Pennsylvania Life Insurance Exam: Life Insurance Basics

viatical settlement broker

people who represent the insured, liscensed person (for a fee) that negotiates viatical settlement contracts between viator and viatical settlemtn providers

illustrations

presentation or depiction of nonguaranteed elements of a life insurance policy

liquidation

selling assets in order to raise capital

viator

insured, owner of a policy (usually receive a percentage of the policy's face value from the person who purchases the policy)

other aspects of insurable interest

-insurable interest is not required of beneficiaries (since the beneficiary's life is not the one being insured while their well-being is dependent upon the insured) -insurable interest must exist at the time of application -the policyowner must have insurable interest in the life of the insured

insurable interest

-what the policyowner has to be willing to lose (money/something of value in the event of loss) -it must exist b/t the policyowner and the insured at the time of application -one the life insurance policy has been issued, the insurer must pay the policy benefit (even if an insurable interest does or doesn't exist)

life insurance

coverage on human lives

survivor protection

-in the event of the death of the primary wage-earner (stopping the flow of income to the family) or the death of a non earning spouse who cares for children (which can cause great financial hardship for survivors) -life insurance offers the funds necessary in order to maintain the survivor's lifestyle in the event of the insured's death... this is called survivor protection note: need to examine current assets/liabilities as well as determining what the survivors' needs may be

purchasing of life insurance

-life insurance protects against financial loss associated with an insured's death by paying a death benefit to beneficiaries upon the insured's death -the policyowner of the insurance contract pays a premium to the insurer -the insurer issues a policy covering the insured -in the event of the insured's death, the insurer pays the death benefit to the beneficiary (life insurance can be bought by both individuals and businesses)

liquidity

-some policies provide liquidity to the policy owner (the cash values can be borrowed against at any time/used for immediate needs)

personal uses of life insurance

-survivor protection -estate creation/estate conservation -liquidity -asset protection

viatical settlement provider

a person other than a viator, enters into a viatical settlement contract (not include a bank, financing entity, or issuer)

minor

a person under legal age

beneficiary

a person who receives the benefits of an insurance policy

estate

a person's net worth

criteria regarding insurable interest

a valid insurable interest may exist between the policy owner and the insured when the policy is insuring any of the following: -Policy owner's own life -The life of a family member (a spouse or a close blood relative); or -The life of a business partner, key employee, or someone who has a financial obligation to the policy owner (such as debtor to a creditor)

solvency

ability to meet financial obligations (e.g. an insurance company maintains enough assets to pay claims)

lump-sum

payment of the entire benefit in one sum

death benefit

the amount paid upon the death of the insured in a life insurance policy

cash value

equity amount accumulated in permanent life insurance

estate creation and conservation

-person can create an estate through earnings, savings, and investments (which require a lot of work and time) -by buying life insurance, an individual creates immediate estate -this is important for young families that are getting started and haven't accumulated assets -through the life insurance policy, the person will have at least the amount of the first premium paid -life insurance proceeds can also be used to pay inheritance taxes/federal estate taxes (instead of selling off assets to pay them)

asset protection

-using life insurance to guard one's wealth against creditors claims without engaging in illegal practices (such as concealment or fraudulent transfer) -typically insured's creditors have no right to the proceeds or the cash value when the proceeds transfer to the beneficiary -exceptions are: (if the insured filed a petition of bankruptcy within 2 years in which the proceeds/cash are exempt under certain circumstances, the amount of premiums paid with intent to defraud creditors, a creditor possessing a valid assignment from the policyowner may recover the amount secured by the assignment with interest from either the cash surrender value or the proceeds of the life insurance policy

viatical and life settlements

-viatical settlements allow someone living with a life-threatening condition to sell their existing life insurance policy/use the proceeds when they are most needed, before their death -separate contracts in which the insured sells the death benefit to a third party at a discounted rate

fradulent viatical settlement act

act or omission committed knowingly or with intent to defraud for the purpose of depriving another of property or for monetary gain

viatical settlement purchaser

anyone who gives a sum of money as consideration for a life insurance policy or interest in the benefits of a life insurance policy

chronically and terminally ill

chronically ill: condition in which a person is unable to perform at least 2 activities of daily living terminally ill: condition in which can reasonablly be expected to result in death within 24 months