IIQE Paper 3 English Quiz 23

Graded-premium policy is a policy that pays a lower amount if death occurs during the first few years after the policy is purchased. Only after coverage has been in effect for several years is the death benefit increased to the actual stated face amount. It is a technique used by life insurance companies to reduce the cost of policies for less healthy individuals who are already seeking guaranteed issue coverage.

Face amounts or face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate.

Universal life insurance
It is permanent life insurance with an investment savings element and low premiums that are similar to those of term life insurance. Most universal life insurance policies contain a flexible-premium option.

The features of universal life insurance include:
• Flexible premiums
• Adjustable death benefit
• “Unbundled” pricing
• Cash Value
• Death benefit
• Annual report

Death benefit
According to the plan the policyowner chooses, this may be a face amount plus the cash value, or the face amount only. For a given face amount and given premium amounts, the former option will mean a lower rate of accumulation of cash value because the insurer needs to be compensated for running a risk of paying out a higher amount of death benefit.

In the feature unbundled pricing, the insurer separates and individually discloses, both in the policy and in an annual report to the policyowner, the three basic pricing factors. It includes the pure cost of protection, interest, and expenses

Unit-linked long-term insurance
Also known as a “linked long term policy” and “investment-linked long-term policy”, the unit-linked long term policy is one whose value is directly linked to, or directly reflects, the performance of the investments that have been purchased with the premiums paid.

A unitized fund a way to pool assets from several investors often in a focused investment such as a single stock. It is often used in employee benefit plans such as pensions. It is typically offered as an alternative to mainstream investment options.

In adjustable death limits, subject to certain limits, the death benefit purchased may be increased or decreased, although proof of insurability may be required for an increase in benefit.

In cash value, after the first premium payment, additional premiums (subject to an individual limit) can be paid at any time. These, with interest earnings, are added to the cash value after the deduction of:
• A specified percentage expense charge
• He pure cost of protection (deducted monthly)

Flexible premium
Subject to a minimum level of first-year premium payment(s), the policyowner is allowed to enjoy the feature of flexible premiums. After the first policy year, he can even skip premium payments.

In the annual report, each year the policyowner receives a report which shows the status of the policy. The information is given includes:
• the death benefit option selected
• the specified amount of insurance in force
• the premiums paid during the year
• the expenses deducted during the year
• the guaranteed and excess interests earned on the cash value
• the pure costs of insurance deducted
• policy loan outstanding
• cash value withdrawals
• the cash value balance

Terminal bonus
A terminal bonus is an extra payment made to the owner of some type of insurance policy at the time that the policy is ready to be paid. It is usually declared at policy maturity or when the policy has been in force for a given number of years.

An annuity is a contract whereby an insurer promises to make a series of periodic payments to a designated individual throughout the lifetime of a person or for an agreed period. Its goal is to provide a steady stream of income, typically during retirement. It comes in three main varieties: fixed, variable, and indexed. Each type has its own level of risk and payout potential.

Contract holder is the entity who is owed a payment in return for the fulfillment of the terms of a contract. It is most commonly applied to insurance contracts, but can also be used in other types of finance. It is a customer (an individual or group) who buys an insurance plan from an insurer.

A variety of funds may be used for linking purposes, including equities (ordinary shares), fixed interest investments and a whole range of cash and other asset funds.

An annuitant is an individual who is entitled to collect the regular payments of a pension or an annuity investment. The annuitant may be the contract holder or another person, such as a surviving spouse. Annuities are generally seen as retirement income supplements.

Annuity consideration is a payment or premium made to fund an annuity. It is the money an individual pay to an insurance company to fund an annuity or receive a stream of annuity payments. It may be made as a lump sum or as a series of payments, often referred to as contributions.

Pension plan
A pension is a retirement plan that requires an employer to make contributions to a pool of funds set aside for a worker’s future benefit. Employers are responsible for both funding the plan and managing the plan’s investments. Not all employers offer pensions, but government organizations usually do.

Under a simple annuity plan, the balance of the annuity considerations paid is “lost” if the annuitant dies before their exhaustion. The features of annuities include:
• Immediate annuity
• Deferred annuity
• Variations
• Underwriting

Deferred annuity
The annuity benefit payments begin at some specified time or specified age of the annuitant, rather than immediately. While the immediate annuity is usually purchased with a single payment, it starts making annuity benefit payments one annuity period.

The features of the group and individual insurance plans are:
• Basic difference
• Contracting parties
• Different plans
• Eligible groups
• Underwriting
• Individual eligibility
• Cover declined
• Termination of cover

Eligible group
It is usually group insurance concerns a single employer, covering his staff members (collectively called a ‘group’), but the members of association groups (i.e. members of clubs, trade unions, sports associations, etc.) formed for a purpose other than the purchase of insurance could equally be considered eligible. Besides, multiple-employer groups (consisting of the staff members of different companies) may participate in a single plan.

In disability waiver of premium, the insurer agrees to waive his right to renewal premiums otherwise payable whilst the policyowner insured is totally disabled. It is also a provision in an insurance policy that comes into play if the insurer becomes unexpectedly disabled and cannot pay their policy’s premium. The waiver of any premium will not reduce payments or dividends under the policy.

Contracting parties
These are the insurer and the group policyholder, usually an employer, but possibly a club or other organization insuring its members. The persons within the group who are covered may be referred to as group insured or sometimes group lives insured or persons insured.

Underwriting is the process through which an individual or institution takes on financial risk for a fee. It helps to set fair borrowing rates for loans, establish appropriate premiums, and create a market for securities by accurately pricing investment risk. It ensures that a company filing for an IPO will raise the amount of capital needed, and provides the underwriters with a premium or profit for their services.

Cover declined
An eligible person (particularly with contributory schemes) may initially decline coverage. Should that person change his mind later, evidence of insurability may be required (to counteract anti-selection).

The limitations of the Disability Waiver of Premium or also known as a WP Benefit Rider are:
• Waiting period
• Age limitation
• Premium frequency
• Exclusions

Waiting period is a time period (usually three or six months), during disablement before premiums are waived. Once started, waivers will continue throughout the life of the policy until the disability ends. The original thinking behind Waiting Period probably was that most people continue to receive salaries and wages for at least short periods of disablement and so can still afford to pay premiums.

An immediate annuity is usually purchased with a single payment, it starts making annuity benefit payments one annuity period (time span between one scheduled payment and the next in the series; say, one month) immediately thereafter.