YUCKY YUCK
Minimum Guaranteed Interest Rate
Around 4%
Standard Risk
Averagerisk with no special health problems and no dangerous hobbies or occupation
Modified Premium Whole Life Policy
offer initial level premiums that are substantially lower than straight whole life. Premiums would then increase. Premium will remain high for duration of policy. Face amount remains level
Loss
Any injury or damange that the insured suffers because of a covered peril
Policy provisions
Apply to claims such as notice of claim and proof of loss
Pre-paid legal
A contractual obligation to indemnify for specific legal services rendered in the normal and ordinary course of business by an a ctive member of state bar
Agency
A relationship in which one person is authorized to represent and act for itself
Warranty
Absolute guarantee of truth. Notarized
Universal Life
Adjustable benefit life insurance contract that accumulates cash values and has a flexible premium. May increase the death benefit without buying another policy but prove insurability. Can reduce teh death benefit
Policy (contract of insurance)
Agreement between the insurer and the insured
Legal Purpose and Legal Capacity
All parties must be competent to contract. Illegal contracts unenforceable in court
Binding receipt
Always makes covrage effective on the date of application. Limits the maximum amount that the company is liable for until the policy i issued
Level Premium Term
Both premium and face amount (policy limit) stay level for a period of time
Needs Approach
Burial expense, family maintenance, children's education, continuing income for the surviving spouse
Key Person
Business owner buys life insurance on a key employee
Morale Hazard
Carless client
Peril
Cause of loss
Adjustable Whole Life Insurance
Changing needs and ability to pay premiums in an uncertain economic climate. May adjust the face amount of the policy, the amount and/or frequency of premium payments or period of protection, without underwriting
Graded Death Benefits
Charages client a premium for $100,000 face amount but only writes the policy for $75,000 instead
Offer
Clearly communicated. Client completes and signs application and writes check for premium
Tabular rating
Company determines what the exact surcharge should be for a client with a particular impairment based on claims hisotry of similar clients
Exposure
Condition or situation that presents the possibility of loss
Conditional
Conditions that apply to both the insurere and the insured
Interest-adjusted Net Cost Method (Life Insurance Surrender Cost Index)
Consider the level of cash values to be of primary importance. Compare costs of different policies that you are considering if you are going to take cash surrender
Twisting
Convincing a client to replace coverage to their detriment. Violation of State Insurance Code
Gross Annual Premium
Cost of death (mortality) + Expenses - Interest
Franchise Marketing System
Coverage to employees of small firms or to members of associations. Individual policies that vary according to the individuals' needs
Physical Hazard
Dangerous occupation or hobby
Option A (Level death benefit)
Death benefit is the policy's stated face amount. As cash value INCREASES, the amount the insurance company has at risk DECREASES. Premium level, used to purchase a decreasing amount of protection. Risk until age 95
Fraud
Deliberate attempt to deceive
Concealment
Deliberate omission
Moral Hazard
Dishonest client
Human Life Value Approach
Earning potential. What a family would lose in income in death of the principal wage earner. Reimburse loss
Consideration
Exchange of something of value between parties. DO NOT HAVE TO BE EQUAL
Risk Retention Groups
Exempt from state regualtion and guaranty fund membership. Prohibited from writing workers' compensations and personal lines
Express authority
Explicit,definite agreement. Authority the principal gives the producer as set forth in their contract.
Annual Renewable Term
Face Amount level. Premium increases each year. No cash value
Government Insurers
Federal: Military, Medicare, National Flood Insurance, Federal Crime Insurance, Federal Crop Insurance, Mortgage loans. State: unemployment, Worker's Compensation, secondary-injury funds, medical-expense
Captive Insurers
Forms to serve the insurance needs of their stockholders while avoiding the uncertainties related to commercial inurance availabilty and costs. Controlled by one interest or a group of related interest who have direct involvement and influence over the company's operations. NON-ADMITTED ALIEN CORPORATIONS
Single Premium Life (One-Pay Life Policy)
Fully paid up by payinga single premium at policy inception. Immediate cash value, very expensive. Insurance company would offer a discount
Speculative risk
Gambling. Opportunity for gain as well as the possibility of loss. INSURANCE WON'T COVER
Substandard Risk
High Exposure
Doctrine of Adhesion (reasonable Expectations)
If the insurance contract language is vague or unclear, any ambiguity will be construed in favor of the insured
Option B
Increasing death benefit that is made up of the policy face amount plus the cash value account. Amount of pure risk is level amount equal to the policy face amount . Death benefit equals the face amount plus cash value. More 'pure' protection. More expensive.
Net Single Premium
Initial participating life insuranc policy premium - policy dividends whe ninsured applies
Reinsurance
Insurance between insureres. Accept all or a portion of a risk. Reduce risk of a catastrophic loss. Excess of loss basis (re-insurere will pay only the portion of loss that exceeds a threshold or on a quota share basis. Pro rata, fixed-percentage basis, facultative, certain risks but not others)
Convertible Term
Level and Decreasing Term are convertible at any time to Whole Life insurance without physical exam. Term-->Whole Premium will increase.
Variable Life
Level premium and guaranteed minimum death benefit or face amount. Cash value or interest rate to be paid are not guaranteed. Investment risk.
Managing General Agents (MGAs)
MGA license from state Department of Insurance. Independent, representing several, or exclusive agreement with just one carrier
Comparative Interest Rate Method (Life Insurance Net Payment Cost Index)
Main concern is the benefits that are to be paid at your death and if the leve lof cash value accumulated is of secondary importance. Helps evaluate the relative premium costs.
Conditional Receipt
Makes coverage effective on the date of application if the company finds the applicant to have been insurable on that date. Never given unless you receive premium
Endowment
Mature at a predetermined age. Cash value accumulates fast. Higher premium. Often used for children's education. Grace period 30 days
Endowment Policies
Maturity occurs at a predetermined time selected by the insured. Usually for retirement and education. Most expensive type of life insurance
True Group Life
Minimum of 10 people. Grace period is 31 days
Preferred Risk
Most clients are insurable. Lower than standardd\
Group Life Insurance
Most inexpensive. Sold to employer groups on a payroll deduction plan
Participating Policies
Mutual companies don't have stock. Owned by policyholders. Dividends are a return of premium already paid, NOT TAXABLE.
Implied authority
No expressly granted under an agency contract, but it actual authority that the producer has to transact the principal's business in accordance with general business practices.
Variable products
No guaranteed rate of return or cash value. Cash value in seperate account
Mutual Insurers
No stockholders. Ownership rests with the policyholders. Vote for a Board of Director. Funds not paid out after paying claims and not used in paying for other costs of operation may be returned ot hepolicyholders in the form of POLICY DIVIDENDS (Never guaranteed and are not taxable)
Buy and Sell Agreement
Orderly continuation of a business in the event that an owner dies prematurely. Proceeds allow another individual to purchase the deceased owner's interest so that the survivors can receive a fair cash settlement and the business can continue without disruption. Premiums NOT TAX-DEDUCTIBLE
Aleatory
Outcome depends upon chance
Life paid up at 65
Pay all premiums by age 65. Premiums higher. Whole life.
20/30 Pay Life
Pay over shorter period of time. Higher premium. Variation of Whole life. Matures at 120 but cash value builds rapidly
Whole Life (Cash Value Life)
Permanent. Covers you until you die or until the policy reaches maturity (120). Never has to be renewed. Low net cost. Upon death, policy will pay "face amount" (policy limit), but company will keep the accumulated cash value. Level premium. At death, cash value=face amount. Grace period 30 days
Producer
Person authorized to act on behalf of another person (principal)
Retained
Person decides to assume financial responsibility for certain events
Rated-Up Age
Plan assumes the applicant is older than they really are.
Risk
Possibility (uncertainty) that a loss may occur
Reduced Risk
Practicing living a healthier lifestyle
Limited Payment and Single Premium
Premium is paid over a shorter period of time. Single: entire premium up front. Immediate cash value
Decreasing Term
Premium stays the same, but amount of coverage decreases. No option to renew. Cost increases. Often attached as a rider or endorsement to a Whole Life Policy. No Cash value accumulation. Mortgage protection insurance
Apparent authority
Producer seems to have. Believe the producer has authority that they do not
Excess Interest
Projects current interest rate, which combines the minimum guaranteed rate and any excess interest they anticipate earning above the minimum
Cash Value Life Insurance
Protection and Cash accumulation. Death=pay face amount to beneficiary. Lives=accumulated cash value may be borrowed from insurere or client may surrender their policy
Nonprofit Service Organizations
Providing prepaid plans for hospital, medical, and surgical expenses. Pay the provider medical services directly. ex. Health Maintenance Organizations HMO
Features of policy
Provisions, riders, exclusions, possible options
Loss
Reduction in the value of an asset
Exclusive/Captive producers
Represent only ONE company, paid a salary or commissions
Excess and Surplus LInes
Risk is very large or unusual. Contact broker who will place it with an unauthorized carrier in another state or out of the country (lloyd's of London)
Direct writing companies
Salaries to employees whose job function is to sell their company's insurance products. Insurance company owns the expirations
Independent
Sell products of several companies and work for themselves or for other producers. Commission Owns the expirations.
Insurance
Social device for SPREADING the chance of financial loss amount a large number of people.SHARING risk
Fraternal Insurers
Social organizations and usually engage in charitable and benevolent activities. Membership is usually drawn from those who are also memebres of a lodge or fraternal organization. Open contract
Flat Additional Premium
Specific additional premium is added to the standard rate
Free Look
Starts at time of policy delivery or date of mailing. Return policy. Usually 10 days
"Graded" premium whole life policy
Starts with lower premiums but premiums will increase gradually then become level
Nonparticipating Policies
Stock companies. Policyholders are not entitled to share in company profits. Dividends ordinary income are TAXABLE
Stock Insurers
Stockholders who own shares in the company. Provide capital for the insurer. Share in any profits and any losses. Board of Directors elects officers
Face Amount
Sum of accumulated cash value + Amount of risk (insurance protection)
Term
Temporary. No cash value. Renewable. Usually won't cover past 65. Grace period 30 days
Law of Large Numbers
The degree of error in predicting future losses DECREASES as the number of individual exposure units in a group INCREASES
Fixed Insurance Products
Traditional Whole Life. Fixed guaranteed rates of return. Cash values (guaranteed to be a certain amount at a specified time) invested in general account
Pure Risk
Type of risk that insurers accept. Possibility that a certain event will occur.
Acceptance of Offer
Underwriter approves and issues policy
Reciprocal Insurers
Unincorporated groups of people providing insurance for one another through individual indemnity agreements. SUBSCRIBER. Administration, underwriting, sales promotion, and claims handling handled by attorney-in-fact
Lloyd's Association
Voluntary association who agree to share insurance contracts by pledging their personal assets and forming insurance "sydicates" who specialize in writing insurance in the 'residual' or suplus lines marketplace
Waiver
Voluntary giving up of a known right
Enhanced Ordinary Life (Economatic)
Whole life with a term insurance rider which uses dividends to buy additional paid-up insurance. Amount of paid-up insurance purchased wil increase as the amount of the term rider decreases.
Continuous Premium (Straight Life)
Whole life. Premium payments based on original age at issue and can never be changed. Cash value after 3rd year. Never canceled or changed. May take policy loan or surrender the policy at any time. Leaset expensive permanent type of life insurance