Chapter 12 note cards

Risk Management And Insurance 4000 with Atkinson at University of Georgia

About this deck

By: Peter Geckeler
Textbook:

Principles of Risk Management and Insurance (10th Edition)

Principles of Risk Management and Insurance (11th Edition) (Pearson Custom Business Resources)

Study Guide for Principles of Risk Management and Insurance

Studyguide for Principles of Risk Management and Insurance by George E. Rejda, ISBN 9780136117025 (Cram101 Textbook Reviews)
Created: 2010-10-19
Size: 23 flashcards
Views: 24

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Primary Beneficiary

First entitled to receive policy proceeds

Revocable Beneficiary

Policyowner reserves right to change beneficiary designation without Beneficiary consent

Irrevocable Beneficiary

Cannot be changed without Bene consent

Specific Bene

Person specifically identified

Class Beneficiaries

Member of a group, ex. Children of insured

Misstatement of Sex/age

Amount paid would be same as if they had stated age/sex correctly

Change of plan policy

Allows policy owners to exchange current policies for different contracts

Exclusions and Premiums

Exclusions: not many, suicide for 2 years, war clause, aviation exclusion
Premiums can be paid annually, semi annually quaterly or monthly

Policy loan provision

Allows policy owner to borrow cash value
HOWEVER must pay interest would have been earned when cash in there
Policy could lapse if dont pay back in time and would owe more than cash value: No bueno

Automatic premium loan provision

If policy fails to pay premium, comes right out of cash value after grace period
Meant to prevent policy from lapsing

Dividend option: Participating policy

Participating: Policy pays dividend
Dividend can come from:
Difference between expected and actual mortality expense
Excess interest
Diff between expected and actual operating expenses

Non Participating Policy

Does not pay policy dividends

How to take dividend

Take cash
Keep in to earn interest and pull out later
Reduce next premium
Apply towards paid up whole life insurance
Apply towards purchase of term

Nonforeiture

Payment to withdrawing policyowner - Also known as cash surrender Value
Policy owner has right to accumulated cash value (nanforetuire state laws)

Non foreiture Options

Surrendered for cash value
Reduced paid up insurance -the cash surrender value is applied as a net single premium to purchase a reduced paid-up policy
Extended term insurance- Value used as premium to extend full face value of policy into future as term insurance

Settlement Options: lump sum

Full amount of policy paid right then and there

Settlement option: interest optiom

Insurer retains proceeds and pays interest to beneficirary periodically

Settlement options: Fixed period, Fixed amount

Fixed period: proceeds paid to beneficiary over fixed amount of time
Fixed amount: fixed amount is periodically paid to the beneficiary until the principal and interest are exhausted

Life income option

installment payments paid to beneficiary only while alive and when dies

Disadvantages of Settlement options

Disadvantages include:

Interest rates offered by insurers may be lower than rates offered elsewhere

The settlement agreement may be inflexible and restrictive

Additional life insurance benefits: waiver of premiums, guarenteed purchase option

waiver-of-premium provision, if the insured becomes totally disabled, all premiums coming due during the period of disability are waived

guaranteed purchase option permits the policyowner to purchase additional amounts of life insurance at specified times in the future without evidence of insurability

Accidental death rider, Cost of living rider, accelarated death beenfits rider

ADR: Doubles face amount of insurance if person dies in accident
Cost of Living rider: allows the policyowner to purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability

accelerated death benefits rider allows insureds who are terminally ill to collect part or all of their life insurance benefits before they die

Viatical Settlement and Life settlement

viatical settlement is the sale of a life insurance policy by a terminally ill insured to another party, typically an investor group, who hopes to profit by the insured’s early death

A life settlement is a financial transaction by which a policyowner who no longer needs or wants to keep a life insurance policy sells the policy to a third party for more than its cash value

These options create a moral hazard problem, and may not be adequately regulated by the states