Life insurance basics

Criteria for asset protection against creditors to be valid...

1) if insured files a petition of bankruptcy with 2 years, proceeds and cash value are exempt under certain conditions 2)amount of premiums paid was not an attempt to defraud creditors 3)creditor does not possess a valid assignment from Policyowner

Becoming a viatical settlement provider or brokers required what to have a listener?

1)An audited financial statement (not more than 1 year and 120 days old) 2)an unaudited financial statement (for the most recent quarter)

Lump sum needs (needs approach)

1)Costs associated with death (final medical bills, funerals, daily expenses, etc) 2)debt cancellation 3)emergency reserve funds 4)retirement funds 5)bequest (leaving du da to insured church, school, or charity)

Viatical settlement providers must obtain certain document before entering contract showing ...

1)Viator consents to the contract 2)Viator is fully understands contract and benefits of policy 3)Viator entered agreement voluntarily 4)Viator is terminally/chronically ill and was diagnosed after life insurance policy 5)Viator is of sound mind and not under any undue influence 6)document giving insured's consent to release medical records to viatical settlement provider, broker, and insurance company 7)document giving insured consent to tolling if running of

Sources of underwriting information and regulations

1)application 2)producer report 3)attending physician statement 4)investigative consumer report 5)medical information bureau (MIB) 6)medical examinations and lab tests including HIV

Primary criteria for assessing insurability...

1)health 2)occupation 3)lifestyle 4)hobbies/habits

What are valid insurance interest?

1)policyowner's own life 2)life of family member (spouse or close blood relative) 3)life of business partner, employee, or someone with financial obligation to policyowner

Duty of replacing producer

1)present applicant with notice regarding replacement 2)obtain list of all existing life insurance/annuity practices to be replaced 3)leave applicant with physical communication evidence used for presentation to the applicant 4)submit to replacing insurance company a copy of replacement notice with the application

Duties of replacing insurance companies

1)require from producer a list of applicants policies to be replaced and a copy of replacement notice provided to applicant 2)send existing insurance company written communication advising proposed replacement

Duties of existing insurer

1)retain all replacement notification for at least 5 years or until next regular examination by insurance department 2)send letter notifying policy owners right to receive information regarding existing policy values 3)send notice to policyowner that release of policy values may affect guaranteed/no guaranteed elements

Producer responsibilities

1)solicitation and sales presentation 2)underwriting (field and company) 3)premium determination 4)policy issue and delivery

Estate

A persons net worth

Solvency

Ability to meet financial obligations

Viatical Settlement

Allow someone with life-threatening condition to sell their life insurance policy and use money before death

Net single premium

Amount needed today to fund the future benefits Mortality - interest = net premium

Death benefit

Amount paid upon death of insured in life insurance policy

Fraudulent Viatical Settlement Act

An act knowingly committed to defraud for property or financial gain

Field Underwriter

An insurance agent who conducts an initial policy solicitation and application. (The company's front line of underwriting)

Estate Creation and Conservation

As a means of creating future wealth for one's descendants, life insurance policies are often used to create a family trust, naming one's estate as a designated beneficiary

Solicitation and sales presentation

Attempt to persuade someone into purchasing insurance policy

Liquidity

Availability of resources to meet short-term cash requirements.

Existing insurer

Company whose policy is being replaced

Traditional net cost index

Compares cash values available to buyers if they surrender policy in 10 or 20 years

Interest-adjusted net cost index

Compares death benefits pairs at death in 10 or 20 years.

Chronically I'll

Condition in which person is unable to perform at least 2 activities of daily living or requiring substantial supervision to protect individual caused by severe cognitive impairment

Terminally ill

Condition that can reasonably be expected to result in death in 24 months

Buy-sell agreement (business continuation agreement)

Contract that determines what happens when owner of business dies or becomes disabled

Variable life insurance (annuities)

Contracts in which cash values accumulate based on a specific portfolio of stocks without guarantee of performance

Fixed life insurance (annuities)

Contracts offering guaranteed minimum or fixed benefits stated in the contracts

Unconditional (binding) receipt

Coverage begins immediately for a specific length of time, until the policy is officially accepted or declined by insurer

Life insurance

Coverage of human lives

What happens if to key employee insurance if key employee is terminated or quits?

Coverage transfer over to the replacement

Employee Benefits

Employers may offer employee benefits in the form of products or services that add extra value for employees beyond earned wages

Cash value

Equity accumulated in permanent life insurance

Needs approach

Estimate insurance policy based on needs of family (income. Debt, investments, other ongoing expenses)

Human life value approach

Estimate value of insured life based of insured wages, inflation, number of year until retirement, and time value of moneyo

(True/false) insurance companies can discriminate between individuals of the same class and life expectancy

False

Life settlement

Fianancial transaction Policyowner sells a policy that is no longer needed to a third party for some sort of conpensation

Entity purchase

Form of buy/ sell agreement where owners enter legal agreement with Trusts, that collects death benefits and pays the deceased owners heirs.

Cross purchase

Form of buy/sell agreement where each owner enters into agreement with other owners

Mode

Frequency that policyowner pays premium

Substandard risk

High risk applicant not acceptable under stand and rates because if physical condition, history of disease, occupation, habits, etc Policies are "rated" with premiums rated-up (higher premium)

Preferred risk

Individuals who meet certain requirements to qualify for lower premiums Superior physical condition, lifestyle, and habits

Visitors

Insured people entering viatical settlements

Permanent life insurance

Life insurance policies lasting until age 100

Survivor protection

Life insurance provided for surviving member of family (whether they are earning or non-earning spouses)

Standard risk

Person entitled to insurance protection without extra rating or special restriction Average person their age

Minor

Person under legal age

Viatical Settlement Provider

Person, other than Viator, entering viatical settlement contract

Participating (mutual) life insurance

Policy that distributes it dividends to policy owners

Replacement

Practice of terminating existing policy or letting hit lapse to obtain a new one

Illustrations

Presentation or depiction of non guaranteed elements of a life insurance policy

Illustration

Presentation/depiction including nonguaranteed elements of a policy of life insurance over a time

Underwriting

Process in which insurance company determines whether an applicant is insurable and what premiums to charge

Key person insurance

Protect business against risk of losing key employee in business Business is applicant to, Policyowner, premium payer, and beneficiary. Employee would need to agree to this coverage

Guaranty association

Protect policy owners and beneficiaries under insurance policy from the incompetence and insolvency of insurers (can not be used to insurer to advertise protection to insured)

Asset protection

Protects one wealth/assets from creditors when insured dies (assets go to beneficiaries)

Surrender comparison

Provide life insurance purchaser with means of making cost comparison between different insurance policies

Agent's report

Provides agents personal observation concerning the applicant

Buyers guide

Provides generic information about life insurance policies that contains language approved by department of insurance

Mortality

Ratio of death in location per time unit Over number of people living in populatikn

Viatical producers

Represent viatical providers

Viatical brokers

Represent viators in negotiating viatical settlement with viatical settlement providors

Liquidation

Selling asset to raise capital

Executive bonus

Strangest. Where employer offer to give employee wage increase in the amount of the premium on a new life insurance policy (employee owns policy)

Term life insurance

Temporary (pure) life insurance

Adverse selection

Tendency for people with higher risk to by insurance than people with lower risk

Gross annual premium

The one year cost for mortality, plus the cost of operating the company Net premium + expense = gross premium

Premium Receipt

The receipt an agent normally gives an applicant when the applicant submits an application for life insurance with the first premium payment.

(True/false) insurance companies can discriminate in favor of good vs bad risks

True

(True/false) viators usually receive percentage of policy's face value from person purchasing policy. New owner continues to maintain premium payments and will collect entire death benefit

True

Frequency of premium payment

Usually paid annually. If policyowner elect more frequent payment schedule, they will have to pay a higher premium

(True/false) viatical settlments are separate contracts insured sells death benefits to third-party at discounted rate

Vistical settlements

How much time must viatical settlement provider give a written notice to insurer that insurance policy has or will become a viaticated policy?

Within 20 days

Life insurance disclosure statement

Written disclosure statements providing information about cost and coverage of insurance policy

Policy summary

Written statement describing the features/elements of the specific policy being issued

does insurable interest have to exist at the time of application?

Yes

does the insurer still have to pay the policy benefits after policy is issued (even when insurance interest disappears)?

Yes

Declined risk

applicants who are rejected

Factors in Premium Determination

mortality, interest, and expense

Lump sum

payment of the entire benefit in one sum

Conditional receipt

receipt stipulating insurance will begin on the day the application or medical examination, as long as applicant is insurable

Insurable interest

something of value that, if lost, would cause you financial harm

Stock Purchase

the acquirer purchases the stock of the target and assumes its liabilities

Replacing insurer

the company that issues the new policy

nonparticipating policy

typically issued by stock companies, do not allow policyowners to participate in dividends or electing the board of directors

Rating Classification

used in deciding whether or not the applicant should pay a higher or lower premium Standard, substandard, or prefered

Stock Redemptionh

used when the corporation buys one policy on each shareholdero