NH State Insurance Licensing- Life Insurance Basics (17%)

Blackout Period

When no benefits are paid to the spouse. It is the time when the youngest child of the deceased worker attains the age of 16 and the spouse is not yet 60 years of age.

Individual Life Insurance

Written on a single life. The rate and coverage is based upon the underwriting of that individual

3 Basic Sections on Application

1. General Info. (admin info & type of policy) 2. Medical Information 3. Agent's report

Producer Responsibilities

1. Proper solicitation of applicants 2. Completing the application 3. obtaining requires sigs 4. collecting initial premium & issuing receipt 5. Delivering policy

Application Procedures

1. if agent feels there is misrepresentation in the app. must inform the insurance company 2. underwriters only select risks that are insurable and meet underwriting guidelines 3. underwriters protect against adverse selection

Insurable Interest

A financial interest in property or a person's life that permits someone to buy insurance to protect against the financial loss to that property or death of the person insured. Must be present at time of application. Exists when: 1. Applicant Insuring Own Life 2. Applicant Insuring Life of a Family Member 3. Applicant Insuring the Life of a Business Partner or Key Employee

Permanent Life Insurance

A general term used to refer to various forms of whole life insurance policies that remain in effect to age 100 so long as the premium is paid.

Variable Life Insurance or annuities

A level fixed premium investment product. The premium level is fixed but the face value fluctuates based on the performance of a fund invested in market. The face amount of the policy will never decline below original amount of insurance.

Needs Approach

A method of determining how much life insurance you need based on funds your family would require to maintain their lifestyle after your death. (Debt, income, mortgage, expenses).

Stock Redemption Plan

A type of buy and sell agreemen, Under corporate ownership the business owns the policy and will buy the deceased % of the business and increase the interest of surviving partners. (Called "entity plan" for partnerships)

Viatical Settlements

Allows someone with a life threatening condition to sell their existing life insurance before their death. Separate contracts in which the insured sells the DB to a third party at a discounted price. 1. Insured's referred to as Viators 2. Viatical Producers represent the providers 3. Viatical brokers represent the insureds Viatirs receive a percent of policy's face value from the person who purchases the policy. New owner keeps paying premium and gets the death benefit upon individual's death.

Medical Information Bureau (MIB) Report

An organization that stores information from insurance companies and makes it available to other companies during the underwriting process. Its purpose is to help prevent fraud and concealment by insurance applicants.

Underwriting Criteria

Assess desirability of applicant based on health, lifestyle, and hobbies.

Approval Conditional Receipt

Coverage begins only when the application is approved by insurer, not during underwriting

Non-Particiapting (stock) Policy

Does not pay dividends to policy owners but dividends are paid to stockholders.

Modes

Frequency at which the policy owner pays the premium.

Group Life Insurance

provided under a master contract for members of qualified groups. Generally written as a one year renewable term plan without medical examinations and at rates that are more favorable than individual policies.

Medical Examinations and Lab Testing HIV

If the amount of insurance applied for is relatively high, the proposed insured is usually required to take a medical examination, in which case the medical portion of the examination will be completed by the doctor as part of the medical exam. Medical examinations, when required by the insurance company, are conducted at the company's expense. Must notify applicant of HIV results and DOHHS

Human Life Value Approach

In determining how much life insurance is needed, the worker's annual earnings are multiplied by the number of years remaining until he/she retires. From the resulting figure taxes and expenses are subtracted.

Mortality Tables

Indicate the number of individuals within a specified group of individuals (males, females, smokers, nonsmokers) starting at a certain age and expected to be alive at succeeding age. Indicates the natural premium for an individual applying for life insurance.

Executive Bonus

Is an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life policy on the employee. Employee is owner and premium paid is treated as pay increase making it a tax benefit to employer and taxable to employee.

Term Life Insurance

Is often described as "pure protection" because it pays benefits only if the insured person dies within the specified time period covered by the policy. The policy must be renewed if coverage is desired for another time period.

Participating (Mutual) Life Insurance Policy

Life Insurance policy refers to any policy then distributes its nontaxable dividend to policy owners by cash payment, reduced premiums, unit of paid up insurers, a savings program, or by the purchase of term insurance.

Participating Policy (par)

Policy in which annual dividends are paid to the policyholders.

Substandard Risks

Represents higher risk to the company and extra premium will be charged. This may be a person that has multiple physical or lifestyle concerns.

Natural Premium

The amount of premium that must be collected from each member of a group composed of the same age, sex and risk in order to pay $1,000 for each death that will occur in the group each year.

Underwriting

The process by which an insurer determines whether, and on what basis, an insurance application will be accepted. The risk selection nd classification process.

Unconditional (binding) receipt

This type of receipt is when the premium is paid, coverage begins immediately for a specific length of time regardless of whether the applicant is ultimately approved or not by the insurer.

Variable Products

Universal Life and Whole Life policies where the cash value is not stored in the companies general account, but is invested into mutual funds. Highly regulated by the SEC and FINRA

Personal Uses of Life Insurance

a. Cash accumulation - Liquidity/cash value policy b. Estate creation - have an immediate "cash estate" c. Survivor protection - final expenses of deceased

Standard Risks

are persons who, according to a company's underwriting standards, are entitled to insurance protection without extra rating or special restrictions. Standard risks are representative of the majority of people in their age and with similar lifestyles. They are the average risk.

Buy-Sell Agreement

binds one or more persons to purchase another's share of business in the event of ie death; typically financed with life insurance policies; premiums are not tax deductible and are not subject to federal income tax

Preferred Risks

individuals who meet certain requirements and qualify for lower premiums than standard risk; these applicants have superior physical condition, lifestyle, and habits

Corporate Owned Life Insurance Policy (COLI)

owned by the corporation and payable to the corporation. These policies are purchased on the lives of employees for whom post retirement benefits will be provided by the corporation. Benefit payments to employee are are tax deductible but premium payments are not.

Key Person Insurance

protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payor, and beneficiary. Benefits paid to business are usually tax free.

Conditional Receipt

provides that if premium accompanies the application, coverage shall be in force from the date of application (whether the policy has yet been issued or not) provided the insurance company would have issued the coverage on the basis of facts as revealed by the application and other usual sources of underwriting information.

Fixed Life Insurance or annuities

the insurer guarantees a fixed death benefit and a minimum rate of return (interest crediting) on the policy's cash value.