Introduction to Life Insurance
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| 3 parts of a life insurance application | General information, Medical information, Agent's report.
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| What's an underwriter? | Someone who evaluates whether or not a risk (or someone) is insurable. An underwriter will accept the risk and rate it according to its category, or decline it if the risk is too high.
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| What are the three categories of risk for life insurance? | Preferred, Standard and Substandard.
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| In insurance, what is a risk? | It is the possibility of a loss.
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| What are the two types of risks? | Pure risk and speculative risk.
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| What kind of risk is insurable? | Pure risk.
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| What kind of risk is NOT insurable? | Speculative risk.
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| What is the definition of pure risk? | A risk that involves only the uncertainty of a loss and no possibility for gain. Example: car accident or death.
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| What is the definition of speculative risk? | A risk undertaken voluntarily that involves both an uncertainty of loss and a gain. Example: investing in the stock market, gambling or betting at the race track.
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| What is a loss? | It is a reduction in the quantity, quality or value of something.
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| What is an insurance policy? | A contract that indemnifies someone against loss, damage or liability arising from an unexpected event.
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| What is indemnity or to indemnify someone? | It is to restore someone to the same financial position that s/he held before the loss.
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| Who is the policyowner? | The person who owns the policy, pays the premium and chooses the beneficiary.
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| Who is the insured? | It is the person whose life the policy covers. Sometimes it is the policyowner. Sometimes it is not.
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| Death benefit, face amount or policy proceeds. | The money paid out to the beneficiary when the insured dies.
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| Estate | The property or possessions of someone.
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| What are the two kinds of life insurance policies? | Term life insurance and whole life insurance.
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| What is term life insurance or "pure protection"? | 1) It is coverage for a specific "term" or set periods of time, such as 10, 15, 20 or 30 years. 2) It provides the maximum amount of protection for the lowest amount of premium. 3) Does not build cash value.
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| 3 types of term insurance: | Level, increasing and decreasing.
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| What is whole life insurance or "permanent protection"? | 1) It is coverage for as long as the insured lives or to age 100. 2) It has a " forced savings" feature attached to it and builds cash value. 3) Upon death before age 100, only the death benefit is paid, not the cash value.
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| 3 types of whole life policies: | Single pay, limited pay and straight life.
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| Who is the insurer? | The insurance company.
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| What are policy provisions? | The terms of the contract that spells out the roles of the policyowner, the insured and the insurer so as to protect all the parties.
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| What does insurance do? | It transfers the risk from the insurED to the insurER in case of a loss.
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| What are policy options? | They are choices on how to distribute a sum of money (i.e., the death benefit).
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| What are policy riders? | They are "add ons", or additions to the policy. They cost an extra amount of premium and customize the policy according to the insured's needs.
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| What is the free look period? | A provision that allows the policyowner to review the policy and return it for a full refund. Usually 10 days or 30 days in the case of senior citizens.
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| What is the grace period? | A provision that allows the policy coverage to remain in effect for up to 30 days from the premium past due date.
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| What is the waiver of premium rider? | A rider that waives insurance policy premiums in case the insured becomes disabled.
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| What are policy exclusions and what do they do? | They exclude coverage for certain hazards such as war, private aviation, felonies, hazardous occupations or hazardous hobbies. They are meant to protect the insurer against higher risks.
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| What is an annuity? | It is retirement plan that pays out a stream of income for the rest of someone's life. It converts a large sum of money into a series of payments after a certain period of time.
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| What is an annuity owner called? | Annuitant.
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| What are the two periods of an annuity? | Accumulation and annuitization.
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| What is the accumulation period? | The "putting in" time, or "growth time", when the annuitant pays premiums into the annuity and has control over his money because he or she can make changes to the annuity.
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| What is the annuitization period? | The "taking out" time, during which the insurance company controls the funds in the annuity and pays the benefit to the annuitant. During this time, the annuitant can no longer make changes to the annuity.
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| 2 kinds of annuities: | Immediate annuity and deferred annuity.
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| What is a deferred annuity? | Benefit payments are postponed until a later date greater than 12 months, such as retirement age.
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| What is a immediate annuity? | Benefit payments begin within 12 months of purchase of a SINGLE premium annuity.
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| What are the two methods of annuity premium payments? | Single premium (lump sum) and periodic premium (series of periodic payments).
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