Chapter 3 Life Insurance

expense

operating expenses are factored into the premiums the company collects from the insured ... "loading charge"

standard risk

persons who are entitled to protection without extra rating or special restrictions ... represents the majority of ppl at their age with similar lifestyles

term life insurance

provided for a specific period of time

buyers guide

provides basic information about a life insurance policy ... must be provided prior to or at the time of the application .

survivor protection

provides funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of an insureds death

permanent life insurance

refers to various forms of whole life insurance policies that remain in effect to age 100 as long as the premium is paid.

Investigative Consumer Report

requested from a third part to recover financial and moral information about the applicant

cash accumulation

some life policies accumulate cash value that is available during the term of the policy .. ex. whole life

estate conservation

the money may be used to pay inheritance taxes and federal estate taxes so that it is not necessary for the beneficiaries to sell off the assets

estate creation

the purchase of life insurance creates an immediate estate

mortality

the ratio of the numbers of deaths in a specific population over a certain amount of time versus the number of living people in that population

replacing insured's salary or lost services

the surviving spouse may need training to reenter the job market.. new expense for day care.

investment return

this interest is a primary factor in lowering the premium rate

social security income "blackout" period

time during which the surviving spouse and/or children do not receive any social security survivor benefits

mortality tables

used by insurers, indicate the number of individuals within a specified group of individuals starting at a certain age who are expected to be alive at a succeeding age

stock purchase

used by private corporations when each stockholder buys a policy on each of the others

rating classification

used in deciding whether or not the applicant should pay a higher or lower premium

liquidation vs retention of capital

enough insurance is purchased so that when added to the other assets, there is enough to pay income benefits without jeopardizing the insured's principal asset.

agent may be called

field underwriter.. front line of the company

primary criteria used to asses the desirability of a candidate for life insurance includes the applicants

health, occupation, lifestyle, and hobbies or habits

Attending Physician's Statement

if the underwriter sees answers to certain questions that could indicate greater risk and the underwriter wants to obtain specific medical details, the underwriter will request a statement from the applicant's physician

preferred risks

individuals who meet certain requirements and qualify for lower premiums than the standard risk .. have a superior physical condition and lifestyle

statement of good health

may be requested if the initial premium is not paid with the application, this statement verifies that the insured has not suffered injury or illness since the application date

Part 2 Medical Information

medical background, present health, any medical visits in recent years, medical status of living relatives, causes of deaths of relatives.

premium receipt

must be issued when ever the agent collects premium .. the type of receipt issued will determine when coverage is effective

substandard risk

not applicable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits .. these policies could be issued with a premium rated up.

what are the different types of buy-sell agreements that can be used for partnerships and corporations?

- cross purchase - entity purchase -stock purchase - stock redemption

there are two basic approaches to help producers and buyers to determine the needed amount of protection:

- human life value approach - needs approach

a full medical exam occurs routinely for ?

- applicants requesting higher amounts of coverage - if the applicant raised additional questions - applicants beyond a certain age

mortality - interest =

net premium

3 rated classifications

standard, substandard, or preferred

agents report

Provides the agent's personal observations concerning the proposed insured. It is a part of the application process but it is not a part of the contract.

nonparticipating policy

does not pay dividends to the policyowners

Needs Approach

factors include income, the amount of debt, investments, and other ongoing expenses.

replacement

is a practice of terminating an existing policy or letting it lapse and obtaining a new one

replacing insurer is

the company that issues the new policy

stock redemption

used when the corporation buys one policy on each shareholder

insurable interest must exist if the policy is insuring any of the following?

1. Policyowner's own life 2. The life of a family member 3. The life of a business partner, key employee, o someone who has financial obligation to the policyowner

field underwriter/ agent responsibilities

1. proper solicitation of applicants 2. helping prevent adverse selection 3. completing the application 4. obtaining the required signatures 5. collecting the initial premium and issuing the receipt, if applicable, and 6. delivering the policy

policy summary

a written statement describing the features and elements of the policy being issued .. must include the name and address of the agent, full name and home office or administrative office address of the insurer

Part 1 General Information

name, address, age, birth date, gender, income, marital status, occupation, existing policies, identifies the type of policy applied for, amount of coverage, beneficiary info

fixed life insurance

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

loading includes

taxes, commissions, advertising, and while not an expense, the amount necessary to provide profit margin to the insurer

mode refers to

the frequency the policy holder pays the premium

gross annual premium

the one year cost for mortality, plus the cost of operating the company (expense loading)

insurable interest

the policyowner must face the possibility of losing money or something of value in the event of loss at the time of application

underwriting

The risk selection and classification process. The process in which an insurance company determines whether or not a particular applicant is insurable, an if so, what premium to charge.

in NY, written informed consent to an HIV related test must be signed and dated and include the following,

a general description and purpose of the test, and a statement that a positive test result is an indication that the individual may develop AIDS and may wish to consider further independent test

Medical Information Bureau

a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment info on individuals... used to help insurers know what areas of impairment they may need to investigate further

net premium + expense(loading) =

gross premium

illustration

a presentation or depiction that includes nonguaranteed elements of a life insurance policy over a period of years.

backdating

a way to lower the premium rate, the application may be back dated for no more than 6 months before the date of the application or the medical examination, which ever is later.

changes on an application can be either

amended or you can redo the application completely but you cannot erase or white out on the app

business continuation plan

an arrangement between business owners that provides for shares owned by one of them who dies or becomes disabled to be sold to, and purchased by the other co-owners of the business

net single premium

includes the mortality and interest components necessary to keep the policy in force until maturity

when is the unconditional receipt most often used?

with property and casualty insurance ... also known as a binding receipt

solicitation of insurance means

an attempt to persuade a person to buy an insurance policy, orally or in writing

participating life insurance policy

any policy that distributes its dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance

variable life insurance

are contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees or performance

who must sign the application?

both the agent and the proposed insured

liquidity

cash values can be borrowed against at any time and used for immediate needs

buy-sell agreement

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

the process of issuing a policy begins with

solicitation

cross purchase

used in partnerships when each partner buys a policy on the other

conditional receipt?

used only when the applicant submits a prepaid application ... it says that coverage will be effective either on the date of the application or the date of the medical exam

entity purchase

used when the partnerships buys the policies on the partners

when is it common to request HIV test?

when an applicant is applying for more coverage or for any increased and additional benefits

higher frequency =

higher premium

APS's are at whose expense?

the insurers

Human Life Value Approach

calculated by looking at the insureds wages, inflation, the number of years to retirement, and the time value of money.

what is the most common type of premium receipt?

conditional receipt