L&H Terms
Elements of a Legal Contract
-Agreement -Consideration -Competent parties -Legal purpose
Reinstatement Provision Life
-Allows a lapsed policy to be put back in force -Maximum time limit for reinstatement is usually 3 years after the policy has lapsed -If the policyowner wishes to reinstate the policy, they will have to show proof of insurability
Children Term Rider
-Allows children of insured to be added to coverage for limited period of time for a specified amount -Expires when minor reaches certain age (18 or 21) -Temporary term insurance coverage on all children of the family for one premium
Guaranteed Insurability Rider
-Allows insured to purchase additional coverage without evidence of insurability, for an additional premium
Agent 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 -Becomes apart of the application
Juvenile Life
-Any life insurance written on the life of a minor -A common juvenile policy is known as " The Jumping Juvenile" because the face amount increases at a predetermined age (21)
Exclusions Provision Life
-Aviation (non-commercial pilots) -Hazardous occupation/hobbies -War or military service
Irrevocable
-Beneficiary designation may not be changed without the consent of the beneficiary
Revocable
-Beneficiary designations may be changed without the consent of the beneficiary
Paramedical Exam
-Bloodwork and urine -Conducted by registered nurse or paramedic
Per Stripes
-By the bloodline -Distributes benefits of beneficiary who died before the insured to that beneficiary heirs (children)
Per Capita
-By the head -Evenly distributes benefits among the living named beneficiaries
Variable Universal Life
-Combination of universal life and variable life -Flexible premium and adjustable death benefit (Universal) -Policyowner decides where the cash value will be invested not the insurer (Variable) -Cash value and death benefit may increase or decrease depending on investment performance of the seperate account
Variable Life Insurance
-Contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance -Keeps pace with inflation -determined by the value of securities backing it
Spouse Term Rider
-Covers just the spouse of the insured -Allows spouse to be added to coverage for a limited period of time for a specified amount
Group Life Insurance
-Covers more than 1 person -Rate and coverage are based on group underwriting -Everyone covered for the same amount
Universal Life Option B
-Death benefit increases each year by the amount the cash value increases
Business Buy-Sell Agreement
-Determines what will be done with a business when owner dies or becomes disabled
Elements of Insurable Risk
-Due to chance -Definite and measurable -Predictable -Not catastrophic -Loss exposure to be insured must be large -Insurance must not be mandatory
Accelerated Living Benefit Rider
-Early payment of death benefit if insured is diagnosed with a terminal illness that will result in death within 2 years -Does not cover disability -Can cover necessary funds to take care of medical
Eligible Groups for Group Life
-Employers -Debtor groups -Labor unions -Credit unions -Associations
Life Insurance Disclosure Statement
-Every applicant for insurance must be given one -Basic information about cost and coverage -Must be given when application is signed -Helps applicants make more informed and educated decisions about their choices of insurance
Primary Beneficiary
-First claim to the policy proceeds following death of insured -May name more then 1
Joint Life
-First to die -Single policy that can insure two or more lives -Term or permanent -Premium based on joint average age
Conditions for Payment
-Form discloses conditions for payment of the accelerated death benefit
Policy Loans and Withdrawls
-Found only in policies with cash value -Policyowner entitled to borrow amount equal to available cash value -Policy will not lapse with outstanding policy loans unless the loans exceeds cash value -Insurance company may defer policy loan request up to 6 months unless reason for loan is to pay policy premium
Right to Examine Provision Life
-Free look -Allows the policyowner 10 days to look over the policy and the ability to return it for a full refund of premium -Free look period starts when policyowner receives the policy
Buyers Guide
-Generic information about life insurance policies -Explains how buyer should choose amount and type of insurance -Must be given before accepting initial premium
Common Disaster Clause
-If insured and primary beneficiary die at the same time from a common accident with no evidence of who died first -Law states that policy proceeds are to be distributed as if primary beneficiary died first -Protects the contingent beneficiary
Estates
-If no beneficiaries are alive at the time of insureds death, insureds estate will automatically receive proceeds of policy
Succession
-If primary beneficiary predeceases the insured the contingent will be entitled to death proceeds
Effects of Divorce
-If spouse named as beneficiary has obtained divorce, he or she has terminated all marital property rights -May be reversed if divorce is not recognized as valid or if beneficiary can prove the couple is living together
Return of Premium
-If you outlive the policy term, pays you all or some of the money you spent on policy payments
Disability Income Benefit Rider
-In the event of disability the insurer will waive the policy premium and monthly income to the insured -Amount paid is normally based on a percentage of the face amount of the policy which it is attached
Family Term Rider
-Incorporates spouse term rider with children term rider in a single rider -When added to whole life policy, family term rider provides level term benefits covering spouse and all children
Group Life
-Issued by sponsoring organization -Covers the lives of more than one individual member -Commonly written for employee-employer groups -Written as annually renewable term insurance -Evidence of insurability is not required -Participants do not receive a copy of the policy because they do not own or control it -Each participant is issued a certificate of insurance -Actual policy is issued to the sponsor or the group (employer) -Group sponsor is the policyholder (controls)
Specialized Policies
-Joint Life -Survivorship Life -Juvenile Life -Group Life
Decreasing Term
-Level Premium -Death benefit decreases each year
Universal Life Option A
-Level death benefit -Cash value gradually increases -Pure insurance decreases as time passes -In later years, pure insurance increases to comply with statutory definition of life insurance
Increasing Term
-Level premium -Death benefit increases each year
Variable Whole Life
-Level, fixed premium -Cash value is not guaranteed -Guaranteed minimum death benefit -Cash value fluctuates with the performance of the portfolio -Assets held in a separate account, which invests in stocks and bonds
Single Premium Whole Life
-Lump-sum payment -Generates immediate cash
Premium Determination
-Morality -Interest -Expense
Policy Summary
-More specific than a buyers guide -Features and elements -Names and addresses -Must be provided when policy is delivered
Conditional Receipt
-Most common premium receipt -When the agent collects premiums, the agent must issue a premium receipt
Agents Selling Variable Life Insurance Products
-Must be regulated with FINRA -Licensed with the state to sell Life Insurance -Have received securities license
Medical Information Bureau (MIB)
-Non-profit trade organization that maintains medical information on individuals -To compare info with other insurers
Accidental Death Rider
-Pays some multiple of the face amount if death is the result of an accident as defined in the policy -Death must occur within 90 days of accident -Normally 2 times (double indemnity) face amount -Expires at age 65
Grace Period Provision Life
-Period of time after premium due date that the policyowner has to pay the premium before policy lapses (1 month)
Adjustable Life
-Permanent + Term -Option of converting from a term to permanent life policy -Allows changes to face amount, period payments, and term during policy lifetime.
Whole Life Insurance
-Permanent policy -Builds cash value -Level premium -Remains in effect for entire life of insured
Entire Contract Provision Life
-Policy, copy of the application, and any riders or amendments means an entire contract
Mutual Company
-Policyholders -Participating -ENTITLED TO DIVIDENDS
Ownership Provision Life
-Policyowner and insured may be the same person or different -Only the policyowner has the ownership rights under the policy -When insured and policyowner are different it is called "third party ownership"
Universal Life
-Policyowner has the ability to increase amount of premium and to later decrease it -Interest sensitive -Two options for death benefit: Option A and B -Allows for partial withdrawal of policy cash value
Assignment Provision Life
-Policyowner may transfer ownership of the policy to another without consent -The two types of assignments are absolute and collateral
Life Insurable Interest
-Policyowners own life -Family member -business partner
Human Life Value Approach
-Potential earnings of the insured -Calculates individuals life value by looking at: 1. Wages 2. Inflation 3. Years of retirement
Needs Appraoch
-Predicted needs of the surviving family Calculates based on: 1. Debt 2. Income 3. Social security black out 4. Expenses
Limited Payment Whole Life
-Premiums are paid up before age 100 -Shorter premium = higher annual premium
Incontestability Provision Life
-Prevents insurers from denying claims due to statements in the application after the policy has been in force for 2 years -During the first 2 years of the policy, insurer may contest a claim if inaccurate or misleading
Agent
-Producer -Represents the insurer -Responsible for: 1. Completing applications for insurance 2. Submitting application to insurer for underwriting 3. Delivering the policy to the policyowner
Key Person Insurance
-Protects against the loss of a key employee by -The business is the owner, premium payor, and beneficiary
Spend Thrift Clause
-Protects beneficiary from claims of their creditors and prevents beneficiaries reckless spending of benefits by requiring benefits to be paid in a fixed period/amount
Term Life Insurance
-Provided for a specific period of time -Temporary -Also known as pure life insurance -NO cash value -Greatest amount of protection for lowest premium
Other Insured Term Rider
-Provides coverage for one or more family member other than the insured
Long Term Care
-Purchases as separate policy -Can be purchased as a rider -Provides for payment of part of death benefit in order to take care of insureds health care expenses (nursing home)
Characteristics of Group Plans
-Purpose or nature of the group -Size of the group -Turnover of the group -Financial strength of the group
Regulation of Variable Products
-Regulated by Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), and the Insurance Department
Anually Renewable Term
-Renews each year without proof of insurability -Premium increases each year (attained age)
Cost of Living Rider
-Rider addresses the inflation factor by auto increasing the amount of insurance without evidence of insurability from insured -Face value may be increased by a cost of living rider tied to an inflation index such as consumer price index
Contingent Beneficiary
-Second claim to the policy proceeds in the event the primary beneficiary dies before
Survivorship Life
-Second to die -Single policy that can insure two or more lives -Premium based on joint average age
Insurance Transaction
-Solicitation -Negotiations -Sale -Advising coverage or claims
Payment of Claims Provision Life
-Specifies to whom claim payments will be made -Insurer may pay death claims immediately
Payment of Premiums Provision Life
-Stipulates when premiums are due, how often they are to be paid, and to whom
Stock Company
-Stockholders -Non Participating -DOES NOT PAY DIVIDENDS
Continuous Premium Whole Life
-Straight life -Lowest annual premium -Cash value increases
Personal Uses of Life Insurance
-Survivor protection -Estate creation -Estate conservation -Liquidity -Asset Protection
Violations of Unfair Discrimination Law
-Suspended or revoked license -Refusal to renew license for 1 year -Fines up to $500 for each
Statutory Definition of Life Insurance
-There must be a specified "corridor" or gap maintained between the cash value and the death benefit
Collateral Assignment
-Transfer of partial rights to another person -Usually done in order to secure a loan -Once debt or loan is repaid, assigned rights are returned to the policyowner
Absolute Assignment
-Transferring all rights of ownership to another person or entity -Permanent and total transfer
Attending Physician's Statement
-Used when smaller amount of insurance are requested; -There is no prior medical history of concern; or -When the underwriter sees answers that could indicate greater risk
Payor Benefit Life Rider
-Used with juvenile policies -If payor is disabled for 6 months or dies, insurer will waive premiums until minor reaches age 21 -Can be used if the owner and insured are different
Waiver of Premium Rider
-Waves the premium for policy if insured becomes totally disabled -Coverage remains in force until insured is able to return to work -Rider expires when insured turns 65
Disability Riders
-Written modifications attached to a policy that provide benefits not found in the original policy -Many require additional premium but also help tailor policy to specific needs
Individual Life Insurance
-Written on a single life -Rate and coverage are based on underwriting
Types of Flexible Premium Policies (Whole Life)
1. Adjustable Life 2. Universal Life
Types of Whole Life Insurance
1. Continuous premium 2. Limited payment 3. Single premium
Buy-Sell Funding
A legal contract that determines what will be done with a business in the event that an owner dies or becomes disabled
Estate
A persons net worth
Convertible Policy
Allows policyowner the right to convert policy to a permanent policy without evidence of insurability
Renewable Policy
Allows policyowner the right to renew the coverage at the expiration date without evidence of insurability
Life Settlements
Any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a third party for some form of compensation, usually cash
Permanent Life Insurance
As long as the premium is paid, policies will remain in effect to age 100 -Lifetime protection and Cash Value -Whole Life
Liquidity
Cash value can be borrowed at any time for immediate needs
Fixed Life Insurance
Contracts that offer guaranteed minimum or fixed benefits that are stated in the contract
Cash Value
Equity amount accumulated in permanent life insurance
Net Premium + Expense =
Gross Premium
Change of Insured Provision for Business
If a key employee quits or is terminated, the owner may transfer coverage to replacement employee
Misstatement of Age and Gender Provision Life
If applicant have misstated their age or gender on the application, the insurer is allowed to adjust benefits to the amount at correct age and gender would pay
Adverse Selection
Individuals with a higher probability of loss purchase insurance more often than those who have lower risk
Principal
Insurer
Acceptance
Insurers underwriting approves the application and issues the policy
Level Premium Term
Level death benefit and level premium
Morality - Interest =
Net Premium
Legal Purpose
Not against public policy
Competent Parties
Of legal age, sound mental capacity, and not under the influence of drugs or alcohol
Agreement
Offer and acceptance
Consideration
Premiums and representations on the part of the insured; payment of claims on the part of the insurer
Life and Health Guaranty Association
Protects policyowners, insureds, beneficiaries, and anyone entitled to payment under an insurance policy for incompetence and insolvency of insurers
Survivor Protection
Providing funds for surviving spouses and dependents
Estate Creation
Purchasing life insurance creates an immediate estate
Offer
Submitting the application
Death Benefit
The amount paid upon death of the insured
Liquidation
The total worth of a company's physical assets if it were to go out of business and its assets sold
Risk
The uncertainty or chance of a loss occurring.
Trusts
To manage life insurance proceeds for a minor or for estate tax
Estate Conservation
When life insurance is used to pay estate taxes
Equity Indexed Whole Life
• The cash value is dependent upon the performance of the equity index such as S&P 500 • The premium is fixed, and the death benefit is guaranteed -If insurer assumes the inflation risk, premium remains level