Life Insurance Basic CH 2

life settlement provider

a person (other than the owner) who enters into a life settlement contract with the owner

minor

a person under legal age

beneficiary

a person who receives the benefits of an insurance policy

life settlement broker

a person who, for compensation, solicits, negotiates, or offers to negotiate a life settlement contract represent only the policyowners and have a fiduciary duty to the owners to act accordinglyy they dont recieve commission but charge a fee for their services wheather the transfer is made or not

estate

a persons net worth

Net Single Premium

-Includes mortality and interest components necessary to keep policy in force until maturity. -Mortality - interest = net premium

what should be included in a life settlement disclosure? (helps the owner understand the benefits and consequences of the transaction)

-explanatin of possible alternatives including accelerated benefits offered by insurer -some or all fo the proceeds of a life settlement contract may be taxable -the proceeds may be subject to the claims or creditors -recipte of the oricceeds may adversely affect the recipients eligibility for public assistance -proceeds will be sent to owner within 3 business days -may cause conversion or waiver of premium to be forfeited by owner -total amount paid by the provider as well as net amount to be paid to owner -the date when funds available -that its required to furnishe to the owner a consumer information booklet

Field Underwriting Duties

-proper solicitation of applicants -helping prevent adverse selection -completing the application -obtaining the required signatures -collecting the initial premium and issuing the receipt -delivering the policy

cash value

equity amount accumulated in permanent life insurance

estate conservation

provides money to pay any estate taxes or loans which must be satisfied upon the death of the estate owner preserving the insured's estate so beneficiaries dont have to sell off the assets

preferred risk

Individuals who meet certain requirements and qualify for lower premiums than the standard risk superior physical condition

Cash Accumulation

Life insurance may be used to accumulate specific amounts of monies for specific needs with guarantees that the money will be available when needed. the life policies that provide permanent protection such as whole lifel-- cash available to the policyowner during policy term

buyers guide

Provides basic, generic information about life insurance policies that contains, and is limited to, language approved by the Department of Insurance. compares insurance 10 day free-look period

agents report

Provides the agent's personal observations concerning the proposed insured

interest

a primary factor in lowering the premium rate due to premiums being paid to invest in an effort to earn interest on these funds (bonds, mortgage, stocks)

life insurance

coverage on human lifes

Paramedical Exam

includes blood work and a urine sample is conducted by a RN or parametic at insurers expense

planning for income needs

replacing insureds salary or lost services social security income "black out"period= time during the survuving spouse and or children do not recieve any social security surviror benefits (starts when youngest child is 16 and ends when spouse qualifies for these benefits as early as 60) liquidation vs retention of capital= under the ROC enough insurance is purchases so that when added to other liquid assets, there is enough to pay income benefits without jeopardizing the insureds principal asset (like a home)

a life settlement provider may..

sell or, in some other manner approved by the department of insurance, transfer owenrship of a settled policy to a qualified instituational buyer or other approved investment entity

liquidation

selling assets in order to raise capital

permanent vs. term "temporary" policies

term= temporary life insurance provided froma specific period of time.. its also known as pure life insurance permanent= general term used to refer to various forms of whole life insurance policies that remain in effect to age 100, as long as the premium paid. Provides lifetime protection and includes a saving element (or cash value)

its IMPORANT for the broker or provider to disclose what?

that the contract will be limited to once every 3 months if the insureds life expectancy is more than one year and no more than once a month if the insured is expected to live less than one year-- to verify the address and insured healths status

Replacing Insurer

the company that issues the new policy

Process of Issuing a Life Insurance Policy

Solicitation and Sales Presentations -> Underwriting: Field and Company -> Premium Determination -> Policy Issue and Delivery

Life and Health Guaranty Association

nonprofit legal entities created to protect policy owners, insured, and beneficiaries against insolvent insurers with certain limitations

Human Life Value Approach

Gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. It calculates an individual's life value by looking at the insured's wages, inflation, the number of years to retirement, and the time value of money

the claims of creditors cant get the insureds money unless...

-the insured has filed a petition of bankruptcy within 2 years, the proceeds and cash value are only exempt under certain circumstances -the amount of premiums paid with intent to defraud creditors is not exempt -a creditor possessing a valid assignment from the policyowner may recover the amount secured by the assignement with interest from either the cash surrender value or the proceeds of teh life insurance policy y

the 2 deffered compensation funding classes

1) in-addition funding plans- designed to pay an amount in addition to the employees qualified retirement plan 2) elective plans- permit the employee to defer part of their salary or bonus as a taax-deferred savings

Premium Determination

3 key factors for life insurance Mortality interest and expense Mode - the more frequently premium is paid, the higher the premium all premiums are paid in advance

buy-sell funding "business continuation agreement"

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

Medical Information Bureau (MIB)

A membership corporation owned by member insurance companies a nonprofit trade organization which receives adverse medical info from insurance cos and maintains confidential medical impairment information on individuals a systematic method for cos to compare the info collected with info other insurers have discovered

Attending Physician's Statement (APS)

A statement usually obtained from the applicant's doctor. for further information if needed

life settlement

Any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash. after reviewing medical record they could revieve more money

Interest-Adjusted Net Cost Method

Considers the time value of money by applying an interest adjustment to yearly premiums and dividends. 2 types: surrender cost index and net payment cost index

determining Lump-sum needs

Costs associated with death, debt cancellation, emergency reserve funds, education funds, retirement fund, bequests

Investigative Consumer Report (Inspection)

General reports of the applicant's finances, character, work, hobbies, and habits that supplement the information of the application. Subject to rules an regulations outlined in Fair Credit Reporting Act.

gross annual premium

The one year cost for mortality, plus the cost of operating the company net premium+expense=gross premium

life insurance policy cost comparison methods

To help consumers make educated decisions on purchasing life insurance, the industry developed specific methods and indexes that measure and compare the actual policy costs. These comparisons are usually included in policy illustrations. Traditional methods of comparing costs are interest-adjusted net cost method and comparative interest rate method

Unconditional (binding) receipt

Used most often with property and casualty insurance. Coverage begins immediately for a specific length of time, until the policy is issued.

illistrations

a presentation or depiction that includes nonguaranteed elements of a life insurance policy over a period of years strict laws stating that is must be labeled "life insurance illustration" and contain the following info: -name inurer -name/business adress of agent -name, age gender or insured -underwritting of rating classification upon which th eillustration is based -policy name and company product name -inital dealth benefit -dividend option election or app of non guarunteeded elements

strangler-originated life insurance STOLI

a type of insurance thats initiated on behald of a 3rd party that has no insurable interest in the life of the insured, for the primary purpose of affecting a life settlement contract in most states STOLIS are illegal they violate the principle of insurable interest

policy summary

a written statement describing the features and elements of the policy being issued must be provided when the policy is delivered

solvency

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

types of buy-sell agreements:

cross purchase- used in partnerships when each partner buys a policy on the other entity purchase- used when the partnership buys the policies on the partners stock purchase- used by privately owned corporations when each stockholder buys a policy on each of the others stock redemption- used when the corporation buys one policy on each shareholder

Expense (Loading Charge)

affects premium rates each premium must carry a proportionaate share of the operating cost biggest expense is the commissions paid to its agents

viatical settlements

allow someone living with life-treatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death THEY ARE SEPERATE CONTRACTS in which the insured sells the death benefits to a third party at a discounted rate viators recieve a PERCENTAGE of the policys face value from the person who purhases the policy

agents report

allows the agent to communicate with the underwriter and provide information about the applicant known by the agent that may assist in the underwriting process

executive bonus

an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee so the employer paid the premium as a bonus and its tax deductible to the employer and income taxable to the employee.

Solicitation and Sales Presentations (STEP 1)

an attempt to persuade a person to buy an insurance policy and it can be done orally or in writting. includes providing information about available products, descirbing the policy benefits, making recommendations about a specific policy and trying to secure a contract between the applicant and the insurance co

life expectancy

an important concept in life settlement contracts. Refers to a calculation based on the average number of months the isnured is projected to liev due to medical history and mortality factors (arithmetic mean)

participation policy (par)

annual dividends are paid to the policyholder mutual and stock life insurers offer these policys a substantial safety margin is build into the premium, sufficient to reflect a willful overcharge, but justified on the assumption that if the extra premium is not needed it will be returned to the policyholder as a dividend

business of life settlement

any activity relating to the solicitation and sale of a life settlement contract to a third party who has no insurable interest in the insured

Deferred Compensation Funding

any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan. funding involves a contractual commitment between the employer and employee to pay compensation in future years. funding made with cash deposits to a life insurance and/or annuity contract

replacement

any transaction in which new life insur or a new annuity is purchased and the existin glife insurance or annuity has been or will be: -lapsed, forfeited, surrendered, terminated -reissued with any reduction in cash value -converted to reduced paid-up insurance and continued as extended term insur -amended -used in a financed purchase

Substandard (High Exposure) Risk

applicants are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. "rated" bc could be issued with the premium rated-up resulting in a higher premium

standard risk

are persons who, accroding to a cos underwriting standards, are entitiles to insurance protection without extra rating or special restrictions. are representative of the majority of people at their age and with similar lifestyles average risk

life settlement contract

establishes the terms under which the life settlement provider will pay compensation to the policyowner, in return for the assignment, transfer, sale, or release of any portion of the following: the death benefit policy ownership any beneficial interest interest in a trust or any other entity that owns the policy also includes a premium finance loan that is made on or before the date of issuance of the policy if the loan proceeds are not used solely to pay preminums for the policy, and/or if the owner receives a guarantee of the future life settlement valuse of the policy

annuity buyers guide can be delivered depending on what?

face-to-face meeting- producer is required to deliver the buyers guide at the time of the application direct marketing- the direct markerter is required to deliver the guide within 5 business days of the application

Fixed vs. Variable

fixed= offer guaranteed minimim of fixed benefits that are stated in the contract variable= the cash values accumulate based upon a specific portfolio of stocks without guarantees or performance...these keep pace with inflation and are determines by the value of securities backing it

producers responsibilities in using illustrations

general rules and disclosures- producer may use only the illustrations of an insurer that have been approved ad may not change them in any way not part of contract- illustration that must be clearly state that it is not a part of the contract values not guaruteeded- producer cannot use of describe nonguarunteed elements in a misleading manner delivery of illustrations- producer cant provide an applicant with an incomplete illusion. a signed copy of a complete must be submitted to the insurer at the time of the policy application-one copy provided to the applicant the insurer must have for 3 years after the policy is no longer in force

annuity buyers guide

helps assist the buyer in making an informed dicesion regarding the purchase of the annuity provider is required to provide this to the applicant-must be approved by SC depart of insur

Group vs. Individual

individual is written on a single life.. rate and coverage are based upon the underwritting of that individual group is written as a master policy covering the lives of more than one individual covered under the single policy...those covered dont recieve a policy but recieve certificates of insurance...rate and coverage are based upon gourp will all people covered for the same amount and rate

important concepts about viaticals

insureds are referred to as viators viatical settlement provider means a person, other than a viator, that enters into a viatical settlement contract viatical producers represent the providers vitatical brokers represent insureds

Needs Approach

is based on the predicted needs of a fam after the premature death of the insured. some factors considered= income amount of debt(including mortgage) investments and other ongoing expenses

nonparticipating policies

is narrower, the cost of the insurance to the policyholder cannot be adjusted at a later time. gross premium charged on this must reflect, at least for competivite reasons, the actual cost funds that may be used as a buffer for future adverse experience

premium payment mode

mode refers to the frequency the policyowner pays the premium. if the policyowner chooses to pay the premoum more frequently than annually, there will be an additional charge bc the co will have additional epenses in bulling the premium monthly>quarterly?semi-annual>annual

ADVERTISING- general provisions

must be accuract and not misrepresent the facts the insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them

Qualified Institutional Buyer (QIB)

one that owns and invest at least $100 million in securities and is allowed by the SEC to trade in unregistared securities.

patricipating vs. nonparticipating

part= mutual, and refers to any policy that distributes its nontaxable dividents to policyowners by cash payments reduced premiums, units of paid ip insurance, savings program. or by the purchase of term insureance non= stock, doesnt pay dividends to powners however taxable dividents are paid to stockholders

lump-sum

payment of the entire benefit in one sum

what would not consititute a life settlement contract

policy loan issued by a life insurance co loan make by a bank or lender collateral assignment of a life insurance policy by owner agreement between closely related parties bone fide business succession arrangment employer-owned life insurance on key employees agreement between a service recipient and a service provider any other form specified by the state depart of insur

a valid insurable interest exist when the policy insuring any of the following:

policyowners own life life of a family member life of a business partner, key employee, or someone who has a financial obligation to the policyowner (debtor to a creditor)

illustrations

presentation or depiction of nonguaranteed elements of a life insurance policy

death benefit

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

existing insurer

the company whose policy is being replaced

Field Underwriting

the companys front line "agent" and is the one who has solicited the potential insured

owner

the owner of the life insurance policy who seeks to enter into a life settlement contract doesnt include and insurance provider, a qualified insititutional buyer, financing entity, special purpose, or related provider trust

Liquidity

the policys cash values can be borrowed against at anytime and used for immediate needs a result of the cash accumulation feature

estate creation

the purchase of life insurance creates an immediate estate important for young families that are getting started and havent had time to accumulate assets

Comparative Interest Rate Method "CIR"

the rate of return that must be earned on a "side fund" in a buy term invest the difference plan so that the value of the side fund will be equal to the surrender value of the higher premium policy at a designated point in time

mortality

the ratio of deaths in an area to the population of that area

underwritting

the risk selection and classification process. involves a careful analysis of many different factors to determine the acceptability of applicants for insurance. so, is the applicant insurable?

mortality table

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

conditional receipt

used only when the applicant submits a prepaid application coverage will be effective when the applciation is admitted or the date of the medical exam, which ever occurs last

insurable interest

when a policyowner must face the possibility of losing money or something of value in the event of loss not required for the beneficiaries must exist at the time of application policyowner must have this in the life of the insured

survivor protection

when life insurance provides the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insureds death requires careful examination of current assets and liabilities as awell as determining what survivors needs may be