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Insurance Terminology
We are translating texts from the insurance field and have not been able to trace some terminology in the online glosssaries we consulted. We will appreciate your help.
The terms we are seeking for are in bold and underlined. The rest is just to provide some context.
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The permanent plans of First-To-Die life insurance use traditional whole life, current-assumption life, or universal life.
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There is only one premium billing, one policy lapsation and one policy maintained on the database. However, underwriting expenses are incurred with each life, and the commission paid to the agent must approximate a commission on each life.
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Reinsurance premiums for most riders are analogous to riders of traditional products. The SPO rider has a unique premium that recognizes the possibility of anti-selection, since some surviving insureds - who were standard at issue - will be substandard at the time of first death.
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These are the options for setting reinsurance premiums. Approaches to determining the reinsurance premium range from using a rate scale to using a formula. If a (YRT) rate scale exists between the ceding company and reinsurer, a single-life premium can be paid on each life using the YRT rate scale. A quantity discount, recognizing the fact that there is only one policy and one cession, also can be applied.
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The economic benefit should be measured in a similar way for First-To-Die Life insurance policies only using the rates for First-To-Die rather than Single-Life P.S. 58. If it is figured this way, the economic benefit for each insured in a two-life First-To-Die Life insurance policy where each insured is the beneficiary if the other dies first the other insured’s respective single-life P.S. 58 or term cost. This is an accurate assumption since the insurance company will have to pay the benefit if either or both die within the year making the insurer’s term cost equal to the sum of the individual term costs.
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Taxable gifts are less tax expensive due to their tax exclusive nature versus the tax inclusive nature of testamentary transfers. For example, $1.00 of estate tax is paid to provide $1.00 of inheritance to a beneficiary, while only 45 cents of gift tax is paid to provide a gift of $1.00 to a beneficiary, using a 45% (2005) unified tax rate.
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Therefore, the economic benefit for both income and gift tax purposes is then measured by the lower of the one year term or the P.S. 58 charge, a substantial increase over the U.S. 38 table value. The use of a First-To-Die policy would provide the necessary liquidity to terminate the second-to-die split dollar agreement (so-called "rollout") before the escalating one year term costs are encountered.
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First-To-Die Life insurance policies are not so adaptable to S corporations and partnerships because they are flow-through entities.
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Originally Posted by salarmenmx
