Health & Life Insurance

also known as current-assumption whole life; this policy is characterized by premiums that vary to reflect the insurer's changing experience with regard to its mortality, investment, and expense factors

interest-sensitive whole life

develop an maintain a high level of knowledge and skill through concentrated study and dedicated work and acknowledge those cases or situations that are beyond the producer's skill level

ethical responsibility

standards of conduct and moral judgement

ethics

All risks are insurable

false

private insurers do not offer many lines of insurance

false

self-insurance is a method of transferring risk

false

speculative risks and pure risks are insurable

false

the shorter the premium paying period, the lower the premium

false

designed to insure all family members under one policy; coverage is sold in units

family plan policy

are organized under a special section of the Insurance Code

fraternal benefit societies

noted primarily for their social, charitable, and benevolent activities

fraternal societies

informing the prospect or client of all facts involving a specific policy or plan so that an informed decision can be made

full disclosure

an investment account that is composed of investments that are carefully selected to match the liabilities and guarantees of the contracts they back

general account

may operate strictly as managers or they may devote a portion of their time to sales

general agents

redistribute the premiums; premiums are lower than typical whole life rates during the first year issue and increase each year until leveling off after the preliminary period (usually five to ten years) at just above the typical straight whole life rate for an equivalent policy

graded premiums policies

written for employer-employee groups, associations, unions, and creditors to provide coverage for a number of individuals under one contract

group life insurance

non-traditional life insurance policies

interest-sensitive whole life, adjustable life, universal life, variable life, and variable universal life

one policy that covers two or more people; using some type of permanent insurance (as opposed to term) it pays the death benefit when one of the insureds dies; the survivors then have the option of purchasing a single individual policy without evidence of insurability

joint life policy

a special form of juvenile insurance; these policies are typically written on children ages 1 to 15 in units of $1,000 which automatically increase to $5,000 or five times the amount at age 21

jumping juvenile or junior estate builder

insurance written on the lives of children

juvenile insurance

allows the policyowner to renew the term policy before its termination date without having to provide evidence of insurability

guaranteed renewable policy

any factor that gives rise to a peril

hazard

evolved from scientific principles to provide funds for medical expenses due to sickness or injury and to cover loss of income during a disability

health insurance

another type of service provider that offer a wide range of health care services to member subscribers

health maintenance organization (HMO)

insurance is also sold through a special branch of the industry known as

home service or debit insurers

the value today of an individual's future earnings that are devoted to that individual's dependents

human life value

not all actions that are unethical (such as selling a prospect more life insurance than he can afford) are

illegal

with health insurance the risk is not when but if ______ or _______ will strike

illness or disability

with annuities the risk is living too long and outlasting one's

income

term insurance that provides a death benefit that increases at periodic intervals over the policy's term

increasing term insurance

works for himself or for other agents and sells the insurance products of many companies

independent agent

the premium rate can be adjusted based on the insurance company's anticipated future experience

indeterminate premium whole life policies

the face amount of ______________ automatically increases as the consumer price index increases

indexed whole life insurance

is characterized by relatively small face amounts (usually $1,000 to $2,000) with premiums collected weekly by the selling agent

industrial insurance

comparatively small issue amounts, such as $1,000, with premiums collected on a weekly or monthly basis by the agent at the policyowner's home

industrial life insurance

the producer has two main ethical responsibilities

inform the public about insurance with the highest level of professional integrity and display a high level of professionalism in all public contacts

is uniquely designed to replace the uncertainties of risk with guarantees

insurance

can also contract with PPOs to offer services to insureds

insurance companies

a device for accumulating funds to meet these uncertain losses

insurance policy

a device to accumulate funds to meet losses

insurance policy

legally binding contract

insurance policy

widely used today to compare policy costs; it is calculated in much the same way as the traditional net cost method, except that it adds the extra component of interest to the formula; the interest factor used is based on each company's projected intererst rate

interest adjusted net cost method

a variation of the joint life policy; also known as a second-to-die policy; this plan also covers two lives but the benefit is paid upon the death of the last surviving insured

last survivor policy

based on the science of probability and the experience of mortality (death) and morbidity (sickness) statistics

law of large numbers

the insurance producer who works the estate or business planning market works with other professionals such as

lawyers and accountants

the key to avoiding misrepresentation

learn the products and the iindustry and plan sales presentations carefully

time span representing the full premium-paying period with the amount of the premium spread equally over that period

level premium approach

provides a level amount of protection for a specified period after which the policy expires

level term insurance

different types of term life insurance

level term, decreasing term, and increasing term

based on actuarial or mathematical principles

life insurance

guarantees a specified sum of money upon the death of the person who is insured

life insurance

policies have level premiums that are limited to a certain period (less than life)

limited pay whole life

a ready source of funds that may be borrowed at reasonable rates of interest from the accumulation build-up of the whole life insurance policy

living benefits

a loan against one's own money

loan

a combination of both ethics and compliance referring to how insurance companies and producers conduct themselves in accordance with ethical standards and in compliance with rules and laws governing insurance policy sales, marketing and underwriting practices, as well as policy issuance, service, complaints, and terminations; synonymous with professional behavior

market conduct

each policyholder assumers a share of the risk brought to the company by others and they are managed by an attorney-in-fact

reciprocal insurers

lessen the possibility of loss by taking action to reduce the risk

reduction

an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer

reinsurance

the company assuming the risk

reinsurer

are a specialized brand of the insurance industry because they insure insurers

reinsurers

as a rule, producers should avoid _____________ unless it is obviously so appropriate that they cannot in good conscience think it bes to leave an existing policy in force

replacement

varies from state to state but its broadest definition involves an action which eliminates the original policy or diminishes its benefits or values

replacement

a producer must sell the kind of policies that best fit the prospect's needs and in amounts that the prospect can afford

responsibilities to the policyowners

the principal must select honest, loyal, and hard-working producers to protect itself from potential liability

responsibilities to the principal

property loss such as the destruction of a home due to fire is an example of

risk

uncertainty regarding loss

risk

choosing not to drive or choosing not to fly so you never crash is

risk avoidance

the risk is transferred from an individual to a group with each member sharing the losses and has the promise of a future benefit

risk pooling

all forms of insurance (life, health, accident, property, and casualty) rely on

risk pooling and the law of large numbers

installing a smoking alarm in the home is

risk reduction

accepting the risk and confronting it if and when it occurs

risk retention

setting up a fund to offset the costs of a potential loss as a form of self-insurance is

risk retention

a mutual insurance company formed to insure people in the same business, occupation, or profession

risk retention group (RRG)

the loss is borne by another party

risk transfer

in a _____ agents represent the insurer and brokers represent the buyer

sales transaction

often used by large companies for funding pension plans and some health insurance plans

self-insurance

establishes its own reserves to cover potential losses

self-insurer

______ during and after the sale is just as important as selling to needs in meeting a producer's ethical responsibilities

service

a risk must involve the chance of loss that is fortuitous and outside the insured's control

the loss must be due to chance

must be one whose occurrence can be statistically predicted

the loss must be predictable

is to provide economic protection against losses that may be incurred due to a chance happening or event such as death, illness, or accident

the purpose of insurance

insurance is based on two fundamental principles

the spreading and pooling of risks

is a key ingedient of success in the insurance industry

ethical behavior

works for one insurance company and sells only that company's insurance policies

captive or career agent

agents are also classified as

captive or career agents and independent agents

branches of major stock and mutual insurance companies that are contracted to represent the particular insurer in a specific area

career agencies

insurance agents are recruited, trained, and supervised by either a manager-employee of the company or a general agent (GA) who has a vested right in any business written in this system

career agencies

this act revised the tax law definition of a "life insurance contract" primarily to discourage the sale and purchase of life insurance for investment purposes or as a tax shelter

1988 Terchnical and Miscellaneous Revenue Act (TAMRA)

this test states that if the total amount a policyowner pays into a life contract during its first years exceeds the sum of the net level premiums that would have been payable to provide paud-up future benefits in seven years, the policy is an MEC

7-pay test

mandates the proper identification of insurance professionals and companies, a system of control over its advertisments, a description of the type of policy advertised, the disclosure of graded or modified benefits over time, and so forth

Advertisements of Life Insurance and Annuities Model Regulation

this model regulation defines advertising and attempts to address those actions that have caused trouble in the industry

Advertisements of Life Insurance and Annuities Model Regulation

a loss that is definite as to cause, time, place, and amount

the loss must be definite and measurable

their function is to gather and disseminate underwriting information, help its associates settle claims and disputes and, through its member underwriters, provide coverages that might otherwise be unavailable in certain areas

Lloyd's of London

the three systems that support the sale of insurance through agents and brokers

career agency system, the personal producing general agency system, and the independent agency system

unlike commercial insurers ____ are distinct because they provide financing for health care plus the health care itself (they are known for stressing preventative health care and early treatment programs)

HMOs

offers an index feature that offers the potential for cash value accumulation and basic interest guarantees

Indexed universal life insurance (IUL)

is not an insurer but rather an entity that brings together individuals and companies that form syndicated for the purpose of underwriting insurance

Lloyd's of London

the amount of money the policyowner will receive if the policy is ever cancelled

cash surrender value

can be organized by employers or by the health care providers themselves

PPOs

established life insurance programs by the government to benefit active members of the armed services and veterans

Servicemembers' Group Life, Veterans' Group Life, and National Service Life

covers not only advertising but also such acts as coercion, unfair discrimination, and rebating

Unfair Trade Practices Act

accumulation element that builds over the life of the policy

cash value

other features of whole life insurance

cash values and maturity at age 100

the cause of the risk

a peril

the company transferring the risk

ceding company

determines the accounting and tax implications and procedures

accountant

distinguished by their flexibility that comes from combining term and permanent insurance into a single plan

adjustable life

for less favorable insurance risks (people in poor health) to seek or continue insurance to a greater extent than other risks

adverse selection

represent a particular company

agents

this type of policy represents the most basic form of life insurance; it provides coverage for one year and allows the policyowner to renew coverage each year without evidence of insurability

annually renewable term (ART) or yearly renewable term (YRT)

provide a stream of income by making a series of payments to the annuitant for a specific period of time or for his lifetime

annuities

service begins with the ______

application

the authority given by an insurer or employer to a licensee to transact insurance or adjust claims on behalf of an insurer or employer

appointment

insured's age at the time of the exchange is known as

attained age method

drafts the documents necessary to accomplish the client's objectives and advises the client of any legal consequences

attorney

the four options to treat risk

avoid the risk, reduce the risk, retain the risk or transfer the risk

avoiding as many risks as possible

avoidance

make sure the replacement is legal, conduct a self-check to ensure the replacement is ethical, submit a signed copy of the Notice to Applicant Regarding Repacement of Life Insurance to the replacing insurer, notify the existing carrier of the proposed replacement, make full and fair disclosure of all facts concerning the new coverage and the existing insurance, give a follow-up letter to the client that summarizes the meeting with the producer, and complete all other appropriate forms properly

before recommending a replacement

are in the form of services provided by the hospitals and physicians participating in the plan

benefits

are not tied to any particular company and can represent many companies' products

brokers

a practice in which the policy values in an insurance policy are used to purchase another policy with the same insurer for the sole purpose of earning additional premiums or commissions

churning

also referred to as internal replacement; involves replacing policies within the same company often by the same producer who sold the original policies

churning

stock and mutual companies are often referred to as

commercial insurers

vanishing premiums, flexible premiums, insurance presented as a savings or retirement plan, guaranteed versus potential cash value accumulations, dividend misrepresentation, insurance described as investments, premiums referred to as other than premiums, failure to distinguish between tax-free and tax-deferred accumulations, failure to divulge risks, and/or failure to explain product differences

common dangers of misrepresentation

other ways in which producers can help (or hinder) the public's perception of insurance and the insurance industry

communication, complete and honest representation, and selling to fit needs

conducting business in accordance with current rules and laws set by government regulatory agencies and the courts

compliance

is given when the applicant pays the initial premium at the time the application for a policy is signed

conditional receipt

designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid

credit life insurance

with life insurance the risk involved is when ______ will occur

death

any presentation that gives the prospect or client the wrong impression about any aspect of an insurance policy or plan, that does not provide complete disclosure, or that includes any misleading or inconclusive product comparisons

deceptive sales

benefit amounts that decrease gradually over the term of protection

decreasing term insurance

any false, maliciously critical, or derogatory communication, written or oral, that injures another's reputation, fame, or character

defamation

some mutuals are _____ by converting to stock companies

demutualizing

this type of term policy requires a premium payment in the first year that is much higher than the level premiums required in the second and subsequent years; at the end of the policy's term, the policyowner receives some of the premium back, the amount returned is typically a multiple of the difference between the higher first-year premium and the lower second-year premium

deposit term insurance

why the information is required, how it will be evaluated, the need for accuracy and honesty in answering all questions, and the meaning of such terms as waiver of premium, automatic premium loan, nonforfeiture options, policy loans, and conditional receipt

education about the application process

characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date (that is, before age 100)

endowment policies

in some specialized areas such as the sale of _______ or ________ ___________ _____________ the ethical guidelines are clearly defined by professional organizations chartered to monitor the activities of their practitioners

estate or business planning insurance

producers have _______ duties to insurers, policyowners, clients, and the general public, as well as to the state

ethical

at age 100, the cash value of the policy has accumulated to equal the face amount of the policy; the policy is fully matured where no more premiums are owed and the policy is completed paid up; the company will issue a check for the full value of the policy to the insured

maturity at age 100

begins building cash values immediately upon payment of the first premium; from that point the policyowner systematically borrows from the cash value to pay some or all of the premium

minimum deposit insurance

can be a verbal statement, brochure or policy illustration that has been altered, or some other written communication with a prospect or client

misrepresentation

a new class of insurance

modified endowment contracts (MECs)

distinguished by premiums that are lower than typical whole life premiums during the first few years (usually five) and then higher than typical thereafter

modified whole life

alcoholism and drug addiction are considered

moral hazards

are tendencies that people may have that increase risk and the chance of loss

moral hazards

a habit of driving recklessly with no fear of death or injury is an example of

morale hazard

are also individual tendencies but they arise from an attitude or state of mind causing indifference to loss

morale hazard

companies that write more than one line of insurance

multi-line insurers

pays a benefit of double or triple the face amount if death occurs during a specified period; if death occurs after the period has expired only the policy face amount is paid

multiple protection policy

are organized and incorporated under state laws but they have no stockholders (instead the owners are the policyholders)

mutual insurance companies

occasionally a stock company may be converted into a mutual company through a process called

mutualization

a stock company is referred to as a _____ because policyholders do not participate in dividends resulting from stock ownership

nonparticipating company

the producer has two important commitments

obtain and maintain the knowledge and skills necessary to carry out those tasks and educate the prospect or client about the products and plans that the producer recommends

the policyowner may designate a specified amount of insurance; the death benefit equals the cash values plus the remaining pure insurance

option one

universal life insurance offers two death benefit options

option one and option two

gives the insured the right to convert or exchange the term policy for a whole life plan without evidence of insurability

option to convert

the death benefit equals the face amount (pure insurance) plus the cash values (level term plus increasing cash values)

option two

life insurers issue three basic kinds of coverage

ordinary insurance, industrial insurance, and group insurance

individual life insurance that includes many types of temporary (term) and permanent (whole life, endowment, universal life, variable universal life, and other interest-sensitive cash value plans) insurance protection plans written on individuals with premiums paid monthly, quarterly, semiannually, or annually

ordinary life insurance

the time when the original term policy was taken out

original age method

are organized on the basis of ownership by their policyholders (the policyholders themselves insure the risks of the other policyholders)

reciprocal insurers

the producer reviews and resestablished the relationship, the producer then reviews the client's needs and priorities, the producer introduces one or more specific product solutions and provides an overview of how the policies work, and if the producer uses a product illustration, he should review and explain the illustration in detail

overview of the presentation

mutual companies are sometimes referred to as ______ because the policyowners participate in policy dividends

participating companies

typically attached to juvenile policies; provides that in the event of death or disability of the adult premium-payor, the premiums will be waived until the insured child reached a specified age (such as 25) or until the maturity date of the contract whichever comes first

payor provision

the immediate specific event causing loss and giving rise to risk

peril

when a building burns fire is the

peril

are factors that cause or give rise to risk

perils and hazards

all policyowners should receive ________ reviews to ensure that their insurance programs are in step with their plans and objectives

periodic

some policies will be rated or rejected; when this happens, the producer has two responsibilities

personally review the rating or rejection and notify the applicant promptly

a person's physical condition, past medical history, or condition at birth are

physical hazards

blindness and deafness are

physical hazards

individual characteristics that increase the chance of peril

physical hazards

the three basic types of hazards are

physical, moral, and morale

can also include a share in the company's investment, mortality, and operating profits

policy dividends

represent a "refund" of the portion of premiums that remains after the company has set aside the necessary reserves and has made deductions for claims and expenses

policy dividends

based on certain expectations of what will or might happen

policy illustrations

must have a written explanation or policy summary, must show cash values and coverage, must be labeled life insurance illustration, must describe nonguaranteed elements in a straightforwad manner, must be complete, cannot imply that premium payments are not required unless that is the case, cannot contain the word vanish or vanishing premium, cannot represent anything other than life insurance, cannot show projections of elements that have not yet occured, and must follow a specific basic illustration format

policy illustrations

another type of service provider: a group desiring health care services will obtain price discounts or special services from certain select health care providers in exchange for referring its employees or members to them

preferred provider organization (PPO)

there are two classifications of organization that provide insurance

private and government

place the client's interest byond one's self-interest, be dedicated to the industry and supportive of all its member companies and representatives, and offer quality plans and represent quality companies

professionalism

contains information about the nature and purpose of the insurance plan, the seperate account, and the risk involved

prospectus

a contract that guarantees a specified sum payable only if the insured is living at the end of a stated time period; nothing is payable in the case of prior death

pure endowment

the chance of injury from an accident is an example of

pure risk

involve only the chance of loss; there is never a possibility of gain or profit

pure risks

occurs if the buyer of an insurance policy receives any part of the producer's commission or anything else of significant value as an inducement to purchase a policy

rebating

educating the client before, during, and after the sale, treating all information with confidentiality, disclosing all information, keeping the prospect or client informed, and showing loyalty to prospects and clients

service

offer benefits to subscribers in return for the payment of a premium

service providers

they sell medical and hospital care services not insurance

service providers

involves a large one-time-only premium payment at the beginning of the policy period

single-premium whole life

_____ and ______ are prerequisites to selling insurance

skill and competence

federal and state governments are also insurers providing

social insurance programs

social security, medicare, and medicaid are

social insurance programs

describing the benefits or terms of insurance coverage including premiums or rates of return, inviting prospective purchasers to enter a contract for an insurance product, making general or specific recommendations concerning insurance products, completing orders or applications for insurance products, or comparing insurance products advising on insurance matters or interpreting policies or coverages

solicitation of insurance

risks can be divided into two classes

speculative ricks and pure risks

betting at the race track or investing in the stock market are examples of

speculative risks

involve the chance of both loss and gain

speculative risks

insurance companies offer term insurance plans on a level-premium basis which are premiums that have been calculated and charged so that they remain level throughout the policy's term period; if the policy is renewed, the premium is adjusted upward reflecting a higher rate for the increased age and will remain level at that amount for the duration of the renewed term

step-rate method

a private organization organized and incorporated under state laws for the purpose of making a profit for its stock holders

stock insurance company

whole life insurance providing permanent level protection with level premiums from the time the policy is issued until the insured's death (or age 100)

straight whole life

three notable forms of whole life plans

straight whole life, limited pay whole life, and single-premium whole life

services are packaged into various plans and those who purchase these plans are known as

subscribers

the simplest type of life insurance plan; provides insurance protection for a specified period (or term) and pays a benefit only if the insured dies during that period

term life insurance

the various life insurance plans are

term, whole life (permanent), and endowment

the organized sales presentation proceeds according to six steps

the approach, establishing the general problem, establishing the specific problem, asessing the need, presenting the life insurance solution, and the close

learns very early the difference between right and wrong in the business and practices and acts accordingly, consistently adheres to his values and maintains this integrity throughout his sales career, and willingly assumes the obligation to perform his duties in a way that refects the highest degree of dignity on the industry and best services the interests of the client or prospect

the ethical producer

changes in health and age, new contestable period, new policy fees and expenses, possible loss of policy upgrades or automatic improvements that may meet the policyowner's objectives, and loss of grandfathered rights

the life insurance you already own is your best buy for the following reasons

will not insure risks that will expose them to catastrophic losses

the loss cannot be catastrophic

must be able to predict losses based on the law of large numbers

the loss exposures to be insured must be large

the group to be insured must be randomly selected

the loss exposures to be insured must be randomly selected

maintain close contact with clients, educate clients about how the policies they purchase suit their needs, and ask clients to call if they're ever asked to consider replacing their policies

to avoid inappropriate replacement

the organization must be nonprofit, have a lodge system that includes ritualistic work, and maintain a representative form of government with elected officials

to be characterized as a fraternal benefit society

projected premiums for a certain time period are totaled; projected policy dividends (if any) and the cash value at the end of that period are subtracted from the total; the resulting number divided by the number of years in the comparison yields the net cost per thousand per year

traditional net cost method

full and accurate disclosure is the cornerstone of the product presentation

true

government programs are funded with taxes and serve national and state social purposes

true

individuals have an economic value that can be measured in part by their future earning potential

true

insurance is the most common method of transferring risk

true

most consumers purchase insurance through licensed producers

true

most fraternals today issue insurance certificated and annuities with many of the same provisions found in policies issued by commercial insurers

true

most new life insurance policies are purchased by individuals from life insurance agents

true

only pure risks are insurable

true

stock and mutual companies can both write life, health, property, and casualty insurance

true

the majority of American households own some form of life insurance

true

the true significance of insurance is its promise to substitute future economic certainty for uncertainty and to replace the unknown with a sense of security

true

also referred to as external replacement; involves illegally inducing a person to drop existing insurance to buy similar coverage with another producer or company

twisting

the unethical act of persuading a policyowner to drop a policy solely for the purpose of selling another policy without regard to possible disadvantages to the policyowner

twisting

improper replacement is divided into two categories

twisting and churning

two principles that form the foundation for an effective sales presentation

uncover the needs of the prospect and help people solve financial problems

the insurer guarantees a certain minimum rate of return will be credited to the policies' cash values

under traditional whole life insurance policies

process the application will undergo

underwriting process

making a distinction in sales, underwriting, pricing, claims handling, or any other insurance applicant function, between two different individuals of substantially the same underwriting classification and expectation of life or health is

unfair discrimination

a variation of whole life insurance characterized by considerable flexibility; unlike whole life, universal life allows its policyowners to determine the amount and frequency of premium payments and to adjust the policy face amount up or down to reflect changes in needs

universal life

partial withdrawals can be made from the policy's cash value account

universal life

the opportunity for policyowners to achieve higher-than-usual investment returns on their policy cash values by accepting the risk of the policy's performance

variable insurance products

permanent life insurance with many of the same characteristics of traditional whole life insurance

variable life insurance

two types of variable insurance products

variable life insurance and variable universal life insurance

a product that blends many features of whole life, universal life, and variable life; premium flexibility, cash value investment control, and death benefit flexibility

variable universal life (VUL)

the client's health has improved, new available sex-based rates, a policy that was issued at a young age and features a small death benefit for an inappropriately large premium, or to undo a bad replacement

when a replacement may be appropriate

become knowledgeable, make only credible and realistic assumptions, illustrations are not predictions, make clear distinctions between guaranteed and nonguaranteed cash values, encourage applicants to ask questions, review the illustration with the applicant, point out that total cash value includes nonguaranteed values, be aware of the assumptions used in illusstrations, and ask questions

when using policy illustrations

provides permanent protection for the whole life from the date of issue to the date of the insured's death provided premiums are paid

whole life insurance

has generally the same impact on policy benefits but there is no presumption that it will be repaid

withdrawal