Louisiana Life and Health Insurance Licensing: Chapter Two, Life Insurance Basics

Human Life Value Approach

Gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. It calculates an individual's life value by looking at the insured's wages, inflation, the number of years to retirement, and the time value of money

Nonmedical Application

If the amount of insurance is relatively small, the agent and the proposed insured will complete all of the medical information

Preferred Risks

Individuals who meet certain requirements and qualify for lower premiums than the standard risk

1. Survivor Protection 2. Estate Creation and Conservation 3. Cash Accumulation 4. Liquidity

Personal Uses of Life Insurance

Standard Risks

Persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions.

Buyer's Guide

Provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance.

liquidation

Selling assets as a method of raising capital.

Standard, Substandard, and Preferred

The 3 risk classifications used by underwriters for life insurance

Death Benefit

The amount payable upon the death of the person whose life is insured.

helping insurers know what areas of impairment they might need to investigate further; applicant cannot be refused because of some adverse information discovered through the MIB

What can the Medical Information Bureau be used for?

business continuation agreement

a buy-sell agreement is also known as

policy summary

a written statement describing the features and elements of the policy being issued

solvency

ability to meet financial obligations

increases the chance that the applicant will accept the policy once it is issued

agent collecting initial premium at the time of the application

Producer Report

allows the agent to communicate with the underwriter and provide information about the applicant known by the agent that may assist in the underwriting process

Declined Risks

applicants who are rejected. Risks that the underwriters assess as not insurable

Retirement Fund

as a source of retirement income

solicitation

attempt to persuade a person to buy an insurance policy

agents can correct information and have the applicant initial or complete a new app. they should have white out or erase information on an application.

changes in the application:

when an insured purchases a life insurance policy, he/she will have an estate of at least that amount the moment the first premium is paid

creates an immediate estate

coverage begins only when the pre-paid application is approved by the insurer, but before the policy is delivered; rarely used

describe approval conditional receipt

most often used with P&C; coverage begins immediately for a specific length of time, until the policy is issued

describe the unconditional (binding) receipt

Cash value

equity amount accumulated in permanent life insurance

medical examination by a professional

for larger amounts of insurance, this is required

Mode

frequency the policyowner pays the premium

conditional receipt

issued only when the applicant submits a prepaid application

lump-sum

payment of the entire benefit in one sum

Estate

person's net worth

Liquidity

policy's cash values can be borrowed against at any time and used for immediate needs

illustrations

presentation or depiction of nonguaranteed elements of a life insurance policy

insurable interest

refers to the possibility of losing money or something of value in the event of a loss

Cross Purchase

used in partnerships when each partner buys a policy on the other

Stock Redemption

used when the corporation buys one policy on each shareholder

Entity Purchase

used when the partnership buys the policies on the partners

Statement of Good Health

verifies that the insured has not become ill, injured or disabled during the policy approval process (time between submitting application and delivery of the policy)

coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last; it is most common

what does a conditional receipt state?

statement of good health (signed by insured)

what might be collected in addition to the first premium by the agent?

When the insurer relinquishes control of the policy by mailing it to the policyowner, policy is considered________. However, is is adviseable to obtain a signed delivery receipt.

when is the policy considered legally delivered?

Attending Physician Statement (APS)

when the underwriter wants to see further details, they can request this from the applicant's physician

1. age or gender 2. physical or mental impairment 3. blindness or partial blindness 4. genetic characteristics or genetic testing

4 types of unfair discrimination:

Buy-Sell Agreement

A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled.

1. policyowner's own life 2. life of a family member 3. life of a business partner, key employee, or someone who has a financial obligation to the policyowner

A valid insurable interest may exist between the policyowner and the insured when the policy is insuring any of the following: (3)

Delivering- delivery receipt for 2 years Mail- (certified mail) receipts and certificate of mailing for 2 years

What must be kept by the insurer when delivering or mailing life insurance policies and for how long?

begins when the youngest child reaches the age of 16 and ends when the surviving spouse qualifies for retirement benefits

When is the social security income "blackout" period?

Insurable interest must exist between the policyowner and the insured at the time of application; however, once a life insurance policy has been issued, the insurer must pay the policy benefit, whether or not an insurable interest still exists.

When must insurable interest exist in life insurance and between who?

until the first premium is paid

a policy does not going into effect until

Illustration

a presentation or depiction that includes non guaranteed elements of a policy of individual or group life insurance over a period of years

Executive Bonus

an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee

Needs Approach

based on the predicted needs of a family after the premature death of the insured

by ordering an inspection report on the applicant from an independent investigating firm or credit agency

how would an underwriter gather more financial and moral information on an applicant?

premium receipt

issued when agent collects the first premium; type will determine when coverage will be effective

Bequests

leaving funds to the insured's church, school, or a charity

Survivor Protection

life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death

Cash Accumulation

life insurance that is used to accumulate specific amounts of monies for specific needs with guarantees the money will be available when needed

Suitability

meaning an insurance producer may not recommend the purchase, sale, or exchange of an insurance policy or annuity contract without the reasonable belief that the transaction is in the best interest of the insured

Substandard Risk

not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits; policies referred to as "rated" because they could be issued with the premium rated-up, resulting in a higher premium

Education Funds

paying for children's education expenses so they can remain in school, or for a surviving spouse who may need additional education or training in order to re-enter the job market

Emergency Reserve Funds

paying for unexpected expenses following the death of the insured, such as travel expenses and lodging for family members

Debt Cancellation

paying off debts of the insured such as home mortgage, or auto loans

to protect the insurer against adverse selection (risks which are more likely to suffer a loss)

purpose of underwriting

Retention of Capital Approach

refers to when there is enough insurance purchased so that when added to other liquid assets, there is enough to pay income benefits without jeopardizing the insured's principal asset (such as a home)

Underwriting

risk selection and classification process

-insurers must provide a buyer's guide to all prospective policy applicants prior to accepting their initial premium -if the policy contains an unconditional refund provision of at least 10 days (free-look period), a buyer's guide can be delivered within the policy

rules of a buyer's guide

Medical Information Bureau (MIB)

systematic method for companies to compare info collected on potential insureds with information other insurers might have discovered

Costs Associated with Death (Post Mortem)

taking into account the final medical expenses of the insured, funeral expenses, and day-to-day expenses family maintenance

Social Security Income "Blackout" Period

the time during which the surviving spouse and/or children do not receive any social security survivor benefits

Part 1- General Information Part 2- Medical Information

two parts of an application for life insurance

Stock Purchase

used by privately owned corporations when each stockholder buys a policy on each of the others

true

T/F some insurers require that the applicant complete the application under the agent's watchful eye, while other insurers require the agent complete the application in order to help avoid mistakes and unanswered questions

True

T/F the insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them

Key person

Someone who has specialized knowledge, skills or business contacts