L&H Terms

Elements of a Legal Contract

-Agreement -Consideration -Competent parties -Legal purpose

Reinstatement Provision Life

-Allows a lapsed policy to be put back in force -Maximum time limit for reinstatement is usually 3 years after the policy has lapsed -If the policyowner wishes to reinstate the policy, they will have to show proof of insurability

Children Term Rider

-Allows children of insured to be added to coverage for limited period of time for a specified amount -Expires when minor reaches certain age (18 or 21) -Temporary term insurance coverage on all children of the family for one premium

Guaranteed Insurability Rider

-Allows insured to purchase additional coverage without evidence of insurability, for an additional premium

Agent 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 -Becomes apart of the application

Juvenile Life

-Any life insurance written on the life of a minor -A common juvenile policy is known as " The Jumping Juvenile" because the face amount increases at a predetermined age (21)

Exclusions Provision Life

-Aviation (non-commercial pilots) -Hazardous occupation/hobbies -War or military service

Irrevocable

-Beneficiary designation may not be changed without the consent of the beneficiary

Revocable

-Beneficiary designations may be changed without the consent of the beneficiary

Paramedical Exam

-Bloodwork and urine -Conducted by registered nurse or paramedic

Per Stripes

-By the bloodline -Distributes benefits of beneficiary who died before the insured to that beneficiary heirs (children)

Per Capita

-By the head -Evenly distributes benefits among the living named beneficiaries

Variable Universal Life

-Combination of universal life and variable life -Flexible premium and adjustable death benefit (Universal) -Policyowner decides where the cash value will be invested not the insurer (Variable) -Cash value and death benefit may increase or decrease depending on investment performance of the seperate account

Variable Life Insurance

-Contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance -Keeps pace with inflation -determined by the value of securities backing it

Spouse Term Rider

-Covers just the spouse of the insured -Allows spouse to be added to coverage for a limited period of time for a specified amount

Group Life Insurance

-Covers more than 1 person -Rate and coverage are based on group underwriting -Everyone covered for the same amount

Universal Life Option B

-Death benefit increases each year by the amount the cash value increases

Business Buy-Sell Agreement

-Determines what will be done with a business when owner dies or becomes disabled

Elements of Insurable Risk

-Due to chance -Definite and measurable -Predictable -Not catastrophic -Loss exposure to be insured must be large -Insurance must not be mandatory

Accelerated Living Benefit Rider

-Early payment of death benefit if insured is diagnosed with a terminal illness that will result in death within 2 years -Does not cover disability -Can cover necessary funds to take care of medical

Eligible Groups for Group Life

-Employers -Debtor groups -Labor unions -Credit unions -Associations

Life Insurance Disclosure Statement

-Every applicant for insurance must be given one -Basic information about cost and coverage -Must be given when application is signed -Helps applicants make more informed and educated decisions about their choices of insurance

Primary Beneficiary

-First claim to the policy proceeds following death of insured -May name more then 1

Joint Life

-First to die -Single policy that can insure two or more lives -Term or permanent -Premium based on joint average age

Conditions for Payment

-Form discloses conditions for payment of the accelerated death benefit

Policy Loans and Withdrawls

-Found only in policies with cash value -Policyowner entitled to borrow amount equal to available cash value -Policy will not lapse with outstanding policy loans unless the loans exceeds cash value -Insurance company may defer policy loan request up to 6 months unless reason for loan is to pay policy premium

Right to Examine Provision Life

-Free look -Allows the policyowner 10 days to look over the policy and the ability to return it for a full refund of premium -Free look period starts when policyowner receives the policy

Buyers Guide

-Generic information about life insurance policies -Explains how buyer should choose amount and type of insurance -Must be given before accepting initial premium

Common Disaster Clause

-If insured and primary beneficiary die at the same time from a common accident with no evidence of who died first -Law states that policy proceeds are to be distributed as if primary beneficiary died first -Protects the contingent beneficiary

Estates

-If no beneficiaries are alive at the time of insureds death, insureds estate will automatically receive proceeds of policy

Succession

-If primary beneficiary predeceases the insured the contingent will be entitled to death proceeds

Effects of Divorce

-If spouse named as beneficiary has obtained divorce, he or she has terminated all marital property rights -May be reversed if divorce is not recognized as valid or if beneficiary can prove the couple is living together

Return of Premium

-If you outlive the policy term, pays you all or some of the money you spent on policy payments

Disability Income Benefit Rider

-In the event of disability the insurer will waive the policy premium and monthly income to the insured -Amount paid is normally based on a percentage of the face amount of the policy which it is attached

Family Term Rider

-Incorporates spouse term rider with children term rider in a single rider -When added to whole life policy, family term rider provides level term benefits covering spouse and all children

Group Life

-Issued by sponsoring organization -Covers the lives of more than one individual member -Commonly written for employee-employer groups -Written as annually renewable term insurance -Evidence of insurability is not required -Participants do not receive a copy of the policy because they do not own or control it -Each participant is issued a certificate of insurance -Actual policy is issued to the sponsor or the group (employer) -Group sponsor is the policyholder (controls)

Specialized Policies

-Joint Life -Survivorship Life -Juvenile Life -Group Life

Decreasing Term

-Level Premium -Death benefit decreases each year

Universal Life Option A

-Level death benefit -Cash value gradually increases -Pure insurance decreases as time passes -In later years, pure insurance increases to comply with statutory definition of life insurance

Increasing Term

-Level premium -Death benefit increases each year

Variable Whole Life

-Level, fixed premium -Cash value is not guaranteed -Guaranteed minimum death benefit -Cash value fluctuates with the performance of the portfolio -Assets held in a separate account, which invests in stocks and bonds

Single Premium Whole Life

-Lump-sum payment -Generates immediate cash

Premium Determination

-Morality -Interest -Expense

Policy Summary

-More specific than a buyers guide -Features and elements -Names and addresses -Must be provided when policy is delivered

Conditional Receipt

-Most common premium receipt -When the agent collects premiums, the agent must issue a premium receipt

Agents Selling Variable Life Insurance Products

-Must be regulated with FINRA -Licensed with the state to sell Life Insurance -Have received securities license

Medical Information Bureau (MIB)

-Non-profit trade organization that maintains medical information on individuals -To compare info with other insurers

Accidental Death Rider

-Pays some multiple of the face amount if death is the result of an accident as defined in the policy -Death must occur within 90 days of accident -Normally 2 times (double indemnity) face amount -Expires at age 65

Grace Period Provision Life

-Period of time after premium due date that the policyowner has to pay the premium before policy lapses (1 month)

Adjustable Life

-Permanent + Term -Option of converting from a term to permanent life policy -Allows changes to face amount, period payments, and term during policy lifetime.

Whole Life Insurance

-Permanent policy -Builds cash value -Level premium -Remains in effect for entire life of insured

Entire Contract Provision Life

-Policy, copy of the application, and any riders or amendments means an entire contract

Mutual Company

-Policyholders -Participating -ENTITLED TO DIVIDENDS

Ownership Provision Life

-Policyowner and insured may be the same person or different -Only the policyowner has the ownership rights under the policy -When insured and policyowner are different it is called "third party ownership"

Universal Life

-Policyowner has the ability to increase amount of premium and to later decrease it -Interest sensitive -Two options for death benefit: Option A and B -Allows for partial withdrawal of policy cash value

Assignment Provision Life

-Policyowner may transfer ownership of the policy to another without consent -The two types of assignments are absolute and collateral

Life Insurable Interest

-Policyowners own life -Family member -business partner

Human Life Value Approach

-Potential earnings of the insured -Calculates individuals life value by looking at: 1. Wages 2. Inflation 3. Years of retirement

Needs Appraoch

-Predicted needs of the surviving family Calculates based on: 1. Debt 2. Income 3. Social security black out 4. Expenses

Limited Payment Whole Life

-Premiums are paid up before age 100 -Shorter premium = higher annual premium

Incontestability Provision Life

-Prevents insurers from denying claims due to statements in the application after the policy has been in force for 2 years -During the first 2 years of the policy, insurer may contest a claim if inaccurate or misleading

Agent

-Producer -Represents the insurer -Responsible for: 1. Completing applications for insurance 2. Submitting application to insurer for underwriting 3. Delivering the policy to the policyowner

Key Person Insurance

-Protects against the loss of a key employee by -The business is the owner, premium payor, and beneficiary

Spend Thrift Clause

-Protects beneficiary from claims of their creditors and prevents beneficiaries reckless spending of benefits by requiring benefits to be paid in a fixed period/amount

Term Life Insurance

-Provided for a specific period of time -Temporary -Also known as pure life insurance -NO cash value -Greatest amount of protection for lowest premium

Other Insured Term Rider

-Provides coverage for one or more family member other than the insured

Long Term Care

-Purchases as separate policy -Can be purchased as a rider -Provides for payment of part of death benefit in order to take care of insureds health care expenses (nursing home)

Characteristics of Group Plans

-Purpose or nature of the group -Size of the group -Turnover of the group -Financial strength of the group

Regulation of Variable Products

-Regulated by Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the Insurance Department

Anually Renewable Term

-Renews each year without proof of insurability -Premium increases each year (attained age)

Cost of Living Rider

-Rider addresses the inflation factor by auto increasing the amount of insurance without evidence of insurability from insured -Face value may be increased by a cost of living rider tied to an inflation index such as consumer price index

Contingent Beneficiary

-Second claim to the policy proceeds in the event the primary beneficiary dies before

Survivorship Life

-Second to die -Single policy that can insure two or more lives -Premium based on joint average age

Insurance Transaction

-Solicitation -Negotiations -Sale -Advising coverage or claims

Payment of Claims Provision Life

-Specifies to whom claim payments will be made -Insurer may pay death claims immediately

Payment of Premiums Provision Life

-Stipulates when premiums are due, how often they are to be paid, and to whom

Stock Company

-Stockholders -Non Participating -DOES NOT PAY DIVIDENDS

Continuous Premium Whole Life

-Straight life -Lowest annual premium -Cash value increases

Personal Uses of Life Insurance

-Survivor protection -Estate creation -Estate conservation -Liquidity -Asset Protection

Violations of Unfair Discrimination Law

-Suspended or revoked license -Refusal to renew license for 1 year -Fines up to $500 for each

Statutory Definition of Life Insurance

-There must be a specified "corridor" or gap maintained between the cash value and the death benefit

Collateral Assignment

-Transfer of partial rights to another person -Usually done in order to secure a loan -Once debt or loan is repaid, assigned rights are returned to the policyowner

Absolute Assignment

-Transferring all rights of ownership to another person or entity -Permanent and total transfer

Attending Physician's Statement

-Used when smaller amount of insurance are requested; -There is no prior medical history of concern; or -When the underwriter sees answers that could indicate greater risk

Payor Benefit Life Rider

-Used with juvenile policies -If payor is disabled for 6 months or dies, insurer will waive premiums until minor reaches age 21 -Can be used if the owner and insured are different

Waiver of Premium Rider

-Waves the premium for policy if insured becomes totally disabled -Coverage remains in force until insured is able to return to work -Rider expires when insured turns 65

Disability Riders

-Written modifications attached to a policy that provide benefits not found in the original policy -Many require additional premium but also help tailor policy to specific needs

Individual Life Insurance

-Written on a single life -Rate and coverage are based on underwriting

Types of Flexible Premium Policies (Whole Life)

1. Adjustable Life 2. Universal Life

Types of Whole Life Insurance

1. Continuous premium 2. Limited payment 3. Single premium

Buy-Sell Funding

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

Estate

A persons net worth

Convertible Policy

Allows policyowner the right to convert policy to a permanent policy without evidence of insurability

Renewable Policy

Allows policyowner the right to renew the coverage at the expiration date without evidence of insurability

Life Settlements

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

Permanent Life Insurance

As long as the premium is paid, policies will remain in effect to age 100 -Lifetime protection and Cash Value -Whole Life

Liquidity

Cash value can be borrowed at any time for immediate needs

Fixed Life Insurance

Contracts that offer guaranteed minimum or fixed benefits that are stated in the contract

Cash Value

Equity amount accumulated in permanent life insurance

Net Premium + Expense =

Gross Premium

Change of Insured Provision for Business

If a key employee quits or is terminated, the owner may transfer coverage to replacement employee

Misstatement of Age and Gender Provision Life

If applicant have misstated their age or gender on the application, the insurer is allowed to adjust benefits to the amount at correct age and gender would pay

Adverse Selection

Individuals with a higher probability of loss purchase insurance more often than those who have lower risk

Principal

Insurer

Acceptance

Insurers underwriting approves the application and issues the policy

Level Premium Term

Level death benefit and level premium

Morality - Interest =

Net Premium

Legal Purpose

Not against public policy

Competent Parties

Of legal age, sound mental capacity, and not under the influence of drugs or alcohol

Agreement

Offer and acceptance

Consideration

Premiums and representations on the part of the insured; payment of claims on the part of the insurer

Life and Health Guaranty Association

Protects policyowners, insureds, beneficiaries, and anyone entitled to payment under an insurance policy for incompetence and insolvency of insurers

Survivor Protection

Providing funds for surviving spouses and dependents

Estate Creation

Purchasing life insurance creates an immediate estate

Offer

Submitting the application

Death Benefit

The amount paid upon death of the insured

Liquidation

The total worth of a company's physical assets if it were to go out of business and its assets sold

Risk

The uncertainty or chance of a loss occurring.

Trusts

To manage life insurance proceeds for a minor or for estate tax

Estate Conservation

When life insurance is used to pay estate taxes

Equity Indexed Whole Life

• The cash value is dependent upon the performance of the equity index such as S&P 500 • The premium is fixed, and the death benefit is guaranteed -If insurer assumes the inflation risk, premium remains level