Life Insurance Basics

Net single premium & gross annual premium example---page 25

$500 Mortality cost $500 Net premium - $100 interest +$200 operating cost $400 Net premium therefore, $600 gross premium

Life Ins. Policy Cost Comparison Methods-Duties of the replacing ins. company---page 17

*Require from the producer a list of the applicant's life ins. or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant *Send each existing ins. company a written communication advising of the proposed replacement within a specified period of time of the date the application is received in the replacing ins. company's home or regional office. *A policy summary or ledger statement containing policy data on the proposed life ins. or annuity must be include.

Life Ins. Policy Cost Comparison Methods - Where a replacement is involved in the transaction of a life ins. policy/annuity, the insurer is required to do what? --page 17

*Verify that the required forms have been submitted and are in compliance with Ohio ins. rules *Notify the other insurer(s) that may be affected by the proposed replacement within 5 business days of receipt of a completed application indicating replacement and mail a copy of the available illustration or policy summary, if requested by the existing insurer. *Be able to provide copies of notification regarding replacement for a period of at least 5 yrs or until the next regular examination the Ins. Department *Provide to the PO a Notice of the Right to Return the policy or contract within 30 days of the delivery and receive an unconditional full refund of all premiums or considerations paid on it (free-look provision)

What the types of receipts? ---page 19

*When the agent collects premiums, the agent must issue a PREMIUM receipt. The type of receipt issued will determine when coverage will be effective. *The most common type of receipt is a CONDITIONAL receipt which is used only when the applicant submits a prepaid application. The conditional receipt says that coverage will be effective either on the date of application or the date of the medical exam, whichever occurs last as long as the applicant is found to be insurable as a standard risk.

Classes of Life ins. Policies - Permanent page 10

*is a general term used to refer to various forms of whole life ins. to remain in effect to age 100, as long as the premium is paid. This ins. provides lifetime protection and includes a savings element (cash value)

Classes of Life ins. Policies - Term page 9-10

*temporary life ins. provided for a specific period of time, aka pure life ins.

Viatical settlement does not include page 3

-A bank, savings bank, savings and loan association, credit union or other licensed lending institution that takes an assignment of a life ins. policy as collateral for a loan -The issuer of a life ins. policy providing accelerated benefits under and pursuant to the contract. -Authorized or eligible insurer that provides stop-loss coverage to a viatical settlement provider, purchaser, financing entity, special purpose entity, or related provider trust -A natural person who enters into or makes effective no more than one agreement in a calendar yr for the transfer of life ins. policies or any value less than the expected death benefit. -An accredited investor or qualified institutional buyer who purchases a viaticated policy from a viatical settlement provider

Statement of Policy Cost/Benefit Information---page 13

-A written statement describing the features and elements of the policy being Issued. -Must include name and address of agent, full name & home office/administrative office of the insurer, generic name of the basic policy and each rider. This must also include premium, cash value, dividend, surrender value and death benefit figures for specific policy yrs. Must be provided when the policy is delivered. Failure to provide this guide may result as unfair and deceptive acts in business of ins.

Use and Disclosure of Ins. Information--page 13

-Every applicant must be given a written disclosure statement, must be given to the applicant no later that the time the application for ins. is signed. This will help the applicants to make more informed and educated decisions about their choices of ins. Must provide the applicant with a written Disclosure Authorization Notice. This notice must be approved by the Dept. of Ins.

Premium and conditional receipt examples---page 20

-If an agent collects the initial premium from an applicant and gives the applicant a conditional receipt, and the applicant dies the next day, the underwriting process will proceed as though the applicant were still alive. -If the insurer ends up approving the coverage, then the applicant's beneficiary will receive the death benefit of the policy. -If, the insurer determines that the applicant was not an acceptable risk and declines the coverage, the premium will be refunded to the beneficiary and the insurer is not required to pay the death benefit.

Insurers are permitted to ask a proposed insured whether he or she has tested positive on an AIDS-related test.

-In Ohio, an insurer may require an applicant for coverage under the policy to submit to an HIV test only in conjunction with tests for other health conditions. -An applicant may NOT be required to submit to an HIV test on the basis of the applicant's sexual orientation or through questions designed to ascertain the applicant's sexual orientation.

Premiums - Factors in Premium determination - Mortality---page 24

-Is the ratio of the number of deaths in a specific population over a certain about of time versus the number of living people in that population. -Tables are used by insurers, indicate the number of individuals within a specified group (males, females, smoker, nonsmoker) starting at a certain age who are expected to be alive at a succeeding age. These tables help the insurers predict the expectation of life and the probability of death for a given group

Classes of Life ins. Policies - Industrial (Home Service) page 10

-Life ins. written on an individual basis. Written in small amts. -Premiums are payable on a weekly/monthly basis -Premiums are collected by a representative of Ins. company at the home of the insured -Policies are written as nonmedical (no med exam required) but medical history information is still collected.

Viatical settlement contract - general rules page 4

-Obtain a written statement from a licensed attending physician -Obtain a consent form for the release of medical records -Give written notice to the insurer that issued that ins. policy that policy has or will become a viaticated policy w/in 20 days. -Deliver a copy of the medical release, application, medical release consent form and a request for verification of coverage to the insurer -Obtain a witnessed document the viator consents to the viatical settlement contract, viator has a full and complete understanding of the contract and benefits of the life policy. Viator must have knowledge that he/she is entering into a contract freely and voluntarily and if chronically or terminally ill, acknowledge that the condition was diagnosed after the policy was issued. -Only contact the insured for health status verifications once every 3 months for insureds with life expectancy of more than 1 yr and no more than once per month for insured with life expectancy of 1 yr or less. -Provide the viator with an unconditional right to rescind the contract for at least 15 calendar days after receipt of proceeds. -All contracts or disclosure forms must be approved by the Superintendent.

Viatical settlement broker authority/licensing page 4

-Producer must be specifically licensed as a provider, broker or investment agent. -Must be in good standing (resident or nonresident) -Has been licensed as a life ins. agent for at least 5 yrs. -May operate as a broker w/o obtaining a separate license if the broker activities are incidental to the ins. agent's business activities. -Must submit an application to the Superintendent of Ins. and pay required fee. -Application must provide a detailed plan of operation; proof of financial responsibility; a general description of the method the provider will use to determine life expectancies. -License expire every yr on March 31 after its issuance or renewal. -Must complete 15 hrs of approved continuing ED every 2 yrs. -Broker is deemed to represent only the viator, owes a fiduciary duty.

Selection criteria---page 23

-The information the companies obtain relating to risk factors aid the underwriters in determining the extent of risks involved. -Ins. companies CAN'T unfairly discriminate between individuals of the same class and equal life expectancy in the rates, benefits or any terms/conditions of the contract.

Premium concepts- Net single premium vs. Gross annual premium

-The net single premium includes the mortality & interest components necessary to keep the policy in force until maturity. (mortality - Interest = Net premium -Gross annual premium is the one year cost for mortality, plus the cost of operating the company. (expense loading). This includes commissions, taxes, advertising, and while NOT as expense, includes the amt. added to a pure or basic rate to provide for a profit margin to the insurer. ( Net premium + expense = Gross premium.

Attending Physician Statement (APS) and steps---page 21

-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. The ins. company MUST pay for this information, but it is often les expensive than ordering an exam. -The next step would be a paramedical exam which includes bloodwork and urine sample. -A full medical exam occurs routinely for applicants requesting higher amts. of coverage, or if the application raised additional questions concerning the health of the prospective insured, or applicants beyond a certain age.

Agent's report---page 19

-This report provides the agent's observations concerning the proposed insured. The report DOES NOT become part of the entire contract, but is a part of the application process. -The 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.

Classes of Life ins. Policies - Ordinary page 10

-larger face amt. at least $1,000 -Premiums can be paid annually, semiannually, quarterly or monthly -Premiums are paid by insured directly to ins. company -A physical exam may be required to prove the applicant's insurability.

Insurable Interest page 1

.Policyowner must face the possibility of losing money or something of value in the event of loss.

Types of buy-sell agreements for partnerships/corporations page 8

1. Cross purchase is used in partnerships when each partner buys a policy on the other 2. Entity Purchase is used when the partnership buys the policies on the partners 3. Stock purchase is used by privately owned corporations when each stockholder buys a policy on each of the others 4. Stock redemption is used when the corporation buys one policy on each shareholder.

Life Ins. Policy Cost Comparison Methods-Duties of the replacing producer---page 16

1. Present to the applicant a Notice Regarding Replacement that is signed by both applicant and producer. Copy is left with the applicant 2. Obtain a list of all existing life ins./annuity policies to be replaced including policy numbers/name of all companies being replaced 3. Leave the application with the original/or copy of written or printed communications use for presentation to the applicant. 4. Submit to the replacing ins. company a copy of the replacement notice with application.

Life Ins. Policy Cost Comparison Methods-What does each producer who initiates an application for replacement must submit to the ins. company with/or as part of each application? page 16-17

1. Submit a statement signed by the applicant as to whether replacement of existing life ins. or annuity is involved in the transaction 2. Submit a signed statement as to whether the producer knows replacement is or may be involved in the transaction.

Requiring an HIV test is not considered unfair discrimination as long as these conditions are met---page 22

1. The test is required for all individuals in the same class 2. Proposed insured is not denied coverage on the basis of such testing alone 3. The tests and testing procedures have been approved by the US FDA and otherwise comply with applicable state and federal laws.

Laws and regulations for insurers requiring an applicant to submit to an HIV test---page 22

1. insurer must disclose the use of testing to the applicant and obtain written consent on approved form 2. The insurer must establish written policies and procedures for internal dissemination of test results among its producers and employees to ensure confidentiality 3. The test must be administered in a manner that meets the protocol of the US Dept. of Health and Human Services 4. The insurer must disclose the test results as authorized by the applicant in writing 5. If the applicant has not identified a physician to receive test results, the positive test results and the identity of the applicant must be sent to the state Dept. of Health 6. The reporting of test results must include the name and address of the reporting company.

Classes of Life ins. Policies - Nonparticipating page 10

A Life ins. policy that does not pay dividends to the PO's.

Business Uses of Life Ins. - Key Person page 9

A business can suffer a financial loss because of the premature death of an employee. Someone who has specialized knowledge, skills or business contacts. With this coverage, the employee is the insured and the business is the Applicant; PO; Premium payer and beneficiary.

Life Ins. Policy Cost Comparison Methods-Replacement with same existing ins. --page 17

A credit must be given for the period of time that has elapsed under the replaced policy's incontestability and suicide period, but to the face amt. of the existing policy or contract.

Classes of Life ins. Policies - Participating page 10

A life Ins. policy that refers to any policy that distributes its dividends to PO by cash payments, reduced premiums, units of paid up ins., a savings program or by the purchase of term ins.

Stranger-originated life ins. (STOLI) page 5

A life ins. arrangement in which a person with NO relationship to the insured purchases a life policy on the insured's life with the intent of selling the policy to an investor and profiting financially when insured dies. It violates the principle of insurable interest. Insurer's take aggressive legal stance against policies they suspect are involved in this transaction

Medical information bureau (MIB)---page 21

A membership corporation owned by member ins. companies. It is a nonprofit trade organization which receives adverse medical information from ins. companies and maintains confidential medical impairment information on individuals. A method for companies to compare information they have collected on a potential insured with information other insurer's may have discovered. -Can be used only as an aid in helping insurers know what areas of impairment they might need to investigate further. -An applicant CAN'T be refused simply because of some adverse information discovered.

Viatical settlement broker page 3

A person who on behalf of a viator and for a fee, commission, or other valuable consideration, negotiates viatical settlement contracts between a viator and one or more viatical settlement providers.

Viatical settlement provider page 3

A person, other than a viator, that enters into or makes effective a viatical settlement contract.

Life Ins. Policy Cost Comparison Methods- Replacement---page 15

A practice of terminating an existing policy or letting it lapse and obtaining a new one. To make sure this is appropriate and in the best interests of the PO, ins. producers/companies must take special underwriting measures to help PO's make informed decisions.

Agent Responsibilities - Illustrations and Rules page 11

A presentation or depiction that includes nonguaranteed elements of a policy of individual or group life ins. over a period of years. Must do the following. Distinguish between guaranteed and projected amts.; Clearly state that it is not part of the contract; Identify those values that are not guaranteed as such. Have to be approved by insurer and may NOT be changed in any way.

Viatical settlement contract page 3

A written agreement entered into between a viatical settlement provider and a viator. This contract includes an agreement to transfer ownership or change the beneficiary designation of a life ins. policy at a later date, regardless of the date that compensation is paid to the viator.

Whose Signatures required on an application?---page 19

Agent and PO. If the insured and PO are not the same person, the PO must sign An adult for a child

Notice of information practices---page 20

Agents are required to disclose to a prospect the facts about information collection practices, as well as the products they are proposing to sell.

What steps should be taken for changes on the application/amendments?---page 19

Agents have the option to correct the information and having applicant initial the change or complete a new application

Business Uses of Life Ins. - Buy-sell funding page 8

Agreement is a legal contract that determines what will be done with a business in the event the owner dies or becomes disabled. (business continuation agreement). There are several types; cross purchase; entity purchase; stock purchase; and stock redemption

Viatical Settlements - Nature and purpose page 2

Allows someone living with a life threatening condition to sell their existing life ins. policy and use the proceeds when they are most needed, before death. Owners of original policy usually receive a PERCENTAGE of the policy's face value from a 3rd party who purchases the policy.

Business Uses of Life Ins. - Executive Bonuses page 9

An arrangement where the employer office to give the employee a wage increase in the amt. of the premium on a new life ins. policy on the employee. Employee owns the policy and has control. The premium is treated as a bonus and tax deductible to employer and income taxable to employee.

Life Ins. Policy Cost Comparison Methods - Replacement definition---page 16

Any transaction in which new life ins. or a new annuity is purchased and, as a result, the existing life ins. or annuity has been or will be any of the following: 1. Lapsed, forfeited, surrendered, otherwise terminated 2. Reissued with any reduction in cash value 3. Concerted to reduced paid-up ins., continued as extended term ins. otherwise reduced in value by the use of nonforfeiture benefits or other policy values 4. Amended so as to affect either a reduction in benefits or in the term for which coverage would otherwise remain in force or for which benefits would be paid. 5. Used in a financed purchase

Classifications of Risks - Substandard risks---page 23-24

Applicants are NOT acceptable at standard rates because of physical condition, personal/family history of disease, occupation or dangerous habits. These policies are also referred to as "rated" because they could be issued with the premium rate-up, resulting in a higher premium.

Declined---page 24

Applicants who are rejected. Risks that the underwriters assess as NOT insurable are declined. EXAMPLE: -No insurable interest -Medically unacceptable -Potential for loss is so great it does not meet the definition of insurance. -Ins. is prohibited by public policy or is illegal.

Classifications of Risks - Standard risks---page 23

Are persons who are entitled to ins. protection w/o extra rating or special restrictions. Are representative of the majority of people at their age with similar lifestyles. They are the average risk.

Classifications of Risks - Preferred----page 23

Are those individuals who meet certain requirements and qualify for lower premiums than the standard risk. These applicants have a superior physical condition, lifestyle and habits.

Premiums with the Application---page 19

Collecting the initial premium at the time of the application increases the chance that the applicant will accept the policy once it is issued.

Approval conditional receipt---page 20

Coverage begins only when the pre-paid application is approved by the insurer (but before the policy is delivered) There is NO coverage during the initial underwriting process. This type of receipt is rarely used.

Determining lump-sum Needs page 7

Determining cost associated with death (post mortem); debt cancellation; emergency reserve funds; education funds; retirement fund; and bequests

Selection criteria-unfair discrimination of individuals of the same class---page 23

Discriminating in policy rates/benefits based solely on: 1. Age/gender 2. Physical or mental impairment 3. Blindness or partial blindness 4. Genetic characteristics or genetic testing Investigating as part of the underwriting process a proposed insured's sexual orientation.

Agent Responsibilities - Advertising page 11

First and foremost must be accurate and not misrepresent the facts. Rules intended for presentation, distribution, dissemination or other use or made directly/indirectly by or on behalf of the ins. company. The insurer is responsible for all its advertisements regardless who wrote, created, presented or distributed them.

Individual Underwriting by the Insurer --- page 20

In order to properly select and classify ins. risks, the insurer needs to obtain the applicant's background information and medical history. There are several sources of underwriting information that are available to the underwriters.

Premiums - Factors in Premium determination - Expense---page 24

Ins. companies have operating expenses, which need to be factored into the premiums the company collects from its insured. This is also known as LOADING CHARGE.

Life Ins. Policy Cost Comparison Methods - Replacing insurer --page 16

Is the company that issues the new policy

Life Ins. Policy Cost Comparison Methods- Existing insurer--page 16

Is the company whose policy is being replaced.

Life Ins. Policy Cost Comparison Methods - Underwriting---page 17-18

Is the risk section an classification process. It involves a careful analysis of many different factors to determine the acceptability of applicants for ins. This process in which an ins. company determines whether or not a particular applicant is insurable, and if so, what premium to charge. Primary criteria used in assessing a particular candidate for life ins. are the applicant's health (current/past), occupation, lifestyle, hobbies or habits.

Unconditional (binding) receipt---page 20

Is used most often with property and casualty ins. Coverage beings immediately for a specific length of time, until the policy is issued. Usually stipulate that coverage is effective from date of application for only a specified time, such as 30 or 60 days, or until the company either issues or declines coverage, whichever occurs first.

Guaranty Association Disclaimer--- page 15

It is an unfair trade practice to make any statement that an insurer's policies are guaranteed by the existence of the Ins. Guaranty Assoc.

Life and Health Ins. Guaranty Association - Life ins., Health ins., & Annuities---page 14

LIFE ins. $300,000 in death benefits, but no more than $100,000 in net cash surrender and net cash withdrawal values. -HEALTH ins. $100,000 in health ins. (other than basic hospital, medical and surgical ins, major medical ins., disability ins.; or long-term care ins.) including any net cash surrender and net cash withdrawal value. $300,000 in disability ins; $300,000 in long-term care ins.; $500,000 in basic medical, hospital/surgical ins. or major medical ins. ANNUITIES $250,000 in the present value of annuity benefits, including net cash surrender and net cash withdrawal value. For the purposes of administration and assessment, the Guaranty Assoc. maintains 2 separate subaccounts; life ins./annuity and the health ins. acct.

Classes of Life ins. Policies - Individual page 10

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

Classes of Life ins. Policies - Fixed page 10

Life ins. or annuities are contracts that offer guaranteed minimum or fixed benefits that are stated in the contract.

Classes of Life ins. Policies - Group page 10

Life ins. written as a master policy covering lives of more than one individual covered under a single policy.

Agent's responsibility regarding the Application process---page 18

Make certain application is filled out completely, correctly, and to the best of the applicant's knowledge. Must probe beyond questions if agent believes the applicant is misrepresenting or concealing information or does not understand the questions. Any of this misleading, inaccurate or illegible information may delay the issuing of the policy. Some insurer's require the application to be completed under the supervision of the agent, while other insurer's have the agent complete the application with the applicant.

Premium payment mode ---page 25

Mode refers to the frequency the PO pays the premium. -If PO pays the premium more frequently than annual, there will be an additional charge because the company will have additional expenses in billing the premium. -However, the premium must be paid annually, semi-annually, quarterly or monthly. Higher frequency = higher premium

Ohio Life and Health Ins. Guaranty Association .---page 14

Must create a disclosure document describing their general purposes and current limitations. All policies my include a copy of this document at or prior to the time of delivery. Failure to receive this document does NOT grant the insured any special rights. This document must state that insurers and agents are prohibited from using this for the purpose of sales or solicitation to purchase ins., as well as emphasize that the PO SHOULDN'T rely on coverage by the Association when selecting an insurer.

Premiums---page 24

Once the company determines the applicant is insurable, they need to establish an appropriate policy ___________. This will be used to cover the costs and expenses to keep the policy in force.

Buy-sell example: page 8

Partnership AB has two partners, Albert and Bruce. the value of the business is $1,000,000. The partners each have an equal interest ($500,000 each). Albert buys a life policy on Bruce for $500,000 and Bruce buys a life policy on Albert for $500,000. If Albert dies, Bruce gets 100% ownership of the business and Albert's heirs receive $500,000.

Survivor Protection page 1

Personal Uses of Life Insurance - Death of a wage-earner will usually stop the flow of income. This protection can provide funds necessary for the survivors of the insured's death

Cash Accumulation page 2

Personal Uses of Life Insurance - Life ins. can be used to accumulate specific amts. of monies for specific needs with guarantees that the money will be available when needed.

Estate Conservation page 2

Personal Uses of Life Insurance - Life ins. proceeds 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.

Liquidity page 2

Personal Uses of Life Insurance - The policy's cash values can be borrowed against at any time and used for immediate needs.

Estate Creation page 2

Personal Uses of Life Insurance - The purchase of Life ins. can create this. PO will have an estate of at least that amt. the moment the first premium is paid.

Buyer's Guide and Policy Summary--page 12

Provides basic, generic information about life ins. policies approved by the Dept. of Ins. It explains how a buyer should go about choosing the amt. and type of ins. to buy, how a buyer can save money by comparing costs. Insurers must provide this to all prospective policy applicants before accepting their initial premium. Insurers must use most current guide approved by the NAIC no later than 6 months prior to use.

Determining the planning for Income Needs page 7

Replacing insured's salary or lost services; SS income (blackout) period; and liquidation vs. retention of capital

Field Underwriter responsibilities---page 18

Responsibilities during the underwriting process include proper solicitation of applicants; helping prevent adverse selection; completing the application; obtaining the required signatures; collecting the initial premium and issuing the receipt if applicable; and delivering the policy.

Premiums - Factors in Premium determination - Interest---page 24

Since premiums are paid before claims are incurred, ins. companies invest the money in an effort to earn interest. This is a primary factor in lowering the premium rate.

Life Ins. Policy Cost Comparison-Comparative Methods-Interest Rate Method---page 15

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

Agent Responsibilities - Solicitation and Sales Presentations page 11

The attempt to persuade a person to buy an ins. policy and it can be done orally or in writing. This includes providing information about available products, describing the policy benefits, making recommendation about a specific type of policy and ting to secure a contract

Life and Health Ins. Guaranty Association ---page 14

The liability of the Association MAY NOT EXCEED THE LESSER of the contractual obligations for which the ins. company is liable.

Medical Examinations and lab tests including HIV---page 22

The medical exam requirement is more common with life ins. underwriting. It is common among insurers to require an HIV test when an applicant is applying for a large amt. of coverage or for any increased and additional benefits.

Viator- definition page 2

The owner of the life ins. policy (or certificate holder) who enters or seeks to enter into a Viatical settlement contract. Viator is not limited to an owner of a life ins. policy or a certificate holder under a group policy insuring the life of an individual with a terminal or chronic illness or condition except as specifically addressed.

Sources of underwriting information and regulations (Application)---page 20

The person applying for ins. must submit an application to the insurer for approval for a policy to be issued. The application is one of the main sources of underwriting information for the company.

Agent Responsibilities - Illustration Rules page 11-12

The purpose is to provide standards for Life ins. policy illustrations that will protect consumers and foster consumer education. Must following these rules Name of insurer; name/business address of agent; name, age and sex of proposed insured; underwriting or rating classification of the illustration base; generic policy name, company product name and form number; initial death benefits and dividend options election or application of nonguaranteed elements. Must keep a copy for 3 years after the policy is no longer in force. -DOES NOT APPLY TO variable life ins.; individual/group annuity contracts; credit life ins; life ins. policies with illustrated death benefits not exceeding $10,000.

Determining the planning for Income Needs - Replacing insured's salary or lost services page 7

The surviving spouse who was the caregiver of the children may have to train to enter the job market. A new expense for day care must be considered

Determining the planning for Income Needs - Social Security Income (Blackout) period page 7-8

The time during which the surviving spouse and/or children do not receive and SS survivor benefits. This period begins when youngest child reaches the age of 16 and ends when surviving spouse qualifies for retirement benefits as early as age 60.

Factors in Premium determination---page 24

There are three primary factors that are used: Risk (mortality - rate of death within a specific group), interest and expense.

Agent Responsibilities - Life and Health Ins. Guaranty Association---page 13-14

These associations are formed to protect PO, insureds, beneficiaries and anyone entitled to payment under an ins. policy from the incompetence and insolvency of insurers. They will pay covered claims up to certain limits set by state law. It is funded by its members through assessment. All authorized insurers which are required to be members, contribute to a fund to provide for the payment of claims for insolvent insurers.

Determining Amt. of Personal Life Ins. - Ins. companies have developed 2 basic approaches to help producers and buyers to determine the need. Human Life Approach see page 6-7

This approach gives the insured an estimate of what would be lost to the family of premature death of insured. It calculates by looking at the insured's wages, inflation, # of years to retirement, the time value of money.

Determining Amt. of Personal Life Ins. - Needs Approach page 7

This approach is based on the predicted needs of a family after the premature death of the insured. Factors considered by the income, amt. of debt. including mortgage, investments, and other ongoing expenses.

The Application --page 18

This is the starting point and basic source of information used by the company in the risk selection process. Applications are NOT uniform and may vary from one insurer to another, they ALL have the same basic components being General and Medical information

Life Ins. Policy Cost Comparison Methods-Interest-Adjusted Net Cost Method---page 15

This method considers the time value of monthly (or investment return on the ins. premium had it been invested elsewhere) by applying an interest adjustment to yearly premiums and dividends. Two versions of the interest-adjusted method are the surrender cost index and the net payment cost.

Application Medical Information ---page 18

This part of the application includes information on medical background, present health and any medical visits, medical status of living relatives, causes of death of deceased relatives. For small amts. of ins. it is considered a nonmedical application. For larger amts. insurer requires some sort of medical examination by a professional.

Life Ins. Policy Cost Comparison methods---page 15

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

Investigative Consumer Report (inspection)---page 21

To supplement the information on the application, the underwriter may order an inspection report on the applicant from an independent investigating firm or credit agency, which covers financial and moral information. These are reports of applicant's finances, character, work, hobbies, and habits. These reports are subject to the rules and regulations outline in the Fair Credit Reporting Act.

Determining the planning for Income Needs - Liquidation vs. Retention of Capital page 8

Under this approach, enough ins. is purchased so when added to other liquid assets, there is enough to pay income benefits w/o jeopardizing the insured's principal asset such as a home.

Classes of Life ins. Policies - Variable page 10

Variable life ins./annuities are contracts that the cash values accumulate based upon a specific portfolio of stocks w/o guarantee of performance. Variable annuities keep pace with inflation and are determined by the value of securities backing it.

Application General Information ---page 18

What part of the application includes general questions about the applicant, name, age, address, DOB, gender, income, marital status and occupation. It may also inquire about existing policies and if proposed ins. will replace them. Part 1 identifies the type of policy applied for and amt. of coverage, beneficiary

Policy Issue and Delivery - Delivery Receipt---page 26

When the insurer relinquishes control of the policy by mailing it to the PO, policy is considered legally delivered. -When the agent hand delivers the policy/annuity to the PO, the agent must obtain a signed delivery receipt. -The free look period will take effect on the date the receipt was signed. -If policy is delivered another way, the insurer must establish a way to verify the policy was delivered. A certificate of mailing is considered adequate proof of delivery.