Exam FX Insurance , Chapter 3 : Life Insurance _ Basic

Gov law on HIV testing

**The insurer must disclose the use of testing to the applicant, and obtain written consent from the applicant on the approved form. - The insurer must establish written policies and procedures for the internal dissemination of test results among its producers and employees to ensure confidentiality.

Bequests

An insured may wish to leave funds in their church, school, or other organization at the time of their death.

MIB

MIB is the only insurance consumer reporting agency in North America [citation needed] and operates a database of medical information on some individuals who have previously applied for health insurance, life insurance, disability insurance, critical illness insurance and long-term care insurance.

Prohibited info in consumer report if the life insurance policy is less than $150k includes

bankruptcies more than 10 year old, civil suit, record of arrest or convictions or crimes, or any other negative info that is more than 7 years old.

Family Dependecy period

The period when should the insured die prematurely, the surviving spouse will ahve dependent children to support The family's income need will be greatest during this period.

Premium receipt

The type of receipt issued will determine when coverage will be effective

Limit of liability formula

limit of liability = face amount - ( outstanding policy loan + loan interest )

Policy summary

is a written statement describing the features and elements of the policy being issued. It must include the name and address of the agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider. A policy summary will also include premium, cash value, dividend, surrender value and death benefit figures for specific policy years. The policy summary must be provided when the policy is delivered.

Agent report

provides the agents personal observations concerning the proposed insured. Does not become a part of the entire contract, although it is a part of the application process

Note that written binders are deemed to be valid insurance policies for the purpose of

proving that the insured has coverage. This does not apply to life insurance. Binders are prohibited in life and disbability poilcies.

BOE benefits are usually limited to

covered expenses incurred or the maximum monthly benefit stated in the policy.

consumer report vs investigative report

similar: provide info on the consumer's character, reputation and habits diff: Invest report obtain info through investigation and interviews with people who can give reference of the consumer.

Executive bones is

tax deductible to the employer and income taxable to the employee.

Life insurance proceeds maybe used

to pay inheritance taxes and federal estate taxes so that it is not necesary for the beneficiaries to sell off the assets.

cross purchase

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

entity purchase

used when the partnership buys the policies on the partners

BOE benefit payments

usually limited to 1 or 2 years.

Businesses use of life insurace

1. Key person insurance 2. Buy-sell agreement 3. Other uses

4 life insurance disclosures statements

1. Requirements for using illustrations 2. Buyer's guide 3. Cost indexes 4. Surrender charges 5. Surrender period.

BOE does not reimburse for

1. biz owner's salary, compensation or other form of income that is lost as a result of disability.

With the key person insurance coverage, the key employee is the insured, and the business is the

1.applicant 2.policy owner 3. premium payer 4. beneficiary

The application is the starting point and basic source of information used by the company in the risk selection process.

Although applications are not uniform and may vary from one insurer to another, they all have the same basic components

Information Sources and Regulations for COMPANY UNDERWRITING

Application: main source Agent's report: anything agents know might help Investigate consumer report(inspection): inspection reports are subject to the rules and regulation outlined in the Fair Credit Reporting Act

Liquidity

As a result of the cash accumulation feature, some life insurance policies provide liquidity to the policyowner. That means the policy's cash values can be borrowed against at any time and used for immediate needs.

Three types of Temp insuring Ageement

Conditional receipt ( most commonly used) 30 day Interim Term receipt; and Acceptance Form of Receipt

Debt cancellation

Insurance may be used to create a fund to pay off debts of the insured such as home mortgage or auto loans.

Process of issuing a life insurance policy

Solicitation and Sales Presentations => Underwriting : Field and Company => Premium Determination => Policy Issue and Delivery.

The Fair Credit Reporting Act, 15 U.S.C. § 1681 ("FCRA")

The Fair Credit Reporting Act, 15 U.S.C. § 1681 ("FCRA") is U.S. Federal Government legislation enacted to promote the accuracy, fairness, and privacy of consumer information contained in the files of consumer reporting agencies.

Field underwriting

The agent is the company's front line, and is referred to as a field underwriter because the agent is usually the one who has solicited the potential insured.

Businesses use life Insurance for the same reason individuals use life insurace: it creates an immediate payment upon the death of the insured

The most common use of life insurance by businesses is as an employee benefit, which serves as a protection for employees and their beneficiaries. There are also other forms of life insurance that can serve business owners and their survivors, and even protect the business itself. These include funding business continuation agreements, compensating executives, and protecting the business against financial loss resulting from the death or disability of key employees.

Cost Indexes

To help consumers make educated decisions on purchasing life insurance, the industry developed specific methods and indexes that measure and compare the actual policy costs. These comparisons are usually included in policy illustrations.

Buy sell insurance

a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled. This also referre to as a business continuation agreement.

The premiums paid for BOE

are tax deductible to the business as an business expense. However, the benefits received are taxable to the business as received.

Approval conditional reciept

coverage begins only when the pre paid app is approved by the insurer ( but before the policy is delivered). Therefore, there is no coveraege during the initial underwriting process. This type is rarely used

Changes on the app

depend on the insurer ,maybe need insured to initial the change or complete a new app. An agent should never erase or white out any info on an app for insurance

Retirement period

during this period, the surviving spouse's working income ceases and his or her Social Security benefits begin. Since the surviving spouse's standard of living does not lessen, he or she will require an income comparable tot he Preretirement period during this time.

Negative info defined by FCRA includes

info regarding a customer's delinquencies, late pmt, insolvency or any other form of default.

A non medical app

is the medical portion of an app which accepts a health questionnaire completed and signed by the applicant and the agent does not require a med exam. If amount of insurance in relatively nominal, the agent and insured will complete all of the med exam. For larger amounts, the insurer will usually require some sort of med exam by a professional.

The temporary term

is the protection period offered by binding receipts. DUring this time period , an insurance company is liable for the maximum amount guaranteed under the binding receipt/temp insurance agreement

Part 2: Medical info

medical background, present health, medical visits in recent years, med status of living relatives, and causes of death of proposed insured will complete all of the med info. That would be considered a nonmedical app. For larger amounts, the insurer will usually require some sort of med exam by a professional

Underwriting purpose

prevention of adverse selection and properly classifying risks ( be able to differentiate between preferred, standard and substandard risk classifications )

Unconditional (binding receipt)

rarely used in life ins

Temp Insuring Agreement

requires payment of the first premium at the time of application but does not guarantee that a policy will be issued.

Under the Key person insurnace, when the person dies

the business would use the money for the additional costs of runing the business and replacing the employee. The business cannot take a tax deduction for the expense for the premium. However, if the key employee dies, the benefits paid to the business are usually received tax free. No special agreement of contracts are needed except that the employees would need to give permission for this coverage

Excutive bonus is owned by

the employee and therefore has all control

Human life value approach

the 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.

If an interest rate used to determine the illustrated nonguaranteed elements is shown

, it may not be greater than the earned interest rate underlying the disciplined current scale.

Limit of liability in life policy

The limit of liability is the face value/ amount or death benefit of an individual life insurance policy, subject to any exclusions or riders as applicable, minus any outstanding policy loans and interest payments due to the insurer.

The written disclosure statement that provides basic information about the cost and coverage of the insurance must be given to the applicant

no later than the time the application for insurance is signed.

For policies with higher amounts of coverage or if the app raised questions ,underw may require

paramedical report and APS , MIB report

Exception to the proposed insured signing the application

parent or guardian applying for insurance on a minor child.

The primary criteria an underwriter will use in assessing the desirability of a particular candidate for life insurance includes

the applicant's health (current and past), occupation, lifestyle, and hobbies or habits. The underwriter will use many different sources of information in determining the insurability of the individual risk. The specific underwriting requirements will also differ by insurers.

DUring the app process, the agents is in position to terminate at any time if he finds that

the client poses an untenable risk to the insurance comp, or to explain to the clients why their risk may be higher than normal. Forewarning clients of a possible premium rating can help them overcome "sticker shock" later

If a question left unanswered in the app

the contract will be interpreted as if the insurer waived its right to have an answer to the question. The insurer will not have the right to deny coverage based on any info that the unanswered question might have contained

Preretirement period

the period after the children are no longer dependent upon the surviving spouse for support, but before the surviving spouse qualifies for Social Security survivor benefits ("Blackout Period"). The income needs of the surviving spouse lessen during this period; however, until the surviving spouse reaches age 60, Social Security benefits are not available.

Post selection

the underwriter using app as a springboard, he will begin an investigations of the client's complete risk profile. Fed and state law delineates the types and exten of info which can be acquired and considered. The underwriter will label the client as: standard, substandard, or uninsurable.

Disclosure statements will help the applicants

to make more informed and educated decisions about their choice of insurance

stock purchase

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

A life insurance illustration must do the following

1.Distinguish between guaranteed and projected amounts 2. Clearly state that an illustration is not a part of the contract 3. Identify those values that are not guaranteed as such

The 3 incomes periods that most insured are exposed to

1.Family Dependecy period 2. Preretirement period 3. Retirement period

2 approaches used to determine life insurance amounts

1.Human life value approach, or 2. Needs approach

consumer report

(1)In general.—The term "consumer report" means any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for— (A) credit or insurance to be used primarily for personal, family, or household purposes; (B) employment purposes; or (C) any other purpose authorized under section 1681b of this title.

As a field underwriter, the agent has many important responsibilities during the underwriting process and beyond ,including the following:

1. Proper solicitation of applicants 2. Helping prevent adverse selections 3. Completing the application 4. Obtaining the required signatures 5. Collecting the initial premium and issuing the receipt; and 6. Delivering the policy

4 categories of personal insurance planning

1.Debt 2.Income 3.Mortgage 4.Expense

An illustration used in the sale of a life insurance policy must contain the following basic information

1.Name of insurer 2. Name and business address of producer or insurer's authorized representative; if any; 3. Name, age and sex of proposed insured, except when a composite illustration is permitted under this regulation. 4. Underwriting or rating classification upon which the illustration is based; 5. Generic name of policy, the company product name (if different) ,and form number; 6. Initial death benefit 7. Dividend option election or application of nonguaranteed elements, if applicable 8. Illustration date 9. A prominent label stating "Life Insurance Illustration."

When using an illustration in the sale of a life insurance policy, and insurer or its producers may NOT do any of the follwing

1.Represent the policy as anything other than a life insurance policy 2.Describe non-guaranteed elements in a manner that could be misleading 3. Use an illustration that depicts policy's performance as being more favorable than it really is 4. Provide an incomplete illustration 5. Claim that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact; 6. Use the term "vanish"or "vanish premium", or a similar term that implies the policy becomes paid up; 7. Use an illustration that is not self-supporting.

Business overhead expense ( BOE)

1.a unique type of policy that is sold to small business owners who must 2. continue to meet overhead expenses such as 3. rent, utilities, employee salaries, installment purchases, leased equipment, etc. following a disability. 4. BOE reimburses the business owner for the actual overhead expenses that are incurred while the business owner is totally disable.

4 types of buy sell agreement that can be used for partnership and corporation

1.cross purchase 2. entity purchase 3.stock purchase 4. stock redemption

BOE elimination period

15 to 30 days

Key Person Insurance

A business can lessen the risk of such loss by the use of key person insurance- a key employee someone who has specialized knowledge, skills or business contacts.

Buyer's Guide

A buyer's guide provides basic, generic information about life polices that contains, and is limited to, language approved by the Department of Insurance. This document explains how a buyer should go about choosing the amount and type of insurance to buy, and how a buyer can save money by comparing the costs of similar policies. 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 with the policy.

Life insurance creates an immediate estate

Estate creation is especially important for young families that are getting started and have not yet had time to accumulate assets. 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. There is no legal method by which an immediate estate can be created at such a small cost.

Emergency Reserve Fund

Insurance proceeds may be used to assist in paying for sudden expenses following the death of the insured, such as travel expenses and lodging for family members coming from a distance .

What sources of info underw can use for investigation for post selection process

MIB ( Medical Information Bureau ): database allow search of apps and claims. DMV: search for driving record Physician/med facility records: the APS( attending physician statement) allow the insurer to receive the complete med treatment history of the client. Additional med testing /current physical Financial report Personal interviews Hazardous activity questionaire

Needs Approach

The needs approach is based on the predicted needs of a family after the premature death of the insured. Some of the factors considered by the needs approach are income, the amount of debt ( including mortgage), investments, and other ongoing expenses.

Investigative consumer report

Under the FCRA, a background check that includes interviews with "neighbors, friends, or associates" about your "character, general reputation, personal characteristics, or mode of living" is called an "investigative consumer report."

Illustration

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

LIfe insurance may be used to

accumulate specific amounts for monies for specific needs with guaranttes that the money will be availbale when needed. For example, some file policies accumulate cash value that is available to the policyowner during the policy term.

The Commissioner may, by regulation,

adopt a term life insurance monetary value index ( similar to the LIFE INSURANCE SURRENDER COST INDEX) to be disclosed in all advertisements and policies of term life insurance for individuals 55 years of age or older. In developing a term life insurance monetary value index, the Commissioner must consider actual premiums and policy benefits and the manner in which they are affected with the passage of time. Any term life insurance monetary value index must assume that the insured would want to retain coverage for at least 10 years

Pre-selection

agent can accomplish good pre selection by a complete and accurate, and thorough completion of the ins app. The app will ask for all of the legally allowed info which an insurer may gather in order to do effective post selection underwriting.

Business continuation

an arrangement between business owners that provides for shares owned by any one of them who dies or becomes disabled to be sold to , and purchased by, the other co owners or the business.

Executive Bonuses

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.

Solicitation of insurance means

an attempt to persuade a person to buy an insurance policy and it can be done orally or in writing. This includes providing info about available products, describing the policy benefits, making recommendations about a specific type of policy, and trying to secure a contract between the applicant and the insurance company. Any sales representations used by insurers of their agents in communication with public must be accurate and complete.

Require signatures

both insured and agent must sign the app. The proposed insured and the policy owner are not the same person.

The Traditional Net Cost Index

compares the cash values available to buyers if they surrender the policy in 10 or 20 years. This index does not take into consideration the time value of money( or investment return on the insurance premium had it been invested elsewhere).

The Interest-Adjusted Net cost index

compares the death benefits that are paid at death in 10 or 20 years, if the insured died at that time, and accounts for the time value of money.

The most common type of reciept is

conditional receipt, issued when the applicant submits a prepaid application.

The conditional receipt says that

coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, as long as the applicant found to be insurable as a standard risk, and policy is issued exactly as applied for. This rule will not apply if a policy is declined ,rated or issued with riders excluding specific coverages.

An agent may not only use the illustrations of the insurer that

have been approved and may not change them in any way

Executive bonus assumed that

if the employee were not willing to accept these conditions, the employer would not provide the benefit

Part 1 : general information

includes the general questions about the applicant, such as name, age, address, birth date, gender, income marital status, and occupation; existing policies and if the proposed insurance will replace them. Part 1 identifies the poilcy applied for the amount of coverage, and usually contains info concerning the beneficiary.

Retirement fund

insurance proceeds may be used as a source of retirement income

Education Funds

insurance proceeds may be used to pay for children's education expenses so they can remain in school, or sometimes a surviving spouse who has worked in the home caring for children will need to receive education or training in order to re-enter the job market.

Underwriting

is the risk selection process. The underwriter's responsibilities include selecting only those risks that are considered insurable and meet the insurer's underwriting standards. The purpose of underwriting is to protect the insurer against adverse selection (risks which are more likely to suffer a loss).

Part 2 :Medical Info (cont)

it's the agent responsibility to make certain that the application is filled out completely, correctly and to the best of applicant's knowledge. Agent must probe beyond the stated questions in the app if he or she has any reason to believe the applicant is misrepresenting or concealing info, or does not understand the specific questions asked. Any info that is misleading , iaccurate ...may delay the issuance of the policy. Agent must inform the insurance comp if he believes there is misrepresentation. Some insurers require the insured to fill the app in front of the agent.

stock redemption

used when the corporation buys one policy on each shareholder.