Term
| What are the three approaches that can be used to estimate the amount of life insurance to own? |
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Definition
The human life value approach
Needs approach
Capital retention approach |
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Term
| Life insurance policies can be classified in two general categories: |
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Definition
Term insurance provide temporary protection
Cash-value (whole) life insurance has a savings component and builds cash values |
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Term
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Definition
| provides protection to age 65, at which time the policy expires |
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Term
| decreasing term insurance policy |
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Definition
| the face value gradually declines each year |
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Term
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Definition
| a level-premium policy that provides lifetime protection [very basic] |
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Term
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Definition
| a fixed-premium policy in which the death benefit and cash values vary according to the investment experience of a separate account maintained by the insurer |
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Term
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Definition
| a flexible premium policy that provides lifetime protection |
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Term
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Definition
combines the features of UL and VL
These policies have relatively high expense charges |
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Term
| Term insurance is appropriate when |
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Definition
The amount of income that can be spent on life insurance is limited
The need for protection is temporary
The insured wants to guarantee future insurability |
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Term
| A whole life policy is appropriate when |
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Definition
lifetime protection is needed
You wish to save money for a specific need |
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Term
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Definition
| gives rights, such as naming beneficiaries, to the owner of the policy |
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Term
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Definition
| the insurer cannot contest the policy after it has been in force two years |
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Term
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Definition
| if the insured commits suicide within two years after the policy is issued, the face amount of insurance will not be paid, premiums are refunded |
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Term
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Definition
| policyholder has a period of 31 days to pay an overdue premium |
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Term
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Definition
| owner can reinstate a lapsed policy under certain conditions, usually within 3-5 years after lapse |
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Term
| misstatement of age or sex clause |
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Definition
| if the insured’s age or sex is misstated, the amount payable is the amount that the premiums paid would have purchased at the correct age and sex |
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Term
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Definition
| allows the policyowner to borrow the cash value |
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Term
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Definition
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Term
| Dividends come from three main sources: |
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Definition
The difference between expected and actual mortality experience
Excess interest earnings
The difference between expected and actual operating expenses |
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Term
| nonforfeiture or cash surrender options |
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Definition
The policy can be surrendered for its cash value
the cash surrender value can be applied as a net single premium to purchase a reduced paid-up policy
the cash surrender value can be used as a net single premium to extend the full face amount of the policy into the future as term insurance |
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Term
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Definition
Pay benefit as a lump sum
Proceeds retained by the insurer, and interest is paid to the beneficiary
Proceeds paid to a beneficiary over some fixed period of time
A fixed amount is periodically paid to the beneficiary until the principal and interest are exhausted
payments are paid as annuity to beneficiary until the beneficiary’s death |
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Term
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Definition
| a periodic payment that continues for a fixed period or for the duration of a designated life or lives |
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Term
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Definition
| provides a life income to the annuitant only while the annuitant remains alive |
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Term
| A life annuity with guaranteed payments |
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Definition
| pays a life income to the annuitant with a certain number of guaranteed payments |
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Term
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Definition
| pays periodic income payments that are guaranteed and fixed in amount; may be deferred or immediate |
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Term
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Definition
| pays a lifetime income, but the income payments vary depending on common stock prices |
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Term
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Definition
allows workers to take a tax deduction for part or all of their IRA contributions
The investment income accumulates income-tax free on a tax-deferred basis
Distributions are taxed as ordinary income |
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Term
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Definition
is another type of IRA that provides substantial tax advantages
The annual contributions to a Roth IRA are not tax deductible
The investment income accumulates income-tax free
Qualified distributions are not taxable under certain conditions |
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Term
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Definition
| is an account established with funds distributed from another retirement plan |
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Term
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Definition
| Private plans that meet certain requirements and receive favorable income tax treatment |
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Term
| defined-contribution plan |
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Definition
| the contribution rate is fixed, but the retirement benefit is variable; investment risk falls on the employee!! |
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Term
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Definition
| the retirement benefit is known, but the contributions will vary depending on the amount needed to fund the desired benefit; investment risk falls on the employer!! |
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Term
| Under a unit-benefit formula |
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Definition
| both earnings and years of service are considered |
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Term
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Definition
| the employee’s right to the employer’s contributions or benefits attributable to the contributions if employment terminates prior to retirement |
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Term
| early distribution penalty |
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Definition
| Funds withdrawn from a qualified plan before age 59½ are subject to a 10% |
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Term
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Definition
| a retirement plan in which more than 60% of the plan assets are in accounts attributed to key employees |
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Term
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Definition
| Contributions accumulate tax-free, and funds are taxed as ordinary income when withdrawals are made |
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Term
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Definition
| you can make contributions with after-tax dollars, and qualified distributions at retirement are received income-tax free |
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Term
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Definition
| a retirement plan designed for employees of public educational systems and tax-exempt organizations |
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Term
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Definition
Defined as: more than one person covered under one contract
Cheaper to administer
Individual evidence of insurability is usually not required
Experience rating is used |
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Term
| What do employers require for participation in a group plan? |
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Definition
Be a full time employee
Satisfy a probationary period
Apply for coverage during the eligibility period
Be actively at work when the coverage begins |
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Term
| group term life insurance |
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Definition
| Provides low-cost protection to employees in the form of yearly renewable term |
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Term
| group universal life insurance |
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Definition
| some employees make this available for their employees |
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Term
| group medical expense insurance |
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Definition
| insurance pays the cost of hospital care, physicians’ and surgeons’ fees, and related medical expenses; in particular, you should know about HMOs |
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Term
| group disability insurance |
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Definition
| pays weekly or monthly cash payments to employees who are disabled from accidents or illness; in particular, you should know about short term disability income insurance |
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Term
| Traditional Health Insurance Plans |
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Definition
paid medical expenses on an indemnity basis.
These plans have declined in importance over time |
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Term
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Definition
offer medical expense benefits in a cost effective manner
Includes HMOs, PPOs, POSs, PSOs
Plans emphasize cost control and services are monitored
An employee’s choice of physicians and hospitals may be limited
Utilization review is done at all levels (referrals)
The quality (and quantity) of care provided by physicians is monitored
Health care providers share in the financial results through risk-sharing techniques
Preventive care and healthy lifestyles are emphasized |
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Term
| A health maintenance organization (HMO) |
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Definition
is one type of managed care plan that provides comprehensive services to its members for a fixed, prepaid fee
The HMO enters into agreements with hospitals and physicians to provide medical services
Providers may receive a capitation fee
Most services are covered in full, with few maximum limits
Choice of providers is limited |
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Term
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Definition
| controls access to specialty care |
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Term
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Definition
| physicians are employees of the HMO and are paid a salary or a salary and an incentive bonus to hold down costs |
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Term
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Definition
physicians are employees of another group that has a contract with the HMO
Group receives a capitation fee for each member |
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Term
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Definition
: the HMO contracts with two or more independent group practices
The group practices receive a capitation fee for each member |
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Term
| individual practice association (IPA) model: |
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Definition
| an open panel of physicians agree to treat HMO members at reduced fees, on a fee-for-service basis |
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Term
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Definition
means the employer pays part or all of the cost of providing health insurance to the employees
This is usually only an option for large employers!
Some employers have an administrative services only (ASO) contract with a commercial insurer
The commercial insurer only provides administrative services, such as claim processing and record keeping
Self-insured plans are exempt from state laws that require insured plans to offer certain state-mandated benefits |
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Term
| A preexisting condition provision |
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Definition
| : excludes coverage for a preexisting medical condition for a limited period after the worker enters the plan |
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Term
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Definition
| the portability of insurance coverage, whereby insurers must give an employee credit for previous coverage |
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Term
| coordination-of-benefits provision |
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Definition
| specifies the order of payment when an insured is covered under two or more group health insurance plans (like “other insurance” clauses) |
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Term
| A coordination-of-benefits provision |
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Definition
Coverage as an employee is usually primary to coverage as a dependent
With respect to dependent children, the plan of the parent whose birthday occurs first during the year is primary |
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