Iowa Life Insurance
In House
(Steps that the producer needs to complete when replacing a policy) Allow prior time credit for incontestable clause and suicide clause periods when the replacement is ___________
5 years
(Steps that the producer needs to complete when replacing a policy) Retain all replacement records for ______
30 day
(Steps that the producer needs to complete when replacing a policy) GIVE THE APPLICANT A ____ DAY "FREE LOOK"
5 days
(Steps that the producer needs to complete when replacing a policy) NOTIFY PRIOR INSURER WITHIN ____ DAYS
5 days
(Steps to by completed by existing insurer in a replacement transaction) The prior insurance company will send an in-force illustration within _________ of receiving notice of the replacement
Buyer's Guide
**Helps prospective buyers** decide how much and what type of life insurance they need. Describes term, whole life and endowment types with pros and cons of each. Difference between participating and non-participating policies
Interest
**RATE of earnings** the actuary will need to assume will be earned on the premiums paid to the life insurance
Rates
based on the insured's age
Interest-adjusted Method/Surrender Cost Index
3 methods are taken into account, the accumulated premium, accumulated dividend, and cash value surrender value. Premium and dividends are accumulated at 5% interest. Cash value and accumulated dividends are subtracted from accumulated premium. This result is then divided by an "annuity factor" to determine the annual factor for the index
Universal life (flexible premium policy)
A combination of pure protection (term) and cash values After making minimum initial payment, it allows policyowner to skip, pay less, or pay more premiums than scheduled as long as payment is enough to keep insurance portion in force Policy doesn't have nonforfeiture values It does allow for policy loans Interest is credited on cash values in the policy. Rate is based on investment performance in insurance company's general account. Term for this interest rate is "current rate" Death benefit may be increased (with evidence of insurability) or decreased as the owner wishes
Annual Renewal Term
A form or level term insurance which gives the policyholder **the right to renew the policy each year** up to a specified age (such as 65) or for a specified period of time (such as 10 years) and without proof of insurability. The premiums increase with each renewal because rates are based on insured newly attained age
Key person life insurance policy
A life insurance policy purchased by an employer on the life of a **key employee** - benefits are paid to employer
Single Premiums Whole Life
A lump sum premium pays the policy up in full, creating an immediate cash value
Life and Health Guarantee Association
Advertising by the insurer that suggests the insured is protected from financial loss by the Life and Health Guaranty Association is forbidden by state law
How 'Needs Approach' works
Agent assumes death is immediate then: calculates all financial needs of the client, subtracts all assets of the insured, recommends life insurance in the amount needed to fill in the gaps between needs and assets
Conversion Option
Allows insured to change to another type of policy form. Changes to forms requiring higher premiums may usually be made without evidence of insurability
Suitability
An agent has the responsibility to sell suitable policies based upon the particular circumstances of the prospect
Replacement
Any transaction in which new insurance or a new annuity is to be purchased and it is known or should be known to the proposing agent or broker or to the proposing insurer if there is no agent
6 pieces of information used for underwriting an insurance policy
Application Producer Report Attending Physician's Statement Investigative Consumer Report Medical Information Bureau Report Medical Examinations:
Three conditions that need to be met for a policy to be effective
Application for insurance is approved Policy is issued Policy is delivered
Policy Loans
Are stipulated in policies with cash value
Buy-Sell Agreement Policy
Provides the funds for partners, or shareholders, of a business to buy out interest of deceased partner or shareholder
Reinstatement
Requires insured to pay back premiums plus interest and prove insurability if policy was not surrendered for its cash value
Settlement Options
Available to the beneficiary upon the death of the insured, or the cash surrender value can be used to provide retirement benefits by the living policyowner
Comparative Interest Rate Method
COMPARES INTEREST RATE that would be needed on the premiums and dividends paid to reach the policy cash value at the specified period. The policy with the highest rate would be considered preferable
Adjustable Life (flexible premium policy)
Cash Value growth, loan provisions, nonforfeiture options. settlement options, etc. Virtually any changes can be made in the policy at the discretion of the policyowner such as: amount of premiums paid, face value, loans, and types of plans All changes may be made without dropping or exchanging the existing policy An increase in the death benefit usually requires that the insured furnish evidence of insurability Cash values develop only when the premium is greater than cost of the pure protection provided by the policy Cash values may be used to lengthen the period of protection if the policy is in the term mode, or shorten the premium payment period if the plan is in the whole life mode
Cash Accumulation
Cash values can be used to provide retirement benefits and can be used as collateral for loans and can provide death benefits even when payments are stopped
Characteristics of Group Plans
Certificates, not policies, are issued to the employees No evidence of insurability required The employer pays premiums. Occassionally, premiums may be shared with employees by employee party of premium through payroll deduction Average ages and sex is used to determine the premium Premium costs are lower since the employer handles many of the administrative duties normally done by the insurance company A minimum number of employees must participate Group must not be formed solely for the purpose of purchasing insurance Grace period of 31 days Conversion to individual plan within 31 days of terminating employment Experience rating is used which means average claims for that group over several years establishes the premium
Executive Bonuses Policy
Company purchases life insurance and names itself as beneficiary. If employee dies before retirement, life insurance benefit is paid to the employer who pays the employee's heirs. If employee lives to retirement, policy is **cashed in to pay the deferred BONUS**
Entire Contract
Consists of the policy, application (if attached; including any reinstatement application) and any riders attached to the policy
Endows by age 100
Death benefit paid to living insured at maturity date at age 100
Policy Summary
Describes the main benefits, features, and exclusions of the policy. Must include agent's & agency's name and address, and at least 5 years of premium and benefit patterns. Will also show the life insurance policy cost comparison information
Decreasing Term
Designed to decrease the face value over the duration of the policy. Commonly used for any need that decreased over time, such as family dependency income, home loan, or auto loan (debt), etc.
Cash, Loan, Nonforfeiture Values
Develop by policy year 3 and continue to increase to age 100
Non-participating insurance
Does NOT pay a dividend; issued by a stock insurance company
Salary Office Expenses Commission
Expenses include: (**hint** S.O.C.)
Level Premium Term Life
Face (death) value and premiums remain constant during the duration of the policy. It is usually sold in 5 or 10 year duration or for a specified period, such as age 65. To renew the coverage, a new policy with new medical evidence is applied for and issued
Permanent Protection
Face value or death benefit **remains level**
Low Premiums
For largest amount of coverage (at younger ages)
Represent policy as anything other than life insurance Mislead about non-guaranteed features Use the term "Vanishing Premium" Use incomplete illustrations
Four activities insurers are prohibited from doing with illustrations
Use of life insurance Agents/funeral home relationship Merch guarantees Nonpayment of premium outcome
Four items that need to be disclosed in a funeral prearrangement
Survivor Protection
Funds to help replace the financial losses resulting from death for SURVIVORS who depend on income of insured
Limited Payment Life
Increases the amount of premium results in a shorter premium results in a shorter premium payment period
Name of insurer Name and address of producer Name, age, and sex of proposed insured Underwriting classification Name and type of policy Initial death benefit
Information required in a life illustration
Illustration
Insurance commissioner must approve any _________ used (in advertising)
Ownership
Insured's lifetime right: receive all cash values, receive loans, receive dividend payments, receive other benefits, change benefits, exercise all options
Variable Products
Invested in some type of security; their values **fluctuate** based upon stock market performance
"Twisting"
Is replacing an existing policy with another detriment of the policyholder
Business uses of life insurance:
Key person Buy-Sell Agreement policy Executive Bonuses
Lump sum financial needs upon death:
Last expenses, Emergency fund for survivors A fund for readjustment Money to pay estate and inheritance taxes Mortgage payoff fund Education fund
Single Employer Group Labor Union Groups Debtor-Creditor Groups Multiple Employer Trusts
List four Group Plan sponsors
Gross Annual Premium
Merely adds the load (expense) factor to the net single premium
10 persons and 100% participate
Minimum participation requirements for Non-Contributory Plan
10 persons and 75% participate
Minimum participation requirements for a Contributory Plan
Formula for Life Rates
Mortality - Interest = Net Premium + Loading (expenses) = Gross Premium
Advertisements
Must meet stringent state requirements of accuracy and truthfulness and clarity. Words like "investment", "profit", "savings", and "retirement plan" are PROHIBITED. "Vanishing Deductible" must be associated with guaranteed rates. Paid endorsements must be disclaimed
Term Policy
Offers only death benefits and lasts for a **specific period** of time
Income needs:
Replacing salary or lost services of the deceased Social security income "blackout" period Liquidation vs Retention of Capital
Level Term
Option A death benefit is a
Level Death Benefit
Option B death benefit is a
Individual Insurance
Owned by the INDIVIDUAL; evidence is required; premiums are based on individual age
Group Insurance
Owned by the employer; evidence is NOT required; premiums are based on average age
Face Value
Paid to beneficiary if death occurs during policy term. Settlement options can be used to pay out benefits
Participating Insurance
Pays a dividend; issued by a mutual insurance company
"Last to Die" Insurance
Pays on the death of the last insured to die
Pure Protection
Pays only for death with no cash value of its own
Mortality
Predicting the number in an age group that will die in a 12 month period
Monthly Quarterly Semi-Annually Yearly
Premium Modes:
Ordinary Insurance
Premiums are payable until death or **age 100**. The amount of the premium will NEVER increase
Industrial Insurance
Sold in smaller amounts of protection. Premiums are collected on weekly or monthly basis
HIV Testing Rules
State code requires applicants give consent for HIV testing. A release form must be given which explains the purpose, consent, use, and meaning of test and disclosure of results
Incontestibility
States the the insurer cannot contest statements contained in the application after policy has been in force 2 years
1) Furnish the insurer, on a statement signed by the applicant and producer, info about the existence of insurance or annuity contracts 2) Read to the applicant from a statement called "Notice Regarding Replacement" or get consent of applicant not to read the statement; a signed copy of notice furnished to applicant 3) Leave sales material used in presentation with the applicant 4) Send copies of the sales materials to insurer or send a signed statement to the insurer that only materials furnished by insurer were used
Steps that the producer needs to complete when replacing a policy:
Payment of Premiums
Stipulates when premiums are due, how often they are to be paid (monthly, quarterly, semi-annually), and to whom
Personal Uses for life insurance
Survivor protection Estate creation Cash accumulation Liquidity Estate conservation
Net Single Premium
Takes into account ONLY interest and mortality factors
Human Life Value
The amount of income earning ability, which would be lost by the insured's death. This value is established by taking into account the potential insured's: Net annual salary, annual expenses, number of working years expected, and the value of the dollar over time
Social Security "BLACKOUT" Period
The period between the loss of survivor benefit and beginning of retirement benefit
Insurable Interest
The possibility of financial loss.
Convertability
The right of the insured to convert to any "permanent" policy without evidence of insurability and with the premium based on attained age
Renewability
The right of the insured to renew on the renewal date without proving insurability and with the premium based on attained age
Grace Period
The time after premium due date before the policy lapses (30 days) if insured dies during this period, death benefit is payable. Death proceeds are reduced by amount of premium due
Estate Creation
The value of assets owned by the insured inCREAses at the death of the insured in the amount of insurance owed
Fixed Product
These DO NOT fluctuate with stock market. Insurer accepts all risks of investment losses
"First to Die" Insurance
This insurance pays on the death of the first insured to die
Assignment
Transfer of right of ownership to another party. It may adjust the order of beneficiaries. There are two types used: Collateral (partial) and Absolute (Entire Face Value)
Permanent Policy
Usually a **lifetime** policy which offers cash value in addition to death benefits
Backdating a policy more than 6 months is prohibited
What are the rules about backdating a policy?
Application completed and medical exam completed
What are the two conditions that need to be met for the application to be covered if a conditional receipt has been issued?
Why the insurance is needed How it will be used Who will have access to it Assurance that the information obtained will be confidential
What does the producer need to tell the applicant about the use and disclosure information?:
When the error that has been corrected has been initialed by the applicant
When can the application be changed?
Before an application may be accepted
When is a Buyer's Guide furnished?
Before delivering the policy
When is a statement of good health required?
At time of application but not at time of loss
When must insurable interest exist for life insurance?
At time of loss
When must insurable interest exist for property & casual insurance?
Liquidity
When the insured dies, the contract makes cash in the amount of the death benefit available IMMEDIATELY
The agent
Who completes the insurance application?
Estate Conservation
Without a cash source, the estate may be forced to sell assets at "fire sale" prices to accumulate cash to meet these debt and tax obligations
Temporary Protection
Written for a specified period of time
Cash Value
____ in the policy increases as premiums are paid and interest is earned. Interest is credited at a guaranteed rate
