Ohio Life Insurance - Basics

Minor

A person under legal age

Estate

A person's net worth

Life Insurance

Coverage on human life

Cash value

Equity amount accumulated in a permanent life insurance

Application, what is part 1?

General information, such as name, age, address, birthday, gender, income, marital status, and occupation.

With key person Insurance, who is the insured?

Key Employee

What are the three primary factors used in premium determination?

Risk (mortality - rate of death within a specific group), interest and expense.

Who must approve viatical settlements?

The Superintendent must approve all ______________ ____________.

Stock Redemption, in buy self-funding

Used when the corporation buys one policy on each shareholder.

Industrial or Home Service insurance

life insurance written on an individual basis. distinguishing features: * written in small amounts usually with a face amount of less than $1,000. *premiums are payable on a weekly or monthly basis. * premiums are collected by a representative of the insurance company at the home of the insured. * policies are written as non-medical (no medical exam is required; however, medical history information is still collected).

What are the risk or rating classifications?

standard, substandard, or preferred

Gross Annual Premium

this is the one year cost for mortality, plus the cost of operating the company (or expense loading). Loading includes commissions, taxes, advertising, and while not an expense, includes the amount added to a pure or basic rate to provide for a profit margin to the insurer. Net Premium + Expense (loading) = Gross Premium

Preferred Risk applicants

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.

Medical Information Bureau (MIB)

A nonprofit Trade Organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information of individuals.

Liquidity

As a result of the cash accumulation feature, some life insurance policiy's cash values can be borrowed against at anytime and use for immediate needs.

The purchase of life insurance creates an immediate _______________.

Estate, this is especially important for young families that are getting started and have not yet had time to accumulate assets. When an insured purchases a life insurance policy, he / she will have an estate of at least that amount the moment the first premium is paid. There is no other legal method by which an immediate estate can be created at such a small cost.

Application, what is part 2?

Medical information, includes information on medical background, present health,any medical visits in recent years, medical status of living relatives, and cause of death of deceased relatives.

Lump sum

Payment of the entire benefit in one sum

Illustrations

Presentation or depiction of non-guaranteed elements of a life insurance policy

Who is a person, other than a Viator, that enters into a viatical settlement contract?

Provider, "viatical settlement provider" - effectuates (makes effective)

Survivor protection

Providing funds for surviving spouses and dependents. this requires careful examination of current assets and liabilities as well as determining what survivors needs may be.

Liquidation

Selling Assets in order to raise capital

Viatical Settlements

Selling the insurance policy by the Viator for up to 50-80% of face value if you have a life-threatening illness. To a third party.

Life insurance, regarding length of coverage fall into two categories what are they?

Temporary and Permanent protection

Solvency

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

Death Benefit

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

With Key Person Insurance, who is the applicant, policy owner, premium payer, and beneficiary?

The business

Viator

The owner of a life insurance policy (or a certificate holder under a group policy) who enters or seeks to enter into a viatical settlement contract.

Backdating

The practice of making a policy effective at an earlier date, for No More Than 3 months before the date of the application or the medical examination, whichever is later. All premiums must be paid from the effective date of the policy. This does not shorten the period of contestability.

Premium Receipt

The receipt an agent normally gives an applicant when the applicant submits an application for life insurance with the first premium payment. The receipt is designed to offer interim coverage while the application is being approved and the policy is being formally issued.

Stock Purchase, in Buy sell funding

Used by privately owned corporations when each stockholder buys a policy on each of the others.

Cross Purchase, in Buy sell funding

Used in partnerships when each partner buys a policy on the other.

Unconditional (binding) receipt

Used most often with property and casualty insurance. Coverage begins immediately for a specific length of time (30-60days), until the policy is issued or declined, whichever occurs first.

Entity Purchase, in Buy sell funding

Used when the partnership buys the policies on the partners.

Permanent Life insurance is......

a 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 is paid. It provides lifetime protection, and includes a savings element (or cash value).

Buy-sell Funding (agreement)

a legal contract that determines what will be done with the business in the event that the owner dies or becomes disabled. This is also referred to as a business continuation agreement

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

How are State Insurance Guaranty?

by their members - authorized insurers

Variable life insurance or annuity

contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantee of performance. ___________annuities keep pace with inflation and are determined by the value of securities backing it.

Fxed life insurance or annuities

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

Approval Conditional Receipt

coverage begins only when the prepaid application is approved by the insurer (but before the policy is delivered). Therefore, there is no coverage during the initial underwriting process. This type of receipt is rarely used.

Classifications of risk or ratings are used in deciding what?

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

Policy Review

personal delivery allows agent to make sure insured understands all aspects of the contract; pointing out provisions or riders that may be different than anticipated, explaining how they affect the contract; explaining rating procedure and possible choices or provisions available to policy owner that may be active at this time.

Key Person insurance

protects against the loss of a key employee or key executive by making the business the beneficiary if a key person dies. The business is the owner, premium payor, and beneficiary.

Group Life Insurance

provides life insurance on a group of people in a single master policy covering the lives of more than one individual they do not receive a policy but receive certificates of insurance. Rates and coverage are based upon group underwriting with all individuals covered for the same amount and rate.

Survivor protection

provides the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death including children if parents died prematurely.

Replacing Insurer

the company that issues the new policy

Existing insurer

the company whose policy is being replaced.

Application

the starting point in basic source of information used by the life insurance company in the risk selection process.

Mortality Tables

used to help predict the expectation of life and the probability of death for a given group.

Determining Lump-sum Needs, give examples of the expenses.

* Cost associated with death postmortem * Debt cancellation as an alternative to estate liquidation *Emergency Reserve funds * Education funds * Retirement fund * Bequests

Viatical Settlement provider general rules:

* Obtain a written statement from a licensed attending physician that the Viator is of sound mind and under no constraint or undue influence to enter into a viatical settlement contract. * Obtain a consent form for the release of medical records to a viatical settlement provider or broker and the insurance company that issued at the life policy. * Give written notice to the insurer that issued the insurance policy that the policy has or will become a viaticated policy, within 20 days. * Deliver a copy of the medical release, a copy of the viator's application, a medical release consent form if necessary, and a request for verification of coverage to the insurer that issued the life policy that is the subject of the viatical transaction. * Obtain a witness document in which the Viator consents to the viatical settlement contract, represents that the Viator has a full and complete understanding of the viatical settlement contract and benefits of the life policy. The Viator must acknowledge that he or she is entering into the viatical settlement contract freely and voluntarily, and if chronically or terminally ill, acknowledged that the condition was diagnosed after the life policy was issued. * Only contact the insured for health status verifications once every 3 months for insurance with a life expectancy of more than one year, and no more than once per month for insurance with a life expectancy of one year or less.

Planning for income needs, if the family needs to plan for a long-term income source the needs approach to life insurance will factor in what?

* Replacing insured's salary or lost services - the surviving spouse who was the caregiver of children may have to train to enter the job market. If the spouse Works outside the home, and new expense for daycare must be considered. * social security income "blackout" period - the time during which the surviving spouse or children do not receive any Social Security survivor benefits. This begins when the youngest child reaches the age of 16, and ends when the surviving spouse qualifies for retirement benefits, as early as age 60. Unmarried children under the age of 18 or up to 19 if they are attending secondary school full-time can also receive benefits technically, the social security check will be made payable to surviving spouse until the young child is 16 and directly to the child between the ages of 16 and 18. * liquidation versus retention of capital - enough insurance is purchased so that when added to other liquid assets, there's enough to pay income benefits without jeopardizing the insured's principal asset (such as a home).

Insurable interest is not required of ______________.

beneficiaries. Since the beneficiaries well-being is dependent upon the insured and the beneficiary is life is not the one being insured, the beneficiary does not have to show an insurable interest for a policy to be purchased

Ohio life and health insurance Guaranty Association

form to protect policy owners, insurance, beneficiaries, and anyone entitled to payment under an insurance policy from the incompetence of insolvency of insurers. The association will pay covered claims up to certain limits set by state law. Funded by its members through assessment. all policies must include a copy of this document at or prior to the time of delivery Ohio to receive this document does not Grant the insurer any special rights.

Effective Date of Coverage

if the premium is not paid with the application, the agent must obtain the premium and a statement of continued good health at the time of policy delivery

Replacement - (life insurance)

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

Underwriting

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

Conditional Receipt

the most common type of receipt, used only when the applicant submits a prepaid application. This receipt says that coverage will be effective either on the date of the application or date of the medical exam, whichever occurs LAST, as long as applicant is found to be insurable as a standard risk, and policy is issued exactly as applied for. This rule will not apply if a policy is declined, rated, or issued with writers excluding specific coverages.

Investigative Consumer Report (inspection)

the underwriter May order an inspection report on the applicant from an independent investigative firm or credit agency, which covers Financial, moral information. They are General reports of the applicants finances, character, work, hobbies, and habits. They are subject to the rules and regulations outlined in the Fair Credit Reporting Act.

Delivery Receipt

when an agent hand delivers an individual policy or annuity to the policy owner, the agent must obtain this signed. This will be in duplicate and state the date the contract was received. The free-look period will take effect on the date that this is signed. If a policy is delivered by any other method, the insurer must establish a way to verify the policy delivery. A certificate of mailing is considered adequate proof of delivery.

Disclosure Statement

written description of agreed terms of payment and coverage, must be given to every applicant no later than the application is signed.

Ordinary Life Insurance

written on an individual basis however it differs from industrial life in the following areas: * larger face amount at least $1,000. * premiums can be paid annually, semi-annually, quarterly or monthly. * premiums are paid by the insured directly to the insurance company. * a physical examination may be required to prove the applicants insurability.

Buy-sell agreements that can be used for Partnerships and corporations name four.

Cross Purchase, Entity Purchase, Stock Purchase, Stock Redemption

Unfair Discrimination between individuals of the Same Class: give examples

Discriminating in policy rates and benefits based solely on: ~ age or gender, ~ physical or mental impairment, ~ blindness or partial blindness, ~ genetic characteristics or genetic testing. ~ Investigating as part of the underwriting process a proposed insured's sexual orientation.

What are the two ways to determine the amount of personal life insurance needed for an individual?

Human Life Value approach and Needs approach

Statement of Policy Cost and Benefit Information

In Ohio, the written statement that describes all relevant elements of the policy.

what does the Guaranty Association guard against?

Insurer insolvency

Expense, is also known as what?

Loading charge

Insurable Interest

Something of value that, if lost, would cause you financial harm, this must be true at the time of the application however once a life insurance policy has been issued the insurer must pay the policy benefit whether or not an ________ ________ exist.

STOLI

Stranger originated life insurance is a life insurance arrangement in which a person with no relationship to the insured (a "stranger") purchases life insurance policy on the insured life with the intent of selling the policy to an investor.

term life insurance is......

Temporary Life insurance provided for a specific period of time. It is also known as Pure Life Insurance.

Interest

since premiums are paid before claims are incurred, insurance companies invest the premiums in an effort to earn __________ on these funds (invested in bonds, stocks, mortgages, Etc.). This ___________ is a primary factor in lowering the premium rate.

Examples of valid Insurable Interest

* policy owners own life * the life of a family member (a spouse or a close blood relative) * the life of a business partner, Key Employee, or someone who has a financial obligation to the policy owner (such as a debtor to a creditor).

A viatical settlement contract must provide the Viator with an unconditional right to rescind the contract for at least _________ calendar days after receipt of the vatican's settlement process.

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Viatical Settlement Broker

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.

Beneficiary

A person who receives the benefits of an insurance policy

Viatical Settlement Provider

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

Agent's Report

A written report from the agent submitted to the insurer along with the application disclosing what the agent knows, observed, or learned about the proposed insured's risks. Does NOT become part of the contract.

If an insurance company makes a statement that its policies are guaranteed by the existence of the insurance Guaranty Association, that would be considered?

An Unfair Trade Please. Although it is illegal to advertise, the statement is still true and would not be considered misrepresentation.

Cash Accumulation

An amount of cash accessible to the policyowner. for example, some Life policies (those that provide permanent protection, such as whole life) accumulate cash value that is available to the policy owner during the policy term.

Human Life Value Approach, explain

Gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. Calculates Life Value by looking at wages, inflation, number of years to retirement, and the time value of money.

Estate Conservation

Life insurance proceeds may be used to pay inheritance taxes and federal estate taxes so that is not necessary for the beneficiaries to sell off their assets.

What is the purpose of a disclosure statement in life insurance policies?

To explain features and benefits of a proposed policy to the consumer. It will help the applicants to make more informed and educated decisions about their choice of insurance.

STOIs, violate or do not violate the principle of insurable Interest?

Violate the principle of Insurable Interest.

If a policy includes a free-look period of at least 10 days, the Buyer's Guide may be delivered to the applicant when?

With the policy. If it doesn't it must be delivered prior to accepting the initial premium.

Individual Life Insurance

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

Participating (mutual) vs Nonpartisipating life insurance

a Participating (Mutual) life insurance policy refers to any policy that distributes its dividends to policyowners by cash payments, reduce premiums, units of paid up Insurance, a savings program, or by the purchase of term insurance. A Non-participating policy does not pay dividends to the policy owners.

Policy Summary

a written document delivered to the policy owner including information about premium amounts, cash values, surrender values and death benefits for specific policy years. And, must be delivered along with a new policy.

Declined Risks

applicants that are considered risks that the underwriters assess as not insurable are declined. For example, a risk may be declined for one of the following reasons; there is no insurable interest, applicant is medically unacceptable, the potential for loss is so great it does not meet the definition of insurance, or insurance is prohibited by public policy or is it legal

Needs Approach

based on the predicted needs of a family. Some of the factors considered are income, amount of debt, including mortgage, Investments, and other ongoing expenses.

Statement of Policy Cost and Benefit

in the state of Ohio what a policy summary must be prominently titled as.

Net Single Premium

includes the mortality and interest components necessary to keep the policy in force until maturity. Mortality - Interest = Net Premium

Buyer's Guide

is a consumer publication that explains life insurance in general terms in order to assist the applicant in the decision-making process. It is a generic guide that does not address the specific policy of the insurer, instead explaining life insurance in a way that the average consumer can understand.

Standard Risk applicants

persons who, according to a company's underwriting standards, are entitled to Insurance protection without extra rating or special restrictions. Standard risk are representative of the majority of people at their age and with similar Lifestyles. They are the average risk.

In Key Person insurance are the premiums taxed or tax free?

premiums are taxed.

Key Person insurance is the benefit paid tax-free or is it taxed?

usually tax free

An investor buys a life policy on an elderly person in order to sell it for a life settlement. This is an example of

a STOLI policy

Substandard (High Exposure) risk applicants

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