Insurance ch 2
Estate creation and conservation
A person may create an estate through earnings, savings, and investments, but all of these methods require disciplined action and a significant period of time. the purchase of life insurance creates an immediate estate.
Who receives a percentage of the policy's face value
Viators usually receive a percentage of the policy's face value from the person who purchases the policy. The new owner continues to maintain premium payments and will eventually collect the entire death benefit.
Changes on the application and amdendments
When an answer to a question on the application needs to be corrected, agents have the option depending on which insurer they represent, of correcting the information and having the applicant initial the change, or completing a new application. An agent should never erase or white out any information on an application for insurance
Traditional net cost index
compares 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)
Interest adjusted net cost index
compares the death benefits that are paid at death in 10 to 20 years, if the insured died at that time, and accounts for the time value of money
What is the most common type of receipt
conditional receipt - this is only used when the applicant submits a prepaid application. This receipt says that coverage will be effective either on the date of the application or the date of the medical exam.
Variable life insurance(or annuities)
contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance. These keep pace with inflation, and are determined by the value of securities backing it
Fixed life insurance(or annuities)
contracts that offer guaranteed minimum or fixed benefits that are stated in the contract
Types of buy-sell agreements
cross purchase, entity purchase, stock purchase, stock redemption
Cash value
equity amount accumulated in permanent life insurance
solvency
ability to meet financial obligations
Viatical settlements
allow someone living with a life-threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed: before their death. While this isn't a policy option, it is a separate contract in which the insured sells the death benefit to a third party at a discounted rate.
Producer report
allows the producer to communicate with the underwriter and provide information on the applicant that may assist in the underwriting process. It becomes part of the application
Key person insurance
A business can suffer a financial loss because of the premature death of a key employee - someone who has specialized knowledge skills or business contacts. A business can lessen the risk of such loss by the use.
What information must the viatical settlement providers supply applicants with?
A disclosure signed by the provider or broker and the viator.
Viatical settlement providers must obtain the following information before entering a contract
A witness document; A document giving the insured's consent to the release of medical records to the viatical settlement provider, broker, and insurance company; A document giving the insured's consent to the tolling of the running of the policy's contestable period until after the insurer completes its good faith investigation, if the life policy is being viaticated within 2 years of the policy issue
What factors determine the amount of personal life insurance
Ability to pay the premium, serve their needs, and protect survivors. Insurance companies have developed 2 basic approaches to help producers and buyers to determine the needed amount of protection: human life value approach and needs approach
How long will it take for approval to a viatical settlement license
All applications will be approved or disapproved by the Department within 90 days of their receipt.
What must an application for a viatical settlement license include?
An audited financial statement - not more than 1 year and 120 days old; an unaudited financial statement as of the end of the most recent quarter
Liquidity
As a result of the cash accumulation feature, some life insurance policies provide liquidity to the policy owner. That means the policy's cash values can be borrowed against at any time and used for immediate needs.
Incomplete applications
Before a policy is issued, all of the questions on the application must be answered.
Signatures required
Both the agent and the proposed insured(usually the applicant) must sign the application.
Insurance proceeds paid in a lump sum may be needed for what expenses
Costs associated with death, debt cancellation, emergency reserve funds, education funds, retirement funds, and bequests
What must illustrations do
Distinguish between guaranteed and projected amounts; clearly state that an illustration is not a part of the contract; identify those values that are not guaranteed as such
Personal uses of life insurance
survivor protection, estate creation and conservation, liquidity, and asset protection
Life insurance disclosure statements
Every applicant for a life insurance policy must be given a written disclosure statement that provides basic information about the cost and coverage of the insurance being solicited. This disclosure statement must be given to the applicant no later than the time the application for insurance is signed. Disclosure statements help applicants make more informed and educated decisions about their choice of insurance
Attending Physician Statement
If an underwriter sees answers to certain questions that could indicate greater risk, and the underwriter wants to obtain specific medical details, they will request this. It is an exam of blood and urine samples. Under certain circumstances the underwriter may require a full medical exam especially for higher coverage.
Surrender comparison index disclousure
In Pennsylvania, all applicants for life insurance policies that are not specifically excluded must be given this. The purpose is to provide a life insurance purchaser with a means of making a cost comparison of the same types of life insurance policies having the same premium payment period and pattern
Part 2 Medical information
Information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.
Rules that apply to insurance advertising in PA
Insurers must submit 3 copies of all advertisement to the department of insurance for approval; Once a mail-order solicitation has been filed, it may be used for 2 years without additional filing; Advertising material will remain filed for 4 years, or until the next regular examination of the company; If a testimonial refers to the benefits received under a contract, the specific claim data should be retained by the insurer for 4 years or until the filing of the next regular examination of that insurer, whichever is longer
How often and how much do viatical settlement licenses need to be renewed and cost
Licenses may be renewed annually, on the anniversary month, by filling the proper renewal forms and paying the renewal fee. For a provider this costs $300 and brokers it costs $100
Premiums with the application
Most agents attempt to collect the initial premium and submit it along with the application to the insurer. In addition, collecting the initial premium at the time of the application increases the chance that the applicant will accept the policy once it is issued. Whenever the agent collects premiums, the agent must issue a premium receipt.
What information must a viatical settlement agent include in the disclosure agreement?
Possible alternatives to viatical settlement contracts; proceeds taxation information; proceeds subject to claims of creditors; effect on eligibility for medicaid or other government benefits; The fact that the viator has 15 calendar days to rescind a viatical settlement. If the insured dies in the recission period, the settlement contract will be deemed rescinded; That entering into a viatical settlement contract may cause other rights or benefits to be forfeited; Funds will be sent to the viator within 3 business days after the viatical settlement provider acknowledges that the ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated.
Duties of the replacing producer
Present to the applicant a Notice Regarding Replacement that is signed by both the applicant and the producer. A copy must be left with the applicant; Obtain a list of all existing life insurance and or annuity policies to be replaced including policy numbers and the names of all companies being replaced; Leave the applicant with the original copy of a written or printed communications used for presentation to the applicant; Submit to the replacing insurance company a copy of the replacement notice with the application.
Responsibilities of underwriting process
Proper solicitation of applicants; helping prevent adverse selection; completing the application; obtaining the required signatures; collecting the initial premium and issuing the receipt; delivering the policy
How often can a viatical settlement provider contact and insured regarding information about the insured's health status
The contacts cannot be made more often than every 3 months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less.
Costs associated with death
taking into account the final medical expenses of the insured, funeral expenses, and day to day expenses family maintenance
Duties of the replacing insurance company
Require from the producer a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant; Send each existing insurance company a written communication advising of the proposed replacement within a specified period of time of the date that the application is received in the replacing insurance company's home or regional office. A policy summary or ledger statement containing policy data on the proposed life insurance or annuity must be included
Duties of the existing insurer
Retain all replacement notifications for at least 5 years or until the next regular examination by the insurance department; Send a letter notifying the policy owner of his or her right to receive information regarding the existing policy values. The information then must be provided within 5 business days of receipt of the request from the policy owner; Upon receipt of a request to borrow, surrender or withdraw any policy values, send a notice advising the policy owner that the release of policy values may affect the guaranteed and non guaranteed elements, face amount or surrender value.
What categories do all life insurance policies fall into regarding length.
Temporary and permanent protection
Temporary
Term life insurance that is provided for a specific period of time. It is also known as pure life insurance
What are the primary criteria an underwriter will use
The applicant's current and past health, occupation, lifestyle, and hobbies or habits.
Survivor protection
The death of the primary wage-earner will usually stop the flow of income to a family. The death of a nonearning spouse who cares for minor children can also cause great financial hardship for the survivors. 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.
What must a viatical settlement provider do within 20 days of completing the contract.
The settlement provider must give written notice to the insurer that issued the insurance policy that the policy has or will become a viaticated policy
Asset protection
The use of life insurance to guard one's wealth against creditor claims without engaging in practices that are ultimately illegal, such as concealment or fraudulent transfer.
Why might policyowners sell their policy.
They may choose to sell because they feel they no longer need their coverage, or the premium costs have grown too high to justify continuation of the policy
Human life value approach
This 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
Needs approach
This 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.
Life settlements
This term refers to any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party for some form of compensation, usually cash. While viatical settlements are still used for persons who are terminally ill, most states regulate policies that are sold to a third party for compensation under this term.
Business uses of life insurance
To create an immediate payment upon the death of the insured. The most common use by businesses is as an employee benefit, which serves as protection for employees and their beneficiaries. There are also other forms of life insurance that can serve business owners and their survivors. These include funding business continuation agreements, compensating executives, and protecting the business against financial loss resulting from the death or disability of key employees
Individual life insurance
Written on a single life. The rate and coverage are based upon the underwriting of that individual
viatical concept 4
_ brokers represent the insureds
Viatical concept 3
_ producers represent the providers
viatical concept 2
_ settlement provider means a person, other than a viator, that enters into a _ settlement contract.
Chronically ill
a condition in which a person is unable to perform at least 2 activities of daily living or that requires substantial supervision to protect the individual from threats to health and safety due to severe cognition impairment
Terminally ill
a condition that can reasonably be expected to result in death within 24 months
Permanent
a general term used to refer to various forms of whole life insurance policies that remain in effect to age 100, as long as the premium is paid. This insurance provides lifetime protection, and includes a savings element(cash value)
Buy-sell agreement(business continuation agreement)
a legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled
Viatical settlement broker
a licensed person that, for a fee, negotiates viatical settlement contracts between the viator and viatical settlement providers. This person represents the viator
Viatical settlement provider
a person other than the viator who enters into or effectuates a viatical settlement contract. This term does not include a bank, financing entity, or the issuer of a life insurance policy providing accelerated benefits.
minor
a person under legal age
estate
a person's net worth
Nonparticipating life insurance policy
a policy that does not pay dividends to the policy owners
Illustrations
a presentation or depiction that includes non guaranteed elements of a policy of individual or group life insurance over a period of years.
Viatical settlement purchasers do not need or require
a viatical settlement licensee; an accredited investor, qualified institutional buyer, or qualified purchaser who purchases a viaticated policy from a viatical settlement provider; a financing entity; a special purpose entity; a related provider of trust;
Policy summary
a written statement describing 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. This must be provided when the policy is delivered
Fraudulent viatical settlement act
an act or omission committed knowingly or with intent to defraud for the purpose of depriving another of property or for monetary gain by a person who commits or permits employees or agents to do any of the following. . .
Executive bonus
an arrangement where the employer offers to give the employee a wage increase in the amount of premium on a new life insurance policy on the employee. The employee owns the policy and, therefore, has full rights to the policy. Since the employer treated the premium payment as a bonus, that amount is tax deductible to the employer and income taxable to the employee.
Solicitation of insurance
an attempt to persuade a person to buy an insurance policy, it can be done orally or in writing. This includes providing information 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.
Suitability
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
What products does the surrender comparison index disclosure not apply
annuities; group life; credit life; life insurance less than $5000, life insurance on substandard risks; Life insurance related to qualified retirement plans; life insurance issued as the result of a contractual policy change; life insurance where the cost is borne by an employer; variable life insurance; family policies; term policies; and riders
Participating life insurance policy
any policy that distributes its dividends to policy owners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance.
Replacement
any transaction in which new life insurance or a new annuity is purchased and, as a result, the existing life insurance or annuity has been or will be any of the following:
Viatical settlement purchaser
anyone who gives a sum of money as consideration for a life insurance policy or interest in the death benefits of a life insurance policy. It also means a person who owns, acquires, or is entitled to a beneficial interest in a trust that owns a _ _ contract or is the beneficiary of a life insurance policy which is or will be the subject of a _ _
Retirement fund
as a source of retirement income
Guarantee Associations
formed to protect policy owners, insureds, beneficiaries, and anyone entitled to payment under an insurance policy from the incompetence and insolvency of insurers. The association will pay covered claims up to certain limits set by state law. It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the insurance guaranty association
Part 1 General Information
general questions about the applicant, such as name, age, address, birth date, gender, income, marital status, and occupation. It will also inquire about the existing policies and if the proposed insurance will replace them. This part identifies the type of policy applied for and the amount of coverage, and usually contains information concerning the beneficiary
Adverse selection
tendency of individuals with higher probability of loss to purchase insurance more often than those who present a lower risk
Bequests
leaving funds to the insured's church school, or a charity
Education funds
paying for the 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(as an alternative to estate liquidation)
paying off debts of the insured such as home mortgage, or auto loans.
lump sum
payment of the entire benefit in one sum
illustrations
presentation or depiction of non guaranteed elements of a life insurance policy
Advertisements
printed material, audio visual material, or descriptive literature. These could be used through direct mail, newspapers, magazines, radio scripts, TV scripts, billboards, circulars, leaflets, booklets, depictions, illustrations, form letters, prepared sales talks, and presentations. These must provide accurate information.
Buyers guide
provides basic, generic information about life insurance policies 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
Agent's report
provides the agent's personal observations concerning the proposed insured. The insurer may inquire whether the agent knows of any adverse information about the applicant, or ask the agent to express an opinion about the applicant's character, financial standing, and environment. The agent's report does not become a part of the entire contract, although it is a part of the application process
liquidation
selling assets in order to raise capital
Death benefit
the amount paid upon the death of the insured in a life insurance policy
Viatical concept 1
the insureds are referred to as viators
Viator
the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract.
Underwriting
the risk selection and classification process. It involves careful analysis of many different factors to determine the acceptability of applicants for insurance. The process in which an insurance company determines whether or not a particular applicant is insurable, and if so, what premium to charge
Application
the starting point and basic source of information used by the company in the risk selection process. Although they are not uniform, they all have the same basic components: part 1 - general information and part 2 - medical information
Insurable interest
to purchase insurance, the policy owner must face the possibility of losing money or something of value in the event of loss.
Life insurance comparison methods
traditional net cost index; interest adjusted net cost index;
Stock purchase
used by privately owned corporations when each stockholder buys a policy on each of the others
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
Group life insurance
written as a master policy covering the lives of more than one individual covered under the single policy. Individuals covered do not receive a policy but instead receive certificates of insurance. The rate and coverage are based upon group underwriting, with all individuals covered for the same amount and rate.