Life insurance basics
Criteria for asset protection against creditors to be valid...
1) if insured files a petition of bankruptcy with 2 years, proceeds and cash value are exempt under certain conditions 2)amount of premiums paid was not an attempt to defraud creditors 3)creditor does not possess a valid assignment from Policyowner
Becoming a viatical settlement provider or brokers required what to have a listener?
1)An audited financial statement (not more than 1 year and 120 days old) 2)an unaudited financial statement (for the most recent quarter)
Lump sum needs (needs approach)
1)Costs associated with death (final medical bills, funerals, daily expenses, etc) 2)debt cancellation 3)emergency reserve funds 4)retirement funds 5)bequest (leaving du da to insured church, school, or charity)
Viatical settlement providers must obtain certain document before entering contract showing ...
1)Viator consents to the contract 2)Viator is fully understands contract and benefits of policy 3)Viator entered agreement voluntarily 4)Viator is terminally/chronically ill and was diagnosed after life insurance policy 5)Viator is of sound mind and not under any undue influence 6)document giving insured's consent to release medical records to viatical settlement provider, broker, and insurance company 7)document giving insured consent to tolling if running of
Sources of underwriting information and regulations
1)application 2)producer report 3)attending physician statement 4)investigative consumer report 5)medical information bureau (MIB) 6)medical examinations and lab tests including HIV
Primary criteria for assessing insurability...
1)health 2)occupation 3)lifestyle 4)hobbies/habits
What are valid insurance interest?
1)policyowner's own life 2)life of family member (spouse or close blood relative) 3)life of business partner, employee, or someone with financial obligation to policyowner
Duty of replacing producer
1)present applicant with notice regarding replacement 2)obtain list of all existing life insurance/annuity practices to be replaced 3)leave applicant with physical communication evidence used for presentation to the applicant 4)submit to replacing insurance company a copy of replacement notice with the application
Duties of replacing insurance companies
1)require from producer a list of applicants policies to be replaced and a copy of replacement notice provided to applicant 2)send existing insurance company written communication advising proposed replacement
Duties of existing insurer
1)retain all replacement notification for at least 5 years or until next regular examination by insurance department 2)send letter notifying policy owners right to receive information regarding existing policy values 3)send notice to policyowner that release of policy values may affect guaranteed/no guaranteed elements
Producer responsibilities
1)solicitation and sales presentation 2)underwriting (field and company) 3)premium determination 4)policy issue and delivery
Estate
A persons net worth
Solvency
Ability to meet financial obligations
Viatical Settlement
Allow someone with life-threatening condition to sell their life insurance policy and use money before death
Net single premium
Amount needed today to fund the future benefits Mortality - interest = net premium
Death benefit
Amount paid upon death of insured in life insurance policy
Fraudulent Viatical Settlement Act
An act knowingly committed to defraud for property or financial gain
Field Underwriter
An insurance agent who conducts an initial policy solicitation and application. (The company's front line of underwriting)
Estate Creation and Conservation
As a means of creating future wealth for one's descendants, life insurance policies are often used to create a family trust, naming one's estate as a designated beneficiary
Solicitation and sales presentation
Attempt to persuade someone into purchasing insurance policy
Liquidity
Availability of resources to meet short-term cash requirements.
Existing insurer
Company whose policy is being replaced
Traditional net cost index
Compares cash values available to buyers if they surrender policy in 10 or 20 years
Interest-adjusted net cost index
Compares death benefits pairs at death in 10 or 20 years.
Chronically I'll
Condition in which person is unable to perform at least 2 activities of daily living or requiring substantial supervision to protect individual caused by severe cognitive impairment
Terminally ill
Condition that can reasonably be expected to result in death in 24 months
Buy-sell agreement (business continuation agreement)
Contract that determines what happens when owner of business dies or becomes disabled
Variable life insurance (annuities)
Contracts in which cash values accumulate based on a specific portfolio of stocks without guarantee of performance
Fixed life insurance (annuities)
Contracts offering guaranteed minimum or fixed benefits stated in the contracts
Unconditional (binding) receipt
Coverage begins immediately for a specific length of time, until the policy is officially accepted or declined by insurer
Life insurance
Coverage of human lives
What happens if to key employee insurance if key employee is terminated or quits?
Coverage transfer over to the replacement
Employee Benefits
Employers may offer employee benefits in the form of products or services that add extra value for employees beyond earned wages
Cash value
Equity accumulated in permanent life insurance
Needs approach
Estimate insurance policy based on needs of family (income. Debt, investments, other ongoing expenses)
Human life value approach
Estimate value of insured life based of insured wages, inflation, number of year until retirement, and time value of moneyo
(True/false) insurance companies can discriminate between individuals of the same class and life expectancy
False
Life settlement
Fianancial transaction Policyowner sells a policy that is no longer needed to a third party for some sort of conpensation
Entity purchase
Form of buy/ sell agreement where owners enter legal agreement with Trusts, that collects death benefits and pays the deceased owners heirs.
Cross purchase
Form of buy/sell agreement where each owner enters into agreement with other owners
Mode
Frequency that policyowner pays premium
Substandard risk
High risk applicant not acceptable under stand and rates because if physical condition, history of disease, occupation, habits, etc Policies are "rated" with premiums rated-up (higher premium)
Preferred risk
Individuals who meet certain requirements to qualify for lower premiums Superior physical condition, lifestyle, and habits
Visitors
Insured people entering viatical settlements
Permanent life insurance
Life insurance policies lasting until age 100
Survivor protection
Life insurance provided for surviving member of family (whether they are earning or non-earning spouses)
Standard risk
Person entitled to insurance protection without extra rating or special restriction Average person their age
Minor
Person under legal age
Viatical Settlement Provider
Person, other than Viator, entering viatical settlement contract
Participating (mutual) life insurance
Policy that distributes it dividends to policy owners
Replacement
Practice of terminating existing policy or letting hit lapse to obtain a new one
Illustrations
Presentation or depiction of non guaranteed elements of a life insurance policy
Illustration
Presentation/depiction including nonguaranteed elements of a policy of life insurance over a time
Underwriting
Process in which insurance company determines whether an applicant is insurable and what premiums to charge
Key person insurance
Protect business against risk of losing key employee in business Business is applicant to, Policyowner, premium payer, and beneficiary. Employee would need to agree to this coverage
Guaranty association
Protect policy owners and beneficiaries under insurance policy from the incompetence and insolvency of insurers (can not be used to insurer to advertise protection to insured)
Asset protection
Protects one wealth/assets from creditors when insured dies (assets go to beneficiaries)
Surrender comparison
Provide life insurance purchaser with means of making cost comparison between different insurance policies
Agent's report
Provides agents personal observation concerning the applicant
Buyers guide
Provides generic information about life insurance policies that contains language approved by department of insurance
Mortality
Ratio of death in location per time unit Over number of people living in populatikn
Viatical producers
Represent viatical providers
Viatical brokers
Represent viators in negotiating viatical settlement with viatical settlement providors
Liquidation
Selling asset to raise capital
Executive bonus
Strangest. Where employer offer to give employee wage increase in the amount of the premium on a new life insurance policy (employee owns policy)
Term life insurance
Temporary (pure) life insurance
Adverse selection
Tendency for people with higher risk to by insurance than people with lower risk
Gross annual premium
The one year cost for mortality, plus the cost of operating the company Net premium + expense = gross premium
Premium Receipt
The receipt an agent normally gives an applicant when the applicant submits an application for life insurance with the first premium payment.
(True/false) insurance companies can discriminate in favor of good vs bad risks
True
(True/false) viators usually receive percentage of policy's face value from person purchasing policy. New owner continues to maintain premium payments and will collect entire death benefit
True
Frequency of premium payment
Usually paid annually. If policyowner elect more frequent payment schedule, they will have to pay a higher premium
(True/false) viatical settlments are separate contracts insured sells death benefits to third-party at discounted rate
Vistical settlements
How much time must viatical settlement provider give a written notice to insurer that insurance policy has or will become a viaticated policy?
Within 20 days
Life insurance disclosure statement
Written disclosure statements providing information about cost and coverage of insurance policy
Policy summary
Written statement describing the features/elements of the specific policy being issued
does insurable interest have to exist at the time of application?
Yes
does the insurer still have to pay the policy benefits after policy is issued (even when insurance interest disappears)?
Yes
Declined risk
applicants who are rejected
Factors in Premium Determination
mortality, interest, and expense
Lump sum
payment of the entire benefit in one sum
Conditional receipt
receipt stipulating insurance will begin on the day the application or medical examination, as long as applicant is insurable
Insurable interest
something of value that, if lost, would cause you financial harm
Stock Purchase
the acquirer purchases the stock of the target and assumes its liabilities
Replacing insurer
the company that issues the new policy
nonparticipating policy
typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors
Rating Classification
used in deciding whether or not the applicant should pay a higher or lower premium Standard, substandard, or prefered
Stock Redemptionh
used when the corporation buys one policy on each shareholdero