Personal Finance-Chapter 10

beneficiary

a person designated to receive something, such as life insurance proceeds, from the insured

The sooner a person is likely to die, the ____ the premiums they will pay

higher

Avg life expectancy

Males-74.8
Females-80

Four methods of determining what kind of insurance you need

Easy method, DINK, non-working spouse method, and the family need method

Easy method

multiply current gross income by 7 and then by .70
You may need more depending on if you have more than 4 kids, high debt, poor health in family, poor employment of other spouse

DINK method

(Dual income, no kids)

non-working" spouse method

multiply the number of years before the youngest child turns 18 by $10,000

two types of life insurance companies

stock and mutual
95% 5%

nonparticipating policy

life insurance that does not provide policy dividends, also called a nonpar policy

participating policy

life insurance that provides policy dividents, also called a par policy

term insurance

life insurance~Temporary, provides protection for a specified amt of time. If you stop paying premiums, your coverage stops.

Renewable term

coverage ends at end of term, however you may renew up to a certain age. Premium goes up when you renew because you are older

Multiyear level term

aka straight term, guarantees you will pay fhte same premium for the duration of your policy

Conversion term

allows you to change from term to permanent coverage, will have higher premium

Decreasing term

term insurance that pays less to beneficiary as time passes. I.E., if you had a mortgage, coverage would decrase as balance on loan decreased

Return of premium term

return all the premiums if you survive to the end of the policy term. Premiums are higher than regular term policy butyou get all your money back

Whole life insurance

aka straight life policy, cash-value policy or an ordinary life policy
permanent policy for which you pay a specified premium each year for the rest of your life. In return the company pays your beneficiary a stated sum when you die. Amt of premium depend

Cash value

amt recieved after giving up life insurance policy

Limited payment policy

type of whole life insurance, charge premiums for only certain length of time (10-20 years) and then the policy holder is insured for life. Beneficiary recievies full death benefit. higher annual premiums because it's paid off faster

Adjustable life policy

allows you to change your coverage as your needs change. Whole life insurance policy

Universal life

essentially a term policy witha cash value, but IS A WHOLE LIFE INSURANCE POLICY. You can borrow or withdraw your cash value, allows you to change your premium without changing your coverage

group life insurance

basically a variation of term insurance. Covers a larger number of people under a single policy. Usually offered through employers. easy to enroll in, but expensive

Credit life insurance

used to pay off certain debts such as auto homes or mortgages in the event that you die before they are paid in full. NOT the best buy for the protection they offer. decreasing term insurance is a better option

Endowment life insurance

life insurance that provides coverage for a specific period of time and pays an agreed-upon sum to the policy holder if he or she is still living ath the end of the endowment period. If the policy holder dies, beneficiary recieves that money.

Contingent beneficiary

someone who recieves the money if you and your primary beneficiary die at the same time, or they die before you

incontestability clause

says that the insurer can't cancel the policy if it's been inforced for a specified amt of time, usually two years.

Grace period

allows a 28-31 day gap, if you do not pay the premium withing this your coverage lapses.

Policy reinstatement

lapsed policy can be put back in force, or reinstated, if it has not been turned in for cash. There is a timelimit for reinstatement.

nonforfeiture clause

allows the insured not to forfeit all accrued benefits. i.e. if you drop your policy, you stillhave the right to access your cash value

misstatement of age provision

if company finds out you lied about your age, they will pay benefits based on what premium you should have been paying to make up the difference

policy loan provision

loan from the insurance company . Permits you to borrow money up to the cash value of the policy. Reduces teh death benefit by the amt of the loan plus interest if the loan isnot repaid

suicide clause

in the first two years of coverage, benficiaries of someone who dies by suicide receive only the amt of the premiums paid. After two years they receive the full death benefit.

Riders to life insurance policy

rider is a document attached to a policy that changes its terms by adding or excluding specified conditions or alters its benefts. I.E.
Waiver of premium disability benefit-allows you to stop payments if you are permanently disable before you reach a cert

interest adjusted index

method of evaluating the cost of life insurance by taking into account the time value of money

Settlement options

lump sum
limited installment payment (payments for a number of years)
Life income option (payments for rest of life, depending on beneficiary age)
Proceeds life with company-company keeps proceeds but earns interest to give to beneficiary

annuity

contract that provides a regular income for as long as the person lives. Protects you of the risk of outliving your assets.