Lesson 4 Review
The three primary factors used as the basis for determining premium costs in life insurance are (1) mortality (the average number of deaths), (2) interest, and (3) expenses. Other principal factors utilized to determine premium rates are age, sex, health condition, occupation, and habits.
The primary purposes of a mortality table are to indicate the expectation of life at given ages and the average number of deaths for a group of persons in given years.
Net Single Premium = Mortality Cost - Interest
Gross Premium = Net Single Premium + Expenses
Whole life insurance premium costs are based on level premiums, cash value and maturity at age 100.
Policy Reserve - Belongs to the insurer
Cash Value - Belongs to the policyowner
Settlement options are:
- Single Premium Payment
- Installment Payments
- Income for Life
- Joint Life Income
- Interest Payments
- Special Payment Plans
Optional modes of settlement are provided by most life insurance policies in lieu of the traditional lump sum payment. Usual options are:
- Lump Sum Cash
- Interest Only
- Fixed Period
- Fixed Amount
- Life Income
A viatical settlement allows an insured person with a life-threatening illness to surrender the insurance policy for cash. As a result of amended legislation in 2005 of the Florida Viatical Settlement Act, Florida will no longer issue viatical settlement broker licenses. Only a licensed life insurance agent may offer or attempt to negotiate on behalf of another person a viatical settlement contract.
Death benefits paid by a life insurance company to a named beneficiary are free of federal income taxes. However, any interest that is earned is taxable. Policy dividends are income tax free but interest under a dividend option is taxable in the year the interest is paid. A policyowner who receives the cash value for a surrendered policy must pay taxes on any gain.
1035 contract exchanges allow a life insurance policy to be exchanged for another life insurance policy, endowment policy, or annuity contract; an endowment policy to be exchanged for an annuity contract; and an annuity contract to be exchanged for another annuity contract tax free.
The primary beneficiary is the #1 beneficiary. If the primary beneficiary is deceased, proceeds go to the secondary beneficiary. If the both the primary and secondary beneficiaries are deceased, proceeds go to the tertiary beneficiary. Life insurance proceeds when paid to the beneficiary are protected from creditors. The spendthrift clause protects life insurance proceeds from creditors.
If a policyowner fails to designate a beneficiary, or if the named beneficiary predeceases the insured, the proceeds of the policy will go to the insured's estate and become taxable.
The per capita rule states that death proceeds from an insurance policy are divided equally among the living primary beneficiaries. The per stirpes method is used to divide policy proceeds equally among the children of a deceased beneficiary.
Revocable beneficiary designation means that the policyowner can change the beneficiary anytime without obtaining the named beneficiary's permission. Irrevocable beneficiary designation means that the policyowner cannot change the beneficiary without first obtaining the named beneficiary's permission
The purpose of the Simultaneous Death Act is to expedite the payment of claims by alleviating the problem of simultaneous death when the will doesn't specify what to do upon a simultaneous death.
The purpose of the common disaster provision is to provide a sequence of beneficiaries for the distribution of proceeds in the event of the simultaneous death of both the insured and primary beneficiary.
The information contained in Units 7 and 8 of the Florida study manual has been presented in Lesson 4 of the online course.
