Life Insurance and Risk management Exam 2 Key Terms Study Guide Graded A 2024

Annual Renewable Term (ART) - Type of term insurance that permits the policyholder to purchase term insurance in subsequent years without evidence of insurability, but premiums on the policy increase each year to reflect the increasing mortality risk being undertaken by the insurer. Annuity - Periodic payment to an individual that continues for a fixed period or for the duration of a designated life or lives. Asset Accumulation Phase - Phase from early 20s to late 50s when cash flow for investing is low and debt-to-net worth is high. Assignment - Process of transferring all or part of the policy's ownership rights. Beneficiary - Person or institution legally entitled to receive benefits through a legal device, such as a will, trust or life insurance policy. Capitalized-Earnings Approach - Method to determine life insurance needs that suggests the death benefits of a client's life insurance should equal an income stream sufficient to meet the family's needs without depleting the capital base. Conservation (Risk Management) Phase - Phase from late 20s to early 70s when cash flow assets and net worth have increased and debt has decreased somewhat. Risk management of events like employment, disability due to illness or accident, and untimely death become a priority. Contingent Beneficiaries - Person(s) or organization named to receive the death benefit if the primary beneficiary is not available to receive the policy proceeds. Decreasing-Term Insurance - Type of term insurance that allows the owner to pay the same premium for the insurance protection each year. The death benefit on the policy will, however, decrease each year to offset the increasing mortality cost due to the passage of time. Distribution (Gifting) Phase - Phase from late 40s to end of life when the individual has high additional cash flow, low debt, and high net worth. First-to-Die - Type of joint life insurance policy that covers two individuals, but the death benefit is paid upon the death of the first individual. Grace Period - Provision in most insurance policies that allows payment to be received for a certain period of time after the actual due date without a default or cancellation of the policy. Group Term Insurance - Type of life insurance coverage offered to a group of people that provides benefits to the beneficiaries if the covered individual dies during the defined covered period. Guideline Premium and Corridor Test - One of two Congress-imposed tests to determine whether a life insurance contract meets the definition of a MEC. This test calls for the policy to be tested using actuarial principles and requires the premiums to represent no more than a specified portion of the death benefit. Human-Life Value Approach - Method to determine life insurance needs that suggests the death benefit of a client's life insurance should be equal to the economic value of the client's future earnings stream. Illustration - Projection of the financial results that can be achieved with a life insurance policy, based on assumptions about premium payments, investment earnings, and dividends. In-Force Policy Illustration - Allows the planner and client to monitor the performance of the policy versus what was expected, enabling them to correct any potential problems before they occur. Insured - Person whose life is insured by the policy. Joint and Survivor Annuity - Annuity based on the lives of two or more annuitants, usually spouses. Annuity payments are made until the last annuitant dies. Level Premium Term Insurance - Type of term insurance that charges a fixed premium each year over a specified period of years, so the premium does not increase over that period. Limited-Pay Policies - Type of whole life policy with a payment schedule (typically 10 or 20 years). At the end of the payment period, the policy is considered to be paid-up, at which time no additional premium payments are due. Modified Endowment Contract (MEC) - Cash value life insurance policy that has been funded too quickly. Under a MEC, the death benefit payable to the beneficiary is not subject to income tax, but policy loans or cash value withdrawals are taxable. Modified Whole Life Policies - Type of whole life policy with lower premiums than a regular policy for an initial policy period, which increase to a higher-level premium at the end of the initial period.