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Chapter 6
| Lump sum | Entire death benefit paid at once; most common and default option |
| Interest only | Insurer holds the death benefit and pays only the earned interest to the beneficiary |
| Fixed amount | Proceeds paid in specified installment amounts until principal and interest are exhausted |
| Fixed period | Equal installments paid over a set period of years |
| Life income | Guarantees payments to the beneficiary for the beneficiary's lifetime. |
| Single/pure/straight life income | Payments end upon beneficiary's death with no refund |
| Life income with period certain | Payments continue to the secondary beneficiary if the primary dies before the period ends |
| Refund life income | Guarantees payment of the remaining death benefit if the beneficiary dies prematurely |
| Joint and survivor | Guarantees benefits to two or more people on a life-long basis |
| Primary beneficiary | First in line to receive policy proceeds |
| Secondary/contingent beneficiary | Receives proceeds if the primary beneficiary predeceases the insured |
| tertiary beneficiary | Third in line to receive proceeds |
| revocable beneficiary | Can be changed by the policy owner without notifying the beneficiary |
| irrvocable beneficiary | Cannot be changed without the beneficiary's written consent |
| Per Capita | Evenly distributes benefits among all named living beneficiaries |
| per stirpes | Distributes according to family line; deceased beneficiary's share goes to their heirs |
| distribution to estate | Proceeds subject to estate taxes, probate fees, and creditor claims |
| distribution to minor | Typically requires a guardian or trustee |
| Distribution to trust | Trust manages proceeds; advantageous for minor beneficiaries |
| Uniform simultaneous death act | If the insured and the beneficiary die together and the order cannot be determined, the insured is considered to have survived |
| Common disaster provision | Requires the beneficiary to survive insured by a specified period (14-30 days) |
| spendthrift clause | Protects proceeds against creditors when left with the insurer |
| Facility of payment | Permits insurer to pay a portion of proceeds to anyone equitably entitled |
| Are individual life insurance premiums a tax deduction? | no, they are personal expenses and therefore not tax-deductible |
| what are some exception of premium taxes? | for qualified charity-owned policies, court ordered alimony, or as an employee benefit |
| Death benefits paid as a lump sum | are income tax free to the beneficiary |
| installement payments | principal received tax-free, interest is taxable |
| Policy surrender | amount exceeding cost basis is taxable as ordinary income |
| policy loans | generally there are no tax consequences unless the policy is MEC |
| accelerated death benefits | tax free for terminally ill |
| dividends | generally tax exempt a return of excess premiums |
| modified endowment contract | subject to different tax treatment |
| 1035 exchange | tax free exchange of like kind insurance products |
Created by:
Lupe12