F: The Individual Life Insurance Contract

Collateral assignment

(usually made to a bank) when the policy owner pledges the policy as collateral for a loan.

What are the 7 Beneficiary Designations? (7)

1 - Eligible beneficiaries 2 - primary & secondary (contingent) 3 - common disaster clause 4 - spendthrift clause 5 - revocable vs irrevocable 6 - id which which methods used to designate beneficiaries best serves need of policy owner 7 - ID the rights of beneficiaries & Creditors after insured's death

Provider Disclosures (4)

1 - Gross purchase price paid for policy 2 - amount to be paid to policyowner 3 - Full disclosure of compensation to broker 4 - The Broker's contact info

What are the five settlement options?

1 - Lump sum 2 - fixed amount 3 - fixed period 4 - life income 5 - interest only

Identify life settlement required disclosures: at the time of application (9)

1 - Possible alternatives 2 - Transaction may have tax implications 3 - may affect creditors' rights 4 - possible effect on conversion rights, waiver of premium benefits 5 - may limit ability to purchase future life insurance 6 - recission rights 7 - date by which funds will be available 8 - owner required to disclose medical, financial & personal info 9 - insured will be contacted periodically to determine health status.

Identify life settlement required disclosures: at the time of the OFFER (3)

1 - affiliations between broker and provider & affiliations between provider and insurer 2 - provider disclosures 3 - Broker disclosures

Non-medical Applications: when are they needed? When are they not needed? (2)

1 - applicants who are in good health, under a specific age, and requesting less than a certain amount of coverage 2 - Older applicants who want higher coverage often have to take a physical exam + other tests before policy will be issued

What are the 8 owner's rights? (8)

1 - assignment or transfer of policy 2 - selecting or changing payment mode 3 - selecting or changing beneficiaries 4 - Conversion privilege 5 - cash values 6 - dividends or excess interest credits 7 - surrender charges 8 - self funding

What are the three non-forefeiture options? (3)

1 - cash surrender 2 - reduced paid-up 3 - extended term

Broker Disclosures (3)

1 - complete description of all offers, counteroffers, acceptances + rejections 2 - Affiliation between broker and person making an offer on proposed life settlement contract 3 - All estimates of life expectancy of the insured

What are the acceptable methods for delivery of a life policy to the owner of the policy? (4)

1 - mail 2 - personal delivery with signed + written receipt 3 - first-class mail with signed + written receipt 4 - other means determined by Commissioner

ID the following on applications (4)

1 - the types of information required on an app 2 - non-medical app & why a medical exam may be required 3 - required signatures 4 - changes to the application 5 - why insurers attach the application to the life policy and why it becomes part of a life policy

What types of information are required on the application? (5)

1 - written statements (name ,address, DoB, gender, occupation, hobbies, habits, medical history) 2 - medical report 3 - policy type 4 - desired death benefit 5 - beneficiaries to be designated

Temporary Term

A binding receipt usually indicates the maximum amount that the insurer is liable for during their underwriting period, that is teh temporary term.

Policy Loan

A loan issued by an insurance company that uses the cash value of a person's life insurance policy as collateral.

Policyowner's requirements regarding insurable interest

A person can't buy life insurance on the life of another person unless they have an insurable interest in that person at the time off application.

Beneficiary's requirements regarding insurable interest

A person doesn't need to have insurable interest in an insured in order to be the beneficiary. You can't buy the life insurance policy on another person and make yourself beneficiary unless you have insurable interes in that person.

What are the rights of the beneficiaries and creditors after the insured's death?

After the proceeds are paid to the beneficiary, the insured's creditors have NO RIGHT to claim any portion of the funds.

Revocable vs Irrevocable

Although the policyowner may change a revocable beneficiary designation at any time, irrevocable designations may only be changed with the consent of the irrevocable beneficiary.

Absolute Assignment

An irrevocable transfer of the policyowner's complete interest in th epolicy to another party

Required signatures

Application must be signed by the proposed insured, the policy owner and th agent

Fixed Period Settlement

Beneficiaries selecting this option choose the period of time they want payments for.

Conditional Receipt

Coverage is conditional and will not take effect until all conditions have been satisfied.

Reduced Paid-Up

Instead of surrendering their policy for cash, they could advise their insurer to keep the $40k they could have had and use it instead as a single premium to buy them a new whole life insurance policy that will be pre-paid until they die.

How are life settlements affected through Absolute Assignment?

Investor buys policy for more than cash value, but less than face amount. Policyowner then aboslutely assigns complete ownership position in the policy to the investor, who names themselves as beneficiary, thereby profiting upon the death of the insured.

Participating Policies

May pay dividends to the policy holders. (issued by mutual insurers)

Non-participating policies

May pay dividends to their stock holders.

Is there such thing as a standard life policy?

Nope. there are no standard life insurance policies, although some policy provisions appear in all policies (EX: grace period)

Reinstatement

Policy owners have the right to reinstate policies by completing (1) a reinstatement application and paying the overdue premium, the policyowner also has to pass a physical exam. Surrendered policies cannot be reinstated.

Cash Value

Similar to a savings account at the bank, except interest is tax deferred. Policyholders may use their accumulated cash values to supplement their retirement.

Extended Term

The insurance company takes the remaining cash balance on the policy and then uses that money to purchase term insurance. The individual is then covered by a term life insurance policy that lasts as long as the cash balance was at the time of forfeiture. When a policyowner/insured does not elect cash surrender or reduced paid-up when their policy lapsed, the insurer must give them extended term which is considered to be the automatic option.

Self- Funding

When a company saves money by electing to self-sinure their various employee benefits plans, by setting aside their own funds to pay future claims.

Cash Payments

a dividend that may be taken in the form of cash payment

Material Fact

a fact that is relevant to the insurer's decision to issue a policy

Automatic Premium Loan

a rider that may be added to a cash value life insurance policy in order to keep ir from lapsing for nonpayment of the premium.

Changes to the application

agent can't change the application without client's consent once it has been signed

Accumulation interest

allow the insurer to keep the dividend for them and pay interest on it

Per Capita Designation

benefits are paid equally to all designees

Per Stirpes Designation

benefits are paid in a line, aka if the first person dies before the insured then their child or grandchild moves up in succession to take their place

Non-forfeiture Options

designed to protect the policy owner's cash value in the event that the policy lapses

Surrender Charges

early withdrawal penalties

Modes of Premium Payment

how often a policy owner chooses to pay their premium. Monthly, quarterly, semi-annually or annualy.

Suicide

if the insured dies by suicide within the first two years of the issuance of the policy, the insurer is liable for the amount of premiums paid.

Facility of payment provision

if the insured dies without beneficiary, the insurer is permitted to pay part of the proceeds to another person who has agreed to take care of the insured's final expenses.

War Exclusion

if the insured's death occurs under wartime military service conditions, the company will only be liable for a return of the premiums paid or the cash value of the policy.

Aviation Exclusion

if the insured's death results from an aviation accident in which the insured was involved, the company will only be liable for the return of the premiums paid.

Buyer's guide

improve the purchaser's ability to select the most appropriate plan of life insurance, to understand the basic features of life insurance and to evaluate the relative costs of similar insurance plans.

misstatement of Age or Sex

insurer may adjust the benefits payable if the insured's correct age or gender were known. Applies to the life of the policy.

Interest Only Settlement

leave the entire death benefit with the insurer and withdraw only the interest it earns.

Eligible Beneficiaries

literally anyone can be a beneficiary.

Supplemental Illustration

may only depict a scale of non-guaranteed elements.

Conversion Priviledge

most written term life insurance is convertible to whole life by the same insurer without evidence of insurability.

Participating Policies

pay dividends to the policy holders

Contingent beneficiary

person who receives proceeds if the primary beneficiary dies

Spendthrift Clause

prevents the benficiary from borrowing against the proceeds or selling rights to them in order to obtain money ahead of time.

Common disaster clause

protects contingent benficiary if insured and the primary beneficiary both die in a common disaster

Temporary Insurance Agreement or Binder

provide temporary coverage until it is either superseded by the policy or canceled by the insurer.

Consideration Clause

states that coverage is provided in consideration of insured's payment of the premium. Consideration is defined as "the exchange of value"

Entire contract

states that in court, nothing is admissable except the entire contract, which consists of the policy and the application, if attached to the policy at issue.

Insuring Clause

states that the insurer will provide the insurance amount shown on the face page in exchange for the premium. (usually on the face page)

Title or Face Page

summarizes the benefits and coerage provided by the policy.

Reduced premium payment

the amount of any dividend to be received credited against the premium on their policy

Binding Receipt

the applicant has paid their initial premium, a limited amount of coverage starts right away.

one-year term

the dividend is used to purchase one-year term life insurance instead of whole life

What's a Stranger-Oriented Life Insurance Arrangement (STOLI)?

the insurance is purchased soley as an investment vehicle, rather than for the benefit of the policyowner's beneficiaries.

Incontestability

the insurer cannot void a contract on the basis of any concealment, misstatement, misrepresentation, or fraud, on the part of the insured after the policy has been in force for two years.

Fixed Amount Settlement

the insurer will pay them a specified amount every month until the proceeds are exhausted

Primary beneficiary

the party wo is first in line to receive the proceeds at the time of the insured's death.

Grace period

the period of time, after the due date of the premium, during which the insurance is still in force.

Delivery receipt

the receipt signed by the policyowner acknowledging that they are in possession of the policy

Rights of Ownership

the right to assign (transfer) all or part of their ownership to another party, to take a loan, to surrender the policy for cash, to name the beneficiary and of course, to pay the premium when due.

Free Look Provision

the right to return the policy to the insurer within a specified time after receiving it for a full refund.

Cash Surrender

the surrendered policy would no longer provide any coerage and a policy surrendered for cash cannot be reinstated.

Life Income Settlement

use that money as a single premium to buy an immediate life income annuity

paid-up additions

use the dividend as a small single premium to buy additional life insurance

Comparative interest rate method (Cost Index 2)

useful for those whose main concern is the benefits to be paid upon death (Also called "life insurance net payment cost index")

Interest-adjusted net cost method (Cost Index 1)

useful to those who consider the level of cash value acumulation to be of primary importance (also called "life insurance surrender cost index")

Lump Sum settlement

when a beneficiary takes cash upon the death of the insured