LIFE INSURANCE

net single premium

mortality and interest components

gross premium

net premium plus loading (costs of operating the company); net premium + expense; mortality - interest + expense

gross annual premium

one year cost for mortality, plus expense loading; cost of 1 year of mortality + (commissions + taxes + advertising + profit margin)

net premium

premium without operating costs factored in; mortality- interest

interest

primary factor in lowering premium rate

life settlement

refers to any financial transaction in which the owner of a life insurance policy sells a policy that is no longer needed to a 3rd party for some form of compensation, usually cash

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; obligates business owners or partners (or their heirs) to withdraw from the business and sell their interest to a surviving partner(s) or key person at a predetermined price

field underwriter

agent, who is usually the one that has solicited the potential insured

survivor protection

aim to protect survivors in event of loss of an income earner

viatical settlements

allows someone living with a life threatening condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death; separate contracts in which the insured sells the death benefit to a 3rd party at a discounted rate

disclosure to consumers in a viatical settlement

alternative to viatical settlements taxation info subject to claims of creditors effect on eligibility for Medicaid/ govt benefits viators has 15 days to rescind and if insured died within rescission period, settlement is considered rescinded funds will be sent to viator in 3 business days if provider changes ownership of viatical settlements, viator must know in 20 days

deferred compensation funding

any employer retirement, savings, or other deferred compensation plan that is not a qualified retirement plan; pay compensation in future years, made with cash deposits to a life insurance and/ or annuity contract; in addition funding plans or elective

participating (mutual) life insurance

any policy that distributes its dividends to policyowners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term insurance

underwriting

risk selection and classification process, involves the careful analysis of many diff factors to determine the acceptability of applicants for insurance

lump sum

settlement method that pays the beneficiary the entire proceeds of a life insurance policy in one payment rather than in installments

term life insurance

temp life insurance provided for a specific period of time

executive bonuses

arrangement where employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee, employee owns policy and has control, tax deductible for employers and taxable income for employee

needs approach

base on family's need after premature death of income earner

approval conditional receipt coverage

begins only when the pre- paid application is approved by the insurer (but before policy is delivered), no coverage during initial underwriting process, rarely used

key person insurance

business is the applicant, owner, premium payer, beneficiary; business use the money for the additional costs of running the business and replacing the employee

human life value approach

calculating insured's worth base on after- tax income from present date until retirement, annual expenses for food/clothing/etc, years to retirement & inflation

liquidity

cash values can be withdraw when needed

cash accumulation

cash values options in permanent life insurance plans

variable life insurance/ annuities

contracts in which the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance

fixed life insurance/ annuities

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

conditional receipt

coverage will be effective either on the date of the application or the date of the medical exam, whichever occurs last, unless coverage is declined or rated, or issued with exclusions or riders excluding specific coverage; applicant is covered by the insurance as of the date of the application providing that the insurer subsequently determines the applicant to be insurable as applied for

estate creation

creates an immediate estate after loss

nonparticipating policy

does not pay dividends

mode

frequency the policyowner pays the premium, higher frequency = higher premium; monthly > quarterly > semi- annual > annual

general accounts

hold the traditional life insurance reserves, invested by the insurance company in typically conservative investments such as bonds, real estate, mortgage, etc

separate accounts

hold the variable life insurance, policyowner chooses how cash values will be invested, cash values are not guaranteed

cross purchase plan

id policies are owned by individual business partners who pay the premiums and are the beneficiaries, each partner agrees to sell his/her business interest to surviving partners and each surviving partner agrees to buy the interest of the deceased partners

viatical settlements

in an event of terminal illness, selling one's own life insurance policy to a 3rd party

mortality tables

indicates the # of individuals within a specified group of individuals starting at a certain age, who are expected to be alive at a succeeding age, indicate the "natural premium"

ordinary insurance

larger- sized policies that require medical underwriting

estate conservation

life insurance proceeds may be used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay the cost

stock redemption plan

under corporate ownership, if business owns policies, pays premium, and is beneficiary and in a partnership is called an entity plan

unconditional (binding) receipt

used most often with property and casualty insurance; coverage begins immediately for a specific length of time, until the policy is issued; usually stipulate that coverage is effective from date of the application for only a specified period of time, such as 30- 60 days or until the company either issues or declines coverage

permanent life insurance

various forms of whole life insurance policies that remain in effect to age 100

industrial (home service)

'debit insurance', generally for lower income individuals, face amounts are very low, premiums are usually collected in person by an agent on a weekly basis and these policies are often issued without medical exam, debit agent generally sells only debit policies

types of information gathered

1) debt, 2) income, 3) mortgage, 4) expenses