Insurance: Policy Issuance and Delivery, Types of life insurance policies

in the case of replacement, the insurer must

1.Making sure that all replacements are in compliance with state regulations 2.Notifying each insurer whose insurance is being replaced and, upon request, furnishing a copy of any proposal 3.Maintaining copies of proposals and receipts

Summary of the producer's responsibilities

The insurance producer is a key player in the marketing, underwriting, and delivery of insurance policies. As a marketing representative of the insurer, it is the producer's responsibility to represent and market the insurer's products in an ethical and professional manner. This requires knowledge of insurance products, awareness of a prospect's insurance needs and problems, and the ability to address these needs with the proper insurance products. The producer also has a responsibility to be aware of insurance laws that pertain to the marketing of insurance products, such as state-required standards for advertising and sales literature. As part of the underwriting process, the producer is the primary source of underwriting information. It is the producer's duty to accurately and thoroughly complete all applications for insurance, collect initial premiums, and promptly submit them to the company. In addition, the producer is responsible for providing the insurance applicant with privacy notices and information, such as the Notice of Insurance Information Practices, as well as necessary receipts for the initial premium collected. Another objective of the producer as a field underwriter is to help protect the insurer from adverse risks. If an applicant is determined to be a substandard risk, the producer is responsible for delivering the substandard policy and explaining its limitations and/or extra premium to the applicant.

in the case of replacement, the producer must

The producer must take special care when replacing an existing policy to make sure that the insured is not misled into purchasing a policy that is to the insured's disadvantage.

professional

a person in an occupation requiring advanced level of training, knowledge, or skill

term insurance policies may be charactarized

according to their renewability and convertibility provisions

retirement income policy

accumulates a sum of money for retirement while providing a death benefit

policy summary

addresses specific product being presented for sale.

types of flexible policies

adjustable life universal life variable life insurance

current assumption whole life policies

aka interest sensitive whole life With current assumption whole life insurance, the insurance company sets the intial premium based upon its current estimate ("assumption") of future investment earnings and expenses, but retains the contractual right to reevaluate its original estimates to increase or decrease the policy premium later. As a result, the premiums are subject to change based on the experience (investment, mortality, expenses) of the company. The current mortality, expenses and investment earnings are credited to the insurance policy, so if the company's experience is more favorable than the initial assumption this could result in greater cash values and/or lower premiums for the insured. If the company's experience is less favorable, the result could be lower cash values and/or higher premiums for the insured.

an insured may cash in a policy

at any time by surrendering it in exchange for its cash value

increasing term

begin with little or no insurance protection and the face amount grows over time not very common sometimes sold as a rider to another type of policy in order to provide an additional death benefit equal to total premiums paid or some other value

delivering and servicing the policy

best way to deliver: personal delivery mailing is also legally acceptable

Claim

claim and its payment are the end result of the insurance process life insurance - it means the insured has died and the beneficiary stands to collect what is due rarely negotiated, either paid or denied

family maintenance policy

combines ordinary life insurance and level term insurance payable from date of death to end of preselected period payment of face amount is payable at end of preselected period

family income policies

combining whole life insurance with decreasing term coverage, this provides an income to be paid upon the death of the breadwinner. income begins when insured dies and continues for a period of time specified from the date of policy issue

endowment life insurance

combo of pure endowment plus term insurance for a specified period provided living benefit at end of endowment period, or a death benefit if insured died before end of endowment period

multiple protection policies

combo of whole life and term in which the amount of protection is higher in the early years and less in later years

types of whole life policies

continuous premium whole life limited payment whole life single premium whole life

reentry term

gives the insured the opportunity to provide evidence of insurability at the end of the term and qualify for reduced premium rates

graded premium whole life policy

gradual increase (usually over 5 yrs) in premiums compared with modified life w/ just one increase

characteristics of variable life

guaranted minimum death benefit cash values that are not guaranteed regulated as securities

index-linked policies

hedge against high inflationary periods, face amounts that increase by the amount of inflation generally linked to the Consumer Price Index either premium is increased every year to cover, or the life insurance company makes assumptions about what it expects the increase to be at policy inception and insured pays the same throughout

effective date of coverage

identifies when the coverage is effective, and establishes the date by which future annual premiums must be paid

constructive delivery

insurer mails policy to its producer for actual delivery For instance, constructive delivery is accomplished if the insurer turns over the policy to the agent. Mailing the policy to the agent for unconditional delivery to the policyowner also is constructive delivery. If the insurer places a condition on the delivery, there is no constructive delivery.

payment of claims

insurers usually pay valid life claims within a few days legally paid within (usually) 60 days from proper notification

economatic policy

is a whole life policy with a term rider that uses dividends to purchase additional paid-up insurance

disadvantages of flexible policies

may not have guaranteed returns (securities) lack a required premium schedule (some policyowners lack diligence to ensure adequate cash value growth)

two options available regarding death benefit under universal life

option A - LEVEL DEATH BENEFIT - provides a level death benefit equal to the policy's face amount option B - INCREASING DEATH BENEFIT- provides for an increasing death benefit equal to the policy's face amount plus the cash amount

advantages and uses of whole life

permanent insurance- can be used to satisfy needs such as cost of death, dying, and burial expenses level premium allows the policyowner to know exactly what cost of insurance will be and offers a form of forced savings builds a living benefit through guaranteed cash

coverage is not effective until

the policy has been delivered and the initial premium has been paid

if the proposed insured should die before the policy is issued

the proceeds will be paid to the beneficiary named in the policy if the company would have issued the policy had he been living OR the proceeds will not be paid to the policy's beneficiary if the company would not have been issued. premium will be returned

term policies are defined by

the way the face amount of the policy changes throughout the life of the policy

preneed funeral insurance

used to pay for insured funeral pays face amount upon insured death policy has increasing face amount so the funeral will be fully funded even if burial costs increase

joint life policies

whole life contract written with two or more persons as named insureds issued on two lives with the insured amount payable on the death of the first insured

family protection policy

whole life on the breadwinner and convertible term on the spouse and children

guaranteed cash value

whole life policies include a savings element that is guaranteed to accumulate and earn a specified rate of interest. usually the policy has little or no cash value until the third year.

industrial life provisions

- 31 day grace period -application not required -medical exam not required -cash value do not accumulate such to provide loans -settlement options do not apply b/c of limited cash value -suicide provisions not included -nonforfeiture provisions do not allow until paid for 5 yrs -dividends used to reduce the premium payment or to purchase paid-up additions

credit life insurance provisions

- number of insureds under policy must be maintained at a specified level (usually 100) - policy does not have conversion privilege ( which allows the policyowner before an original insurance policy expires to elect to have a new policy issued to continue coverage)

producer responsibility upon insured death

1. notify company immediately 2. contact beneficiary and help with proof of death form

limited payment whole life

allow the policyowner to pay for the entire policy in a shorter period of time or to a specific age the shorter the payment period, the higher the premium

convertible term policy

allows a policyowner to convert or exchange the temporary protection for some form of permanent protection without evidence of insurability the conversion must be made prior to expiration of the term when a policy is converted the premium will be based on attained age

juvenile policies

any form written on minors commonly called jumping juvenile policy because it automatically increases in face amount at given age (usually 21) but the premium remains the same

decreasing term policies

are issued for an initial face amount that declines during the term period and reaches zero at policy expiration this is ideal for many types of insurance needs that decrease over time (i.e. protecting unpaid balance of mortgage)

universal life contracts are subject to what two different interest rates

current annual rate contract rate

variable life (variable whole life) insurance has two main elements

death protection and a savings/investment element

mortgage redemption policy or rider

decreasing term insurance the benefit amount of the term element is intended to be sufficient to pay off the unpaid remainder of the mortgage loan if insured dies before paying it

characteristics of flexible policies

offer the policyowner the opportunity to change one or more of the following components in response to changing needs/circumstances: premiums cash values face amounts

survivorship life policy

variation on joint life - pays the insured amount, not upon the death of the first insured to die but upon the death of the last surviving insured.

credit life insurance

designed to insure the lives of debtors for the benefit of a creditor in the event that the insured debtor dies, it pays the outstanding balance of the loan not written for an amount greater than the debt.

juvenile endowment policies

designed to mature at a specific age, i.e. 18, to help fund college education

whole life insurance

designed to provide coverage for the whole life also called permanent insurance more expensive than term policies because they include cash values in addition to net insurance protection the face amount of the policy remains the same throughout the life of the policy Upon the death of an insured, a whole life policy pays its face amount.

universal life insurance

developed in response to the relatively low interest rates earned by traditional whole life insurance cash values pay higher interest rates (8%, 10%, 12%) during inflationary times, and provide greater flexibility because they allow the policyowner to adjust the death benefits and/or premium payments

modified whole life policies

distinguished by premiums that are lower than typical whole life premiums during first few years (3-5) then higher than typical thereafter

endowments

endowment policy provides for the payment of the face amount upon death of an insured during a specified period or the payment of the face amount at the end of the specified period if the insured is still alive, whichever comes first originally intended to combine life insurance and savings

equity indexed life insurance

face amounts that are linked to an equity index Equity index life insurance links policy values, based on a specified participation rate, to potential increases in a particular market index, such as the Standard & Poor's 500 Index. The life insurance policy is not participating in the actual stock market index nor in the actual stocks that are in that index. Consequentially, it does not benefit from the dividends of those stocks. Equity index or equity linked universal life insurance allows a conservative indirect link to a stock market index and allows a certain participation percentage of increase based on the increase in the stock market index. While it is true that the premium payments are flexible, this question is about how equity index life insurance policy values are determined. This question is not about how policy values might be affected, which is where flexible premiums come into play.

general account consists of

for fully guaranteed contracts (i.e. whole life insurance) the insurer maintains a general account (general asset) that consists primarily of safe and conservative investments (high grade bonds, real estate, certificates of deposit)

level term policies

issued for a fixed face amount which remains the same during the term of coverage. may be issued for an annual period, specified number of years, or until a specified age. premiums may increase annually or be level for term of coverage

renewable term policy

issued for a specific term and may be renewed at the end of that term without evidence of insurability

non renewable term policy

issued for a specified term and may not be renewed

universal life is similar to whole life in that:

it has the same two components: death protection and cash value just, they arent fixed.

characteristics of all whole life policies

level premiums level face amount guaranteed cash value nonforfeiture value

deposit term insurance

level term policy with much higher premium for first year than subsequent years

buyers guide

life insurance buyer's guide and policy summary are required to be delivered by the agent to the applicant. these documents are usually delivered before the agent accepts the applicants initial premium

payment less than face amount

life insurance is generally paid for the full face amount of the policy with 3 exceptions: 1. outstanding loan on cash value 2. premium payment is due 3. error made in determining age or gender of insured when policy was issued

issuing the policy

life insurance policy may be issued as applied for, modified, or amended provided the applicant meets underwriting standards in some cases the insurer may issue a waiver stating that death by particular event will not be covered (reflecting high risk recreations, etc.)

conditional receipt

makes coverage effective as of the date of application, if the applicant is found insurable under the company's general underwriting rules

unconditional or binding receipt

makes the company liable for the risk from the date of the application regardless of the applicant's insurability this coverage lasts for specific amount of time, or until the insurer issues the policy if the application is rejected, the coverage terminates at the end of specified period

contract rate

minimum guaranteed interest rate and the policy will never pay less than that amount

home service life insurance

modest in size, ranging from 10,000 to 15,000 in face value sold on monthly debit plan, paid by mail

continuous premium whole life

most common type of whole life insurance sold stretch premium payments over whole life up to age 100. also called straight life insurance

advantages and uses of term insurance

most common uses: provide a substantial amount of coverage at a minimum cost

flexible policies

newer insurance products that offer the policyowner flexibility in terms of premiums, face amounts, and investment objectives

the face amount or face value

of the policy is the amount of money listed on the face page of the policy this is the amount that will be paid in the event of the insured's death

adjustable life insurance

offers the policyowner the option to adjust the face amount, premium, type of protection, and or length of protection without having to complete a new application or exchange policies The policyowner chooses two features to adjust, which will dictate the third feature of the insurer.

retirement endowment

one of the most commonly sold issued to mature at age of 65, face value was payable as a death benefit if insured died before maturity date, or monthly installments payable at face value if the insured is still alive

minimum deposit

or financed insurance technically a method of paying for insurance and not a type of policy high cash and loan value whole life policy advantageous because under certain circumstances interest paid on policy loans used to finance premium payments may still be deductible. disadvantage - administration is complex.

interim term

person wants immediate protection and is thinking of starting permanent insurance policy interim used to cover period before permanent protection is to begin

an insured may also borrow a portion of the cash in the form of a

policy loan but this must be paid back with interest in order to restore policy values

annual renewable term

popular and initially less expensive form of renewable term insurance

disadvantages of whole life

premium paying period may last longer than insured income-producing years does not provide as much protection per premium dollar as term insurance does

variable universal life

product blends a combination of variable and universal life insurance concepts allows policyowner to adjust amount of death benefit or premium (like universal life insurance)

inspection receipt

proposed insured examines policy before purchasing policyowner does not pay premium at time of application policyowner signes inspection receipt, examines policy, then pays full first premium

term life insurance policies

provide temporary insurance protection for a specified period of time, also called the policy term pay a death benefit only if the insured dies during the term of coverage do not accumulate cash value

advantages/uses of flexible policies

provide the opportunity to customize policy to needs/wants of insured flexible policies may include securities component allows policyowners to pay what they can when they can.

pure endowment

provided for payment of policy's face amount only if the insured lived to maturity date if insured died before, all benefits forfeited

temporary insurance agreement

provides applicant with immediate life insurance coverage while underwriting is taking place insurer cancels coverage if applicant fails to meet underwriting reqs.

replacement

purchase of one life insurance policy to replace another several reasons this might not be good for the customer: 1. new insurance requires the applicant to prove insurability 2. premiums may be higher for new policy 3. new policy provisions will be complied with such as new incontestable period 4. existing policy provisions may be more liberal than new 5. generally new policy will not have current cash values

disadvantages of term insurance

renewable term insurance becomes more and more expensive term insurance provides temporary protection for limited time, could be leaving the customer at a time when protection is needed most (older age) death protection only, it offers no living benefits such as guaranteed cash values generally nonrenewable past 65 or 70

types of term policies

renewable term policy non renewable term policy convertible term policy reentry term policy level term policy decreasing term policy increasing term policy interim term policy

ethics

setting a standard of conduct or behavior based on established values

single premium whole life

simply a whole life policy with one premium payment the entire cost of this policy is paid at time of purchase. these policies accumulate immediate cash value. the advantage is the policyowner will pay less for the policy than if the premiums were stretched over several years

types of life insurance policies

term whole life flexible

term insurance provides __________ and is the ______ form of life insurance

term insurance provides pure protection and is the least expensive form of life insurance

nonforfeiture value

the cash value in the policy belongs to the policyowner any withdrawal of cash will reduce both the face value and amount cash value avail.

cash value loans and cash withdrawal

universal life provides for cash value loans in the same manner that whole life or permanent plan insurance does will also permit a cash withdrawal, also called a partial surrender, from the cash account. not treated as a loan, not subject to interest and will reduce the total cash value in the account, not the face amount. if the withdrawal is repaid, it will be treated as a premium payment.

separate account is established for

variable products established by insurer- premiums paid for variable life insurance must be placed in insurer's separate account, consists primarily of common stocks and other securities based investments no guarantees to future value

current annual rate

varies with current market conditions and may change every year

indebtedness

when a policyowner takes a cash value loan, the amount borrowed and any accumulated interest due on the loan becomes an indebtedness against the policy. if the insured dies before the loan has been repaid, any indebtness will be subtracted from the death benefit

when is the producer is encouraged to collect the initial premium?

with the application

industrial life insurance

written for a small face amount, usually 2,000 or less, and the premiums are payable as frequently as weekly and occasionally monthly