YUCKY YUCK

Minimum Guaranteed Interest Rate

Around 4%

Standard Risk

Averagerisk with no special health problems and no dangerous hobbies or occupation

Modified Premium Whole Life Policy

offer initial level premiums that are substantially lower than straight whole life. Premiums would then increase. Premium will remain high for duration of policy. Face amount remains level

Loss

Any injury or damange that the insured suffers because of a covered peril

Policy provisions

Apply to claims such as notice of claim and proof of loss

Pre-paid legal

A contractual obligation to indemnify for specific legal services rendered in the normal and ordinary course of business by an a ctive member of state bar

Agency

A relationship in which one person is authorized to represent and act for itself

Warranty

Absolute guarantee of truth. Notarized

Universal Life

Adjustable benefit life insurance contract that accumulates cash values and has a flexible premium. May increase the death benefit without buying another policy but prove insurability. Can reduce teh death benefit

Policy (contract of insurance)

Agreement between the insurer and the insured

Legal Purpose and Legal Capacity

All parties must be competent to contract. Illegal contracts unenforceable in court

Binding receipt

Always makes covrage effective on the date of application. Limits the maximum amount that the company is liable for until the policy i issued

Level Premium Term

Both premium and face amount (policy limit) stay level for a period of time

Needs Approach

Burial expense, family maintenance, children's education, continuing income for the surviving spouse

Key Person

Business owner buys life insurance on a key employee

Morale Hazard

Carless client

Peril

Cause of loss

Adjustable Whole Life Insurance

Changing needs and ability to pay premiums in an uncertain economic climate. May adjust the face amount of the policy, the amount and/or frequency of premium payments or period of protection, without underwriting

Graded Death Benefits

Charages client a premium for $100,000 face amount but only writes the policy for $75,000 instead

Offer

Clearly communicated. Client completes and signs application and writes check for premium

Tabular rating

Company determines what the exact surcharge should be for a client with a particular impairment based on claims hisotry of similar clients

Exposure

Condition or situation that presents the possibility of loss

Conditional

Conditions that apply to both the insurere and the insured

Interest-adjusted Net Cost Method (Life Insurance Surrender Cost Index)

Consider the level of cash values to be of primary importance. Compare costs of different policies that you are considering if you are going to take cash surrender

Twisting

Convincing a client to replace coverage to their detriment. Violation of State Insurance Code

Gross Annual Premium

Cost of death (mortality) + Expenses - Interest

Franchise Marketing System

Coverage to employees of small firms or to members of associations. Individual policies that vary according to the individuals' needs

Physical Hazard

Dangerous occupation or hobby

Option A (Level death benefit)

Death benefit is the policy's stated face amount. As cash value INCREASES, the amount the insurance company has at risk DECREASES. Premium level, used to purchase a decreasing amount of protection. Risk until age 95

Fraud

Deliberate attempt to deceive

Concealment

Deliberate omission

Moral Hazard

Dishonest client

Human Life Value Approach

Earning potential. What a family would lose in income in death of the principal wage earner. Reimburse loss

Consideration

Exchange of something of value between parties. DO NOT HAVE TO BE EQUAL

Risk Retention Groups

Exempt from state regualtion and guaranty fund membership. Prohibited from writing workers' compensations and personal lines

Express authority

Explicit,definite agreement. Authority the principal gives the producer as set forth in their contract.

Annual Renewable Term

Face Amount level. Premium increases each year. No cash value

Government Insurers

Federal: Military, Medicare, National Flood Insurance, Federal Crime Insurance, Federal Crop Insurance, Mortgage loans. State: unemployment, Worker's Compensation, secondary-injury funds, medical-expense

Captive Insurers

Forms to serve the insurance needs of their stockholders while avoiding the uncertainties related to commercial inurance availabilty and costs. Controlled by one interest or a group of related interest who have direct involvement and influence over the company's operations. NON-ADMITTED ALIEN CORPORATIONS

Single Premium Life (One-Pay Life Policy)

Fully paid up by payinga single premium at policy inception. Immediate cash value, very expensive. Insurance company would offer a discount

Speculative risk

Gambling. Opportunity for gain as well as the possibility of loss. INSURANCE WON'T COVER

Substandard Risk

High Exposure

Doctrine of Adhesion (reasonable Expectations)

If the insurance contract language is vague or unclear, any ambiguity will be construed in favor of the insured

Option B

Increasing death benefit that is made up of the policy face amount plus the cash value account. Amount of pure risk is level amount equal to the policy face amount . Death benefit equals the face amount plus cash value. More 'pure' protection. More expensive.

Net Single Premium

Initial participating life insuranc policy premium - policy dividends whe ninsured applies

Reinsurance

Insurance between insureres. Accept all or a portion of a risk. Reduce risk of a catastrophic loss. Excess of loss basis (re-insurere will pay only the portion of loss that exceeds a threshold or on a quota share basis. Pro rata, fixed-percentage basis, facultative, certain risks but not others)

Convertible Term

Level and Decreasing Term are convertible at any time to Whole Life insurance without physical exam. Term-->Whole Premium will increase.

Variable Life

Level premium and guaranteed minimum death benefit or face amount. Cash value or interest rate to be paid are not guaranteed. Investment risk.

Managing General Agents (MGAs)

MGA license from state Department of Insurance. Independent, representing several, or exclusive agreement with just one carrier

Comparative Interest Rate Method (Life Insurance Net Payment Cost Index)

Main concern is the benefits that are to be paid at your death and if the leve lof cash value accumulated is of secondary importance. Helps evaluate the relative premium costs.

Conditional Receipt

Makes coverage effective on the date of application if the company finds the applicant to have been insurable on that date. Never given unless you receive premium

Endowment

Mature at a predetermined age. Cash value accumulates fast. Higher premium. Often used for children's education. Grace period 30 days

Endowment Policies

Maturity occurs at a predetermined time selected by the insured. Usually for retirement and education. Most expensive type of life insurance

True Group Life

Minimum of 10 people. Grace period is 31 days

Preferred Risk

Most clients are insurable. Lower than standardd\

Group Life Insurance

Most inexpensive. Sold to employer groups on a payroll deduction plan

Participating Policies

Mutual companies don't have stock. Owned by policyholders. Dividends are a return of premium already paid, NOT TAXABLE.

Implied authority

No expressly granted under an agency contract, but it actual authority that the producer has to transact the principal's business in accordance with general business practices.

Variable products

No guaranteed rate of return or cash value. Cash value in seperate account

Mutual Insurers

No stockholders. Ownership rests with the policyholders. Vote for a Board of Director. Funds not paid out after paying claims and not used in paying for other costs of operation may be returned ot hepolicyholders in the form of POLICY DIVIDENDS (Never guaranteed and are not taxable)

Buy and Sell Agreement

Orderly continuation of a business in the event that an owner dies prematurely. Proceeds allow another individual to purchase the deceased owner's interest so that the survivors can receive a fair cash settlement and the business can continue without disruption. Premiums NOT TAX-DEDUCTIBLE

Aleatory

Outcome depends upon chance

Life paid up at 65

Pay all premiums by age 65. Premiums higher. Whole life.

20/30 Pay Life

Pay over shorter period of time. Higher premium. Variation of Whole life. Matures at 120 but cash value builds rapidly

Whole Life (Cash Value Life)

Permanent. Covers you until you die or until the policy reaches maturity (120). Never has to be renewed. Low net cost. Upon death, policy will pay "face amount" (policy limit), but company will keep the accumulated cash value. Level premium. At death, cash value=face amount. Grace period 30 days

Producer

Person authorized to act on behalf of another person (principal)

Retained

Person decides to assume financial responsibility for certain events

Rated-Up Age

Plan assumes the applicant is older than they really are.

Risk

Possibility (uncertainty) that a loss may occur

Reduced Risk

Practicing living a healthier lifestyle

Limited Payment and Single Premium

Premium is paid over a shorter period of time. Single: entire premium up front. Immediate cash value

Decreasing Term

Premium stays the same, but amount of coverage decreases. No option to renew. Cost increases. Often attached as a rider or endorsement to a Whole Life Policy. No Cash value accumulation. Mortgage protection insurance

Apparent authority

Producer seems to have. Believe the producer has authority that they do not

Excess Interest

Projects current interest rate, which combines the minimum guaranteed rate and any excess interest they anticipate earning above the minimum

Cash Value Life Insurance

Protection and Cash accumulation. Death=pay face amount to beneficiary. Lives=accumulated cash value may be borrowed from insurere or client may surrender their policy

Nonprofit Service Organizations

Providing prepaid plans for hospital, medical, and surgical expenses. Pay the provider medical services directly. ex. Health Maintenance Organizations HMO

Features of policy

Provisions, riders, exclusions, possible options

Loss

Reduction in the value of an asset

Exclusive/Captive producers

Represent only ONE company, paid a salary or commissions

Excess and Surplus LInes

Risk is very large or unusual. Contact broker who will place it with an unauthorized carrier in another state or out of the country (lloyd's of London)

Direct writing companies

Salaries to employees whose job function is to sell their company's insurance products. Insurance company owns the expirations

Independent

Sell products of several companies and work for themselves or for other producers. Commission Owns the expirations.

Insurance

Social device for SPREADING the chance of financial loss amount a large number of people.SHARING risk

Fraternal Insurers

Social organizations and usually engage in charitable and benevolent activities. Membership is usually drawn from those who are also memebres of a lodge or fraternal organization. Open contract

Flat Additional Premium

Specific additional premium is added to the standard rate

Free Look

Starts at time of policy delivery or date of mailing. Return policy. Usually 10 days

"Graded" premium whole life policy

Starts with lower premiums but premiums will increase gradually then become level

Nonparticipating Policies

Stock companies. Policyholders are not entitled to share in company profits. Dividends ordinary income are TAXABLE

Stock Insurers

Stockholders who own shares in the company. Provide capital for the insurer. Share in any profits and any losses. Board of Directors elects officers

Face Amount

Sum of accumulated cash value + Amount of risk (insurance protection)

Term

Temporary. No cash value. Renewable. Usually won't cover past 65. Grace period 30 days

Law of Large Numbers

The degree of error in predicting future losses DECREASES as the number of individual exposure units in a group INCREASES

Fixed Insurance Products

Traditional Whole Life. Fixed guaranteed rates of return. Cash values (guaranteed to be a certain amount at a specified time) invested in general account

Pure Risk

Type of risk that insurers accept. Possibility that a certain event will occur.

Acceptance of Offer

Underwriter approves and issues policy

Reciprocal Insurers

Unincorporated groups of people providing insurance for one another through individual indemnity agreements. SUBSCRIBER. Administration, underwriting, sales promotion, and claims handling handled by attorney-in-fact

Lloyd's Association

Voluntary association who agree to share insurance contracts by pledging their personal assets and forming insurance "sydicates" who specialize in writing insurance in the 'residual' or suplus lines marketplace

Waiver

Voluntary giving up of a known right

Enhanced Ordinary Life (Economatic)

Whole life with a term insurance rider which uses dividends to buy additional paid-up insurance. Amount of paid-up insurance purchased wil increase as the amount of the term rider decreases.

Continuous Premium (Straight Life)

Whole life. Premium payments based on original age at issue and can never be changed. Cash value after 3rd year. Never canceled or changed. May take policy loan or surrender the policy at any time. Leaset expensive permanent type of life insurance