AIL - Life Insurance Basics

Fiduciary Responsibility

is someone in a position of trust and confidence.

Group Life Insurance

written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.

Convertible Term

has a provision that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability.

Waiver

voluntarily giving up a known right

Concealment

Withholding of information or facts by the applicant (smoker, diabetes).

level term life insurance

premiums remain the same thoughout the life of the policy

Increasing term life insurance

provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.

Subrogation

the right for an insurer to pursue a third party that caused an insurance loss to the insured. This is done as a means of recovering the amount of the claim paid to the insured for the loss.

Insurance Contract has four Elements

* Offer and Acceptance * Consideration * Legal Purpose * Competent parties

Competent Parties

All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol.

Legal Purpose

An insurance contract must be legal and not in opposition of public policy. If an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose. Without legal effect, the contract would be null and void. Said differently, the contract cannot be for an illegal purpose.

Offer and Acceptance

An offer is made when the applicant submits an application and initial premium for insurance to the insurance company. The offer is accepted by the insurer after it has been approved by the insurance company's underwriter and a policy is issued. If no money is given, the applicant is making an invitation. On the other hand, if an offer is answered by a counteroffer, the first offer is void.

Personal Contract

Most insurance contracts are personal contracts between the insurance company and the insured individual, and are not transferable to another person without the insurer's consent. Life insurance is an exception to this standard as the owner of the policy has no bearing on the insurer's assumed risk. Therefore, people who own life insurance are called policyowners rather than policyholders and may transfer or assign ownership by notifying the company.

Unilateral Contract

One sided agreement, where only the insurer is legally bound. In an insurance contract, only the insurance company is legally bound to do anything (pay claims).

Estoppel

The legal process of preventing one party from reclaiming a right that was waived.

Reasonable Expectations

A concept which states that the insured is entitled to coverage under a policy that a sensible and prudent person would expect it to provide. Reinforces the rule that ambiguities in insurance contracts should be interpreted in favor of the policyholder.

Professional Liability Insurance (Errors and omissions)

A professional liability for which producers can be sued for mistakes of putting a policy into effect. under the insurance, the insurer agrees to pay sums that the agent legally is obligated to pay for injuries resulting from professional services that he rendered or failed to render.

Conditional Contract

Certain conditions must be met by all parties in the contract. Hence, benefits depend on the occurrence of an event covered by contract. This is needed when a loss occurs for the contract to be legally enforceable.

Consideration

Consideration is something of value that each interested party gives to each other. The insured provides consideration with payment of premium. The insurer provides consideration by promising to pay the insurance benefit.

Utmost Good Faith

Implies that there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies.

Aleatory Contract

Insurance contracts are aleatory, which means there is an unequal exchange. * Consideration may be unequal* The outcome depends on chance or uncertain event* A legal bet is considered an aleatory contract

Ordinary Life Insurance

Is made up of several types of individual life insurance, such as temporary (term), permanent (whole).

Stranger-Originated Life Insurance (STOLI)

Life insurance arrangement in which a person with no relationship to the insured purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when the insured dies.

Valued vs. Indemnity

Life insurance contracts are valued contracts, which means it will pay a stated amount. Health insurance contracts are indemnity contracts and will only reimburse the actual cost of the loss (pay medical bills, etc.). The Principle of Indemnity is to restore the insured to the same financial condition as that which existed prior to the loss. You cannot profit from an indemnity contract.

Insurable Interest

Requires that an individual have a valid concern for the continuation of the life or well-being of the person insured.

Parol Evidence Rule

Rule that prevents parties in a contract from changing the meaning of a written contract by introducing oral or written evidence made prior to the formation of the contract, but are not part of the contract.

Representations

Statements made by the applicant believed to be true (height, weight) are not part of the contract and need to be true only to the extent that they are material and related to the risk.

Warranties

Statements made by the applicant guaranteed to be true (name, DOB) becomes part of the contract and if found to be untrue, can be ground for revoking the contract.

Annual renewable term

Term coverage that provides a level face amount that renews annually without having to prove insurability.

Apparent Authority

The appearance or the assumption of authority based on the actions, words, or deeds of the principal or because of circumstances the principal created.

Apparent

a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.

Endorsement

a written form attached to an insurance policy that alters the policy's coverage, terms, or conditions.

Term Riders

allow for an additional amount of temporary insurance to be provided on the insured without the need to issue another policy. they are usually attached to a whole life policy to provide greater protection at a reduced cost.

Express

explicit authority granted to the agent by the insurer as written in the agency contract.

Types of agent authority

express (binding authority) implied (collecting premiums, etc.) apparent (coverage determinations)

renewable term life insurance

guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability.

Industrial Life Insurance

insurance issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.

Decreasing Term Insurance

term insurance in which the annual premium remains constant but the face amount of the policy declines each year

health insurance

the insurance company agrees to pay a percentage of the insured's medical bills (or benefit) in exchange for consideration (premiums)

life insurance

the insurance company agrees to pay a predetermined amount - the face amount (or benefit), in exchange for the insured's consideration (premium).

Credit policies

typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance.

Implied

unwritten authority of a producer to perform incidental acts necessary to fulfill the purpose of the agency agreement (otherwise unwritten in the contract)