of succession, the types of beneficiaries.
answer
Primary: First in line
Contingent: Second in line
Tertiary: Third in line or the estate
question
Per Stirpes
answer
"By Bloodline": if the beneficiary dies before the insured, the benefits will be paid to the beneficiary's heirs.
question
Per Capita
answer
"By Head": Even distribution amoung all named living beneficiaries
question
What happens in the event of simultaneous death of insured and primary beneficiary?
answer
The assumption will be the primary died first, allowing death benefits to be paid to contingent beneficiaries.
question
What is the spendthrift clause?
answer
States that benefits are paid in a fixed amount over a certain period of time to prevent the beneficiary from reckless spending.
