COA 4131
Exam 2 Study Guide
Chapter 10
1. Life Insurance
a. Contract between an insurer and policyholder specifying a sum to be paid to a
beneficiary on the insured’s death
i. 70% of American adults have life insurance
ii. More than 25% of policies go uncollected
b. Face amount: Stated sum of money on a policy
c. Beneficiary: recipient of policy proceeds if insured dies
2. Purpose of Life Insurance
a. Most people buy life insurance to protect those who depend on them from financial loss
b. Cash Value: accumulated savings that provide a refund to the owner of the policy if the
contract is terminated prior to death.
3. How Does Life Insurance Work?
a. Life insurance is based on the pooling of risk
b. Preferred risks: people whom insurance companies prefer to insure
c. The Underwriting Process
i. Underwriting: Insurance company process of evaluating a policy application
ii. Underwriter: Person who conducts a policy application review
d. Lapsed Policies and Grace Period
i. Lapsed policy: termination of a policy because of non-payment
ii. Grace period: time allowed for overdue payment without penalty or the policy
lapsing
4. Life Insurance and Families
a. Determining Need
i. Life insurance should be considered if any of the following situations apply:
1. You have a dependent spouse
2. You have dependent children
3. You have an aging or disabled relative who depends of you for support
4. You own a business
5. Your savings and retirement pensions are not enough to support a
spouse against cost –of-living increases.
6. You want to leave a large amount of money to an organization or a
cause
b. College Students and Life Insurance
i. Don’t really need it
