Life Part 2

Gross Annual Premium

As opposed to the net single premium, the gross annual premium is a pay-as-you-go policy. The insurer charges the policyowner the cost of maintaining the policy that year, though this cost is generally evened out to stay the same over the life of the policy. Over time the cost for the annual premium policy will exceed the single premium policy, unless the insured were to die early in the policy period where only a few premiums had been paid. The full annualized premium is due each year. If the policyowner is paying the premium on a monthly basis and the insured were to die in the middle of the year, the cost for the remainder of that year's premium that had not yet been paid would be subtracted from the death benefit before settlement.

Viatical Loan Borrower

The owner of a life insurance policy or the certificate holder under a group life insurance contract insuring the life of a person with a catastrophic, life-threatening or chronic illness or condition who enters into a viatical loan contract with a viatical loan provider.

Contribution to Surplus/Policy Reserves

These are the liquid cash reserves insurers must maintain to meet expected death benefit payments and cash value payouts from canceled policies. A certain amount of each premium payment must go toward the build-up of the monetary reserves set aside for claim payments. The amount of insurance that can be issued is based on this reserve, or surplus amount.

Direct-response Sales

hese are solicitations that take place: through the mail by telephone via the Internet through other mass communication media.

Buy-Sell Agreement

is an arrangement between partners or associates in which surviving members agree to purchase the ownership interest in the company from the deceased owner's estate at a pre-determined price

Insurable/Uninsurable Risk

the insured's physical condition any moral hazards that may exist the probability of disability from occupation or hazardous recreational activities. After a review of the information from various reports, the underwriter will decide if the applicant is insurable, uninsurable, or insurable with certain conditions or stipulations.

Buyer's Guide

A buyer's guide is a guide for consumers to help them make an informed life insurance purchase. The buyer's guide describes types of policies and information about replacement of policies, and has been recommended for use by the National Association of Insurance Commissioners (NAIC).

Delivery Receipt

A delivery receipt is given to the applicant at the time of policy delivery for two reasons: to indicate if the insured needs to pay additional premium (due to policy alterations required by underwriting) to affirm that the policy was received in order to start the free-look period.

Viatical Settlement Provider

A person, other than a viator, that enters into or effectuates a viatical settlement contract.

Separate account

A separate account is held by an insurance company for the investments made through variable contracts. The general and separate accounts may not be co-mingled.

Avoiding Adverse Selection

Adverse selection is insuring too heavily those needing coverage the most (the sick and elderly) without the balanced insuring of those that do not need it as much (the young and healthy). It is a major part of the underwriter's job to avoid adverse selection and charge sufficient premium. If premiums are too high, healthy individuals will likely find coverage elsewhere leaving the sick and those using benefits as the only ones maintaining coverage, as their now pre-existing conditions preclude them from obtaining coverage elsewhere.

Advertising

Advertisement An advertisement can be: printed material and descriptive literature produced by an insurer to be used in newspapers, magazines, radio and television scripts, billboards, and other publications and displays. sales aids of all types produced by an insurer for presentations to the public, including circulars, leaflets, booklets, illustrations, form letters, and others. prepared sales presentations and presentation material for use by agents, brokers, and other representatives of insurers.

Explanation of Changes

An agent must provide explanations for any changes made to the policy during the underwriting process, such as a table rating due to the individual's health, or the change from a non-nicotine to a nicotine policy due to factors uncovered in the medical exam. Any changes made to the policy during the underwriting process must be acknowledged by the policyholder with their personal signature.

Underwriter

An underwriter is an individual who reviews the application and other pertinent information and decides if the applicant is an insurable or acceptable risk, whether an insurance policy will be issued, and what the premium for the policy will be.

Attending Physician Statement (APS)

If the applicant has received medical treatment in the past, the insurer may write and request additional information from the doctor as to recovery or current condition.

Fraudulent Acts & Prohibited Practices

It is prohibited to enter into a viatical settlement within two years of the insurance policy's issue unless: the policy was issued as the result of the viator's conversion from a group policy so that coverage has been in effect for 24 months or more. the insured has become terminally ill or disposes of ownership interests in a closely held corporation subject to terms of a buyout agreement in effect at the time the original life policy was issued.

Interest Earnings

Premium dollars are invested in various investments-stocks, mutual funds, real estate, etc.-and the returns on these investment, including earned interest, help to keep the overall cost of life insurance premiums down.

Mortality Charge

The mortality charge is a part of a life insurance premium, and is the actual cost of insurance in a life policy.

Required Signatures on the Application

The producer must obtain the signature of the proposed insured, the applicant; the spouse, children to be covered who are age 18 or over, the payor, and the owner. The producer also needs to sign the application.

Existing Policy or Contract

This is an individual life insurance policy or annuity contract in force, including binders or policies/contracts within unconditional refund periods.

Replacing Insurer

This is the insurance company that issues or proposes to issue a new policy or contract that replaces an existing policy or contract.

Existing Insurer

This is the insurance company whose policy will be changed or affected by the replacement.

Underwriting

Underwriting is the process by which insurers analyze risks to decide if they want to insure them, and at what rates they will insure them. Four questions must be answered regarding every applicant: Is there insurable interest? Is the amount of insurance applied for reasonable? Is the applicant insurable? If the applicant is insurable, what should the premium be?

Net Single Premium

When an insurer charges a net single premium for a life insurance policy, the policyowner pays one large single premium at the policy's inception. This cash along with interest that will accrue on it, will be sufficient to cover all insurer expenses associated with the policy as well as develop cash value and cover the death benefit risk. The policyowners does not need to make any further payments.

Term Life

offers coverage for a specific and predetermined period of time, and its only benefit is a death benefit Temporary insurance protection Low cost No cash value Usually renewable Conversion (depending on the policy) to permanent life insurance

Viatical Settlement Contract

A written agreement entered into between a viatical settlement provider and a viator. The agreement must establish the terms under which the viatical settlement provider will pay compensation or anything of value, which compensation or value is less than the expected death benefit of the insurance policy or certificate, in return for the viator's assignment, transfer, sale, devise or bequest of the death benefit or ownership of all or a portion of the insurance policy or certificate of insurance to the viatical settlement provider.

Advertising Regulations

Advertising, including the use of statistics and testimonials, cannot be misleading or deceptive. It must be truthful, clear, and complete. Words or phrases which require familiarity with insurance terminology must not be used. Regarding preexisting conditions: -an advertisement must disclose the extent to which a loss is not covered if the cause of loss is traceable back to a condition existing prior to the policy's effective date. -if a policy does not cover losses traceable back to preexisting conditions, no advertisement may state or imply that the issuance of the policy or the payment of a claim would not be affected by the applicant's physical condition or medical history; this limits the use of such phrases as "no medical examination required". An advertisement may not directly or indirectly make unfair or incomplete comparisons of policies or benefits. Also, no advertisement of an insurer may falsely disparage competitors or their policies, services, or business methods. It is illegal to make, publish, or circulate any advertisement or announcement containing any untrue, deceptive, or misleading representation or statement, with respect to the insurance business or any person in the insurance business. An advertisement may not state or imply that a particular insurer or policy has been approved or endorsed by any governmental agency. Advertisements are also prohibited from using symbols, trademarks, or names similar to a governmental agency. Any premium or benefit increases, decreases, or limitations must be prominently described. The source of statistics must be clearly stated and the statistics must be current, correct, and appropriate for the policy involved. Testimonials must be true and not taken out of context. All advertisements must contain the insurer's name and the policy's form number. Advertisements must not state or imply that prospective insureds become members of a group and are therefore entitled to special rates and privileges. Advertisements are prohibited from claiming that a policy represents an initial, introductory, or special offer, unless such is the fact. An insurer must maintain its advertisements on file for a period of four years. These files will be subject to periodic inspections by the Insurance Department.

Terminally Ill

Having an illness or sickness that can reasonably be expected to result in death in 24 months or less.

Policy Cost Comparison Methods

Insurers are normally required to give a copy of the Insurance Buyer's Guide to applicants at the time of application and at the time of policy delivery. This guide briefly informs the individual of the various types of insurance and ways to compare the cost of policies. Insurance policies themselves have a cost comparison index included in the policy to help the insured determine the actual cost of the insurance by itself. Lower premiums do not necessarily mean a lower cost policy. Cost indexes help measure a policy's estimated cost. It should be noted that these are estimates only, and that the insurer's claim payments and reputation should also be considered when buying a policy. The different formulas that insurance companies use to show prospects the cost of various insurance policies are called cost comparison methods. Insureds should compare index numbers only for similar policies-those that provide essentially the same benefits with premiums payable for the same length of time, and properly calculated for the insured's age and health status. No single company offers the lowest cost at all ages for all kinds and amounts of insurance. Generally, a policy with smaller index numbers generally is a better buy than a similar policy with larger index numbers

Disclosure to Consumers

possible alternatives to a viatical settlement, including any accelerated death benefits or policy loans offered under the viator's life insurance policy. information that some or all of the proceeds of the viatical settlement may be taxed under federal income tax and state franchise and income taxes. unlike life insurance death benefits paid to beneficiaries, proceeds of the viatical settlement could be subject to the claims of creditors. receipt of the proceeds of a viatical settlement may adversely affect the viator's eligibility for Medicaid or other government benefits or entitlements. the viator may rescind a viatical settlement contract for 15 calendar days after receipt of the settlement (similar to a 15 day "free look" period). If the insured dies during this 15-day period the contract is considered to have been canceled. Any viatical settlement proceeds must be repaid along with any premiums, loans, and loan interest to the viatical settlement provider or viatical settlement purchaser. once the settlement provider receives notice that ownership interest has been transferred and a beneficiary designated, funds must be sent to the viator within three business days. entering into a viatical agreement may cause the insured to forfeit some of the life insurance policy provisions. a copy of the NAIC's brochure or similar brochure developed by the Commission describing the viatical settlement process must be given to the potential viator. The disclosure document must include the following: "All medical, financial, or personal information solicited or obtained by a viatical settlement provider or viatical settlement broker about an insured, including the insured's identity or the identity of family members, a spouse, or a significant other may be disclosed as necessary to effect the viatical settlement between the viator and the viatical settlement provider. If you are asked to provide this information, you will be asked to consent to the disclosure. The information may be provided to someone who buys the policy or provides funds for the purchase. You may be asked to renew your permission to share information every two years."

Viaticated Policy

A life insurance policy or certificate that has been the subject of a completed viatical settlement contract or viatical loan contract.

Collection of Earned Premium

An agent must collect any earned premium from application to the time of policy issue. If enough premium is not collected at the time of application, or if the policy is issued after the second premium payment is due, the producer needs to collect the payment at the time the policy is delivered. Coverage does not begin until the full premium for the selected mode has been paid and any required signatures have been obtained.

Credit Report

An applicant's credit report compares requested benefits to actual income, and helps determine premium payment expectations. (Use of Credit reports must also be disclosed in writing to applicants and a signature obtained.) Applicants with poor credit ratings are more likely to let their policies lapse within a short period of time. It costs a lot of money for an insurer to issue an insurance policy; underwriters might deny coverage to an individual with a poor credit rating because of the probability of cancellation due to non-payment. (The applicant must sign a disclosure form that they have been made aware that credit reports may be used in underwriting policies and determining premium rates.)

Illustrations

An illustration is a presentation or depiction that includes non-guaranteed elements of a policy of life insurance over a period of years and that is one of the three types defined below: Basic Illustration A proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements Supplemental Illustration An illustration furnished in addition to a basic illustration that meets the applicable requirements and that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration In-Force Illustration An illustration furnished at any time after the policy is issued and has been in force for one year or more.

Duties of Insurers with Respect to Direct Response Sales

If a replacement is involved with a direct response sale, and a replacement is not proposed by the insurer, the applicant must be sent a replacement notice by the insurer. If the insurer proposed the replacement, it must: a.) provide a replacement notice to applicants b.) request a list of all policies to be replaced c.) send written notice to each existing insurer advising them of the replacement, and a copy of the policy summary.

General account

Money invested in a fixed policy goes into the general accounts of the company, and consequently the safety of such an investment may be affected by the stability and strength of the company.

The Fair Credit Reporting Act of 1970

Regulates the collection and distribution of credit and inspection report information Deals with the accuracy, obsolescence, and limited uses of information, and the right of the individual to access and contest the information contained in the reports Applicant has the right to the name and address of the inspecting company if a policy is rated or rejected as a result of the report and can file his or her opinion on the issue with the reporting company Applicant has the right to have medical information sent to his own physician. Many companies will not send medical information directly to the insured but require that it be sent to the insured's doctor. Medical information will most likely NOT be given to the agent to deliver to the applicant. Consumer reports cannot contain information about bankruptcies over 10 years old or other adverse information (i.e., arrests, liens or lawsuits) that is 7 years old. There is no time limit for information relating to life insurance or credit transactions of $150,000 or more, or for jobs paying more than $75,000.

Individual Policies

Single policies written on or for a particular individual who receives a copy of the policy. The policy can be one of a great number of types.

Split-Dollar

Split-dollar life insurance allows employees to buy life insurance at reduced costs, "splitting" premium costs with employers

Statement of Continuing Good Health

The agent must also have the insured sign a Statement of Continuing Good Health, acknowledging that the insured's current physical health is the same quality as when the application was completed.

Application

The application will provide the age, sex, occupation, nicotine use, dangerous recreational activities, and other information about the applicant. It will also contain the agent's report.

Insurer Operating Expenses

The costs of doing business, including buildings, salaries, agent commissions, technology, and supplies can raise or lower premium amounts equal the insurer operating expenses.

Examinations, Record Retention, Investigations

The department may examine or investigate any person or business that is necessary or material to the examination of a licensee. Records must be kept for five years Any costs incurred during an exam of a provider or broker will be charged to the provider/broker.

Policy Summary

The policy summary includes the: title: STATEMENT OF POLICY COST AND BENEFIT INFORMATION name and address of the insurance producer and name and home office address of the insurer generic name of the basic policy and each rider following amounts, where applicable: -annual premium for the basic policy -annual premium for each optional rider -guaranteed amount payable upon death -policy loan interest rate, if applicable -equivalent level annual dividend, if applicable date on which the policy summary is prepared.

Agent/Producer as Field Underwriter

The producer is the first source of information regarding suitability of a risk to be assumed by the insurer. One of the main jobs of a producer is to gather information and make preliminary decisions as to the insurability of the applicant.

Inspection Reports/Investigative Consumer Reports

The purpose of these reports is to provide a general idea of the proposed insured's lifestyle characteristics (finances, mode of living, reputation, character, and possible exposure to abnormal hazards). Used when individuals apply for especially large amounts of insurance. Rules vary from one insurer to another as to which risks warrant an inspection report. Usually obtained from national investigative companies. Applicants must be notified that an investigative inspection may be performed.

Inspection Report or Investigative Consumer Report

This report verifies a producer's accuracy and completeness on the application, and checks the applicant's moral or character risks, financial condition, home and business life.

Group Policies

Written on a group of people under a single master policy usually issued to their employer or another trustee. Individual group members are usually issued certificates of coverage rather than copies of the policy. The master policyholder or sponsor assists in the plan's administration. Coverage is generally term life but can be permanent insurance. If the employer is the master policyholder and pays the premiums, the costs on policies with a face amount of up to $50,000 are income tax-deductible for the employer.

Conservation

any attempt by the existing insurer or its agent to dissuade a policy owner from replacing the existing life insurance or annuity. The agent must: keep a notice regarding the replacement, the policy statement, and any ledger statements used must be kept for three years or until the next regular examination by the Department offer the applicant the right to return the policy or contract within 20 days of delivery and receive an unconditional full refund of all premiums or considerations paid.

Chronically Ill

being unable to perform at least two activities of daily living, or ADLs, (eating, toileting, transferring, bathing, dressing, or continence) requiring substantial supervision by another person to protect the individual from threats to health and safety due to severe cognitive impairment.

Industrial Life insurance

benefits of $1,000 or less (but may be more) premiums that are collected at the insured's home on a weekly or monthly basis. The name comes from the fact that they were originally sold to industrial workers who were paid weekly; they are also known as home service policies since the agent normally comes to the home to collect the premium. The agent's territory is called his "debit." This method of marketing today represents less than 2% of life insurance in force in the U.S.

Insurers cannot:

discriminate against individuals who are blind or partially blind refuse an insurance application on the basis of a genetic condition, developmental delay, or developmental disability. They cannot require the performance of a genetic test without first receiving the informed written consent of the test subject. discriminate against individuals based on information that they have been victims of abuse, nor may they seek information that a person has been an abuse victim.

Policy delivery

is an important part of the agent's job. Agents need to do several things when delivering the policy to their client, and those responsibilities follow.

Viatical/ Life Settlement

is the contract or agreement in which the viatical or life settlement buyer agrees to buy all or part of a life insurance policy on the life of someone with a critical or terminal illness. This gives the buyer access to the policy's death benefit.

Permanent life

offers a death benefit and the accumulation of cash value, three examples of which are whole, universal, and variable life policies. Permanent insurance protection More expensive to own Builds cash value Loans are permitted against the policy Favorable tax treatment of policy earnings Level premiums

Participating vs Nonparticipating

A mutual life insurer may issue policies on both a participating (sharing in the profits of the company) and nonparticipating basis, provided that the right or absence of participation is related to the premium charged. The policy must clearly state whether it is participating or nonparticipating. (Also par/nonpar.).

Medical Information Bureau (MIB)

A non-profit information agency, established by insurance companies, which provides information from other insurers the applicant may have applied to in the past. (The existence and use of the MIB must be disclosed in writing to applicants and a signature obtained.)

Ordinary Life Insurance

Ordinary life insurance policies normally have face value amounts of more than $1,000, and have a variety of structures and benefits

Pre-Existing Conditions

Pre-exiting conditions are health conditions the applicant has at the time of policy application. Health conditions that the insured has had may affect whether a policy will be issued with exclusion riders for those conditions or if the application will be declined.

Premium Payment Modes

Premiums can be paid: annually semiannually quarterly monthly through a Bank Check Plan in which the premium is deducted on a monthly basis from the insured's bank account. The mode in which premium is paid affects the actual amount paid. The annual mode is generally the least expensive Annual and Bank Check Plan modes are the most likely to stay in force longest.

Replacement

refers to when a new policy or contract takes the place of an existing contract that is or will be: lapsed, forfeited, surrendered, or otherwise terminated. converted to reduced paid-up insurance, continued as extended term, or otherwise reduced in value (benefits or term of coverage). reissued with any reduction in cash value. used in a financed purchase. The purpose of replacement regulation is to protect the interests of life insurance and annuity purchasers by establishing minimum standards of conduct to: assure that a purchaser receives information to make a decision in their own best interest. reduce the opportunity for misrepresentation and incomplete disclosures. establish penalties for failure to comply with the requirements

Fraudulent Viatical Settlement Act

requiring and defining the licensing and conduct of viatical settlement brokers requiring disclosure of -facts regarding viatical settlements, including the financial consequences of selling a life insurance policy in a viatical settlements -possible alternatives to a viatical settlement making it unlawful to solicit or sell viatical settlement contracts using untrue facts or by engaging in any type of fraud regarding viatical settlement contracts.

Solicitation and Sales Presentations

A producer must state that he or she is a life insurance producer and provide the name of the company they represent, prior to commencing a life insurance sales presentation. Terms such as estate planner, financial planner, investment advisory, financial consultant, or financial counselor must not be used in such a way as to imply that the insurance producer is generally engaged in an advisory business in which compensation is unrelated to sale unless true. Any reference to policy dividends must include a statement that dividends are not guaranteed. Benefits must not display guaranteed and non-guaranteed benefits as a single sum, unless they are also shown separately in close proximity. The financial condition of the insurance company may not be misrepresented. Presentations which do not recognize the time value of money through the use of appropriate interest adjustments must not be used for comparing the cost of two or more life insurance policies. No analysis of a policy or the insurance company by a third party may be included without disclosing the payment made to the third party for its analysis. A life insurance cost index that reflects dividends or an equivalent level annual dividend must be accompanied by a statement that it is based on the company's current dividend scale and is not guaranteed. All sales proposals and sales presentations of individual life insurance products which fail to fully and fairly inform an applicant of future premium changes, benefits, and related options constitute a misrepresentation as to material facts.

Viatical Loan Contract

A written agreement through which a life insurance policyholder or a person covered under a group policy who has a catastrophic, life-threatening or chronic illness or condition secures a loan from a viatical loan provider by using the policy as collateral. The secured loan amount is less than the face value of the policy; the difference between the loan principal and the face value of the policy is used to pay, among other things, the accrued loan interest. Upon repayment of the viatical loan, the viatical loan provider's collateral interest in the policy terminates and the security interest is released to the original policyholder, or his or her designee. Viatical loans do not include loans taken against the cash value of a life insurance policy for the purpose of paying premiums due.

Other Contributing Individual Factors

Age Gender (sex) Tobacco Usage-Smoking, chewing, etc. Tobacco users will have a higher premium. If the insured stops using tobacco for a period of one to two years or longer, they may be able to requalify for a non-tobacco user premium. Occupation Avocations/Hobbies

Policy Review

An agent needs to review the reasons the policy was originally purchased, what type of policy it is, and other riders/benefits that are included in the policy. Also, any necessary disclosures should be made and the insured be furnished with the appropriate related policy material: Medical Information Bureau information consumer reports medical record information insurance information practice disclosures HIPAA (Health Insurance Portability & Accountability Act) information and authorization HIV consent forms and information buyer's guides.

Life Insurance Basics - Agent Responsibilities (cont) Requirements

An illustration must be clearly labeled "life insurance illustration" and contain the following basic information: name of insurer name and business address of producer or insurer's authorized representative, if any name, age and sex of proposed insured, except where a composite illustration is permitted underwriting or rating classification upon which the illustration is based generic name of policy, the company product name, if different, and form number initial death benefit dividend option election or application of non-guaranteed elements, if applicable. An insurer or its producer must not do any of the following: represent the policy as anything other than a life insurance policy state or imply that the payment or amount of non-guaranteed elements is guaranteed use an illustration that shows policy performance more favorable to the policyowner than that produced by the illustrated scale of the insurer provide an incomplete illustration imply that premium payments are not required for each year to maintain the illustrated death benefits, unless true use the term "vanish" or "vanishing premium" or a similar term that implies the policy becomes paid up, to describe a plan for using non-guaranteed elements to pay a portion of future premiums use an illustration that is "lapse-supported" except for policies that can never develop non-forfeiture values use an illustration that is not "self-supporting."

Unfair Financial Planning Practices

An insurance producer, agent, broker or consultant may not: present himself or herself as a financial planner, investment adviser, or any other type of specialist engaged in the business of financial planning or giving financial advice if he or she is only certified to sell policies. do any kind of financial planning without disclosing to the client that he or she is also an insurance salesperson and that commissions for insurance sales will be received in addition to financial planning fees. charge fees, other than commissions, for financial planning unless the fees are set down in a written agreement that is signed by the client and details the services rendered, the fee structure, and that the client is not obligated to purchase any products.

Notice of Information Practices

An insurer or agent must provide a written notice of information practices to all applicants or policyholders which includes: whether personal information may be collected from persons other than the individual(s) proposed for coverage the types of personal information that may be collected and the types of investigative techniques that may be used the types of disclosure allowed by law (detailed in the following section) a statement that information obtained from a report prepared by an insurance support organization may be retained by the preparer and disclosed to other persons. For insurance applications, a notice must be provided no later than: at the time of policy delivery when personal information is collected only from the applicant or from public records at the time the collection of personal information is initiated when the information is collected from a source other than the applicant or public records. For policy renewals, notice must be provided no later than the policy renewal date, except that no notice will be required if: personal information is collected only from the policyholder or from public records a legal and proper notice has been given within the previous 24 months. For policy reinstatements or changes in insurance benefits, notice must be provided no later than the time a request for reinstatement or benefit changes is received by the insurance institution unless personal information is collected only from the policyholder or public records.

Agent Responsibilities ctnd

Collecting the Initial Premium and Issuing the Receipt At the time of the application and the receipt of the initial premium, a conditional receipt (also called an "Interim Insuring Agreement" or a "Temporary Insuring Agreement") is given to the applicant acknowledging that the insurance is in force from the date of receipt (or medical exam if a medical exam is required), assuming the applicant is insurable at standard rates. The conditional receipt is replaced later with a permanent policy once insurability has been determined. Disclosures at the Point of Sale At the time of the sale of an insurance policy, an agent is required to provide informational and disclosure items to the insured that may include: Medical Information Bureau information consumer reports medical record information insurance information practice disclosures HIPAA (Health Insurance Portability & Accountability Act) information and authorization HIV consent forms and information buyer's guides policy summaries

Other Disclosures

Consumer Information Privacy Act: This act requires any companies that compile consumer lists and that subsequently sell those lists to other companies for marketing purposes to so notify the consumer about whom the information is collected. The consumer must be given the opportunity to opt out of, or refuse to be included in, the sold mailing list. Do Not Call List: Many agents use telemarketing as a means to contact prospective consumers to determine interest and set appointments. The federal government created the national "Do Not Call Registry" that allows consumers to put their name on the list so that no telemarketers may legally call that number. Individuals and companies that violate the "Do Not Call" program may be fined for each instance. Telemarketers must transmit their phone number when calling and, where possible, their name or the company's name for which they are representing. Consumers may file complaints with the FTC against those who call after the consumer has been on the list. The producer should also explain that the "Do Not Call" list has an exception for those having "an established business relationship." This means that the producer or his company may call the insured in relation to work-related issues, even if the individual is on the national list. A disclosure statement regarding this must be given the policyholder and the insured needs to sign a statement as to whether or not the company may call to solicit additional business.

Duties of Agents

Every life insurance application must contain statements signed by both the agent or broker and the applicant as to whether the sale involves replacement. If it does involve replacement, the agent and applicant must sign a notice regarding replacement of life insurance or annuity form no later than the time of application. A copy of the notice must be left with the applicant. Duties of Insurers that Use Agents Each insurer must: require from the agent or broker: a list of all the applicant's existing life insurance or annuities to be replaced, containing the name of the insurer, the insured, and the contract numbers a copy of the replacement notice provided to the applicant send written communication to each existing insurer advising of the proposed replacement within seven working days of: the date the application is received in the replacing insurer's home office the date the contract is issued whichever is earlier require that the policy owner be furnished with a policy summary for the existing insurance by each: existing insurer OR insurer's agent or broker that undertakes a conservation

Group and Individual Life Insurance Underwriting Differences

Exposure to claim payment is lowered per individual because the risk is spread over the group, usually resulting in a cost savings to the group because of this reduced adverse selection-everyone is insured. Underwriters look more closely at specific health history of an insured. Insurers cannot discriminate against an individual in the group who has poor health. People who might be declined individually may be included in a group policy as a condition of employment/membership in the group. Adverse Selection- Over time, health risks in the group change as people are added to or subtracted from the group and can lead to an uneven balance between older and unhealthy people compared to the number of younger and healthy individuals. Group credit life usually lists the creditor as the beneficiary in order to pay off the debt. Individual credit life lists the individual as beneficiary who will be responsible for paying off the debt when the insured dies.

Cost comparison methods continued

Guaranteed or Fixed Cost Method Many policies provide benefits on a more favorable basis than the minimum guaranteed basis in the policy by paying dividends, or by charging less than the maximum premium specified. Or, they may do this in other ways such as providing higher cash values or death benefits than the minimums guaranteed in the policy. For these types of policies, the policy performance may be shown by using both guaranteed and current performance. These are called currently illustrated basis cost comparison indexes. Currently Illustrated Method The currently illustrated basis shows the company's current scale of dividends, premiums or benefits. This scale can be changed after the policy is issued, so that the actual dividends, premiums or benefits over the years can be higher or lower than those assumed in the indexes on the currently illustrated basis. Company Retention Method The company retention method is a method in which the present value of premiums, cash values, and dividends is calculated by weighting each item each year by the probability that it will be paid. Interest-Adjusted Net Cost/Surrender Cost Index Method The interest-adjusted net cost (IANC) or Surrender Cost Index 100 method weights dividends and cash values according to how far into the future the various amounts are payable. Under this method, three amounts are calculated: the interest-adjusted cost, the interest-adjusted payment, and the equivalent level annual dividend.

Medical Exam & Lab Tests including HIV

Insurers often require applicants to take various medical exams to verify insurability, or to prove the applicant's current health situation. One of the most used is the paramedical report, in which a nurse or other medical practitioner meets with the applicant and asks questions about the applicant's health and also takes blood pressure and a blood sample for testing. More in-depth exams may be required to be done by a medical doctor. Generally, the higher the amount of life insurance coverage requested, the more extensive the required tests. Among various blood tests performed, testing for HIV is included. When testing for HIV the insurer must: inform the applicant of the test's purpose and obtain the applicant's written permission use a test method approved by the U.S Dept. of Health & Human Services disclose test results to the insured in writing, usually through the applicant's physician, notify the state's Dept. of Health of the applicant's identity and test results. If an insurer accepts a risk, it must do so without limitations or exclusions for HIV, AIDS, or a related condition, as follows: No maximum dollar amount of coverage, which is limited solely to HIV, AIDS, or a related condition, may be included in any policy or certificate. No exclusion of coverage, which is limited solely to HIV, AIDS, or a related condition, may be included in any policy or certificate.

USA Patriot Act/ Anti-Money Laundering

Money laundering occurs when criminals attempt to characterize the proceeds from illegal activities as funds derived from a legitimate enterprise. The USA PATRIOT Act amends two existing statutes. The first statute is the Money Laundering Control Act of 1986, which sets forth criminal laws designed to combat money laundering. The second statute is the Bank Secrecy Act of 1970 (BSA), which is a recordkeeping and reporting statute that applies to banking institutions generally The BSA defines two different types of entities that are subject to the various requirements under the BSA or the regulations thereunder. The BSA defines the term "Financial Institution" to include investment companies and broker-dealers. The BSA further defines the term "Covered Financial Institution" to include broker-dealers, but not investment companies. The USA PATRIOT Act includes several substantive provisions designed to detect and prevent money laundering: Financial Institutions must develop and implement anti-money laundering programs. These programs must, at a minimum, include the following: (1) the development of internal policies, procedures and controls; (2) the designation of a compliance officer; (3) an ongoing training function; and (4) an independent audit function to test the programs. Financial Institutions should design their anti-money laundering programs to implement procedures and policies that can reasonably be expected to detect and report activity that may be associated with money laundering. It is important to have money-laundering detection procedures in order to avoid possible criminal liability, which can occur if an investment company is "willfully blind" to money laundering that is occurring within its accounts. The anti-money laundering program must also include a designated compliance officer, an ongoing training program, and an independent audit function All Financial Institutions are required to implement procedures that are reasonably designed to verify the identity of customers at the time an account is opened and to check the list of customers to determine if any customers are included on a list of known or suspected terrorists Financial institutions must implement procedures that: (1) verify the identity of the person opening the account to the "extent reasonable and practicable;" (2) maintain the records of the information used to verify the person's identity; and (1) prepare and submit reports of suspicious account activity; and (2) participate in information sharing between Financial Institutions and government agencies.(3) consult with "lists of known or suspected terrorists or terrorist organizations provided to the Financial Institution by any government agency" to determine if any customer is included on such a list.

Insurance Privacy Acts

Most states have privacy acts that require that applicants be given notice of certain activities the insurer will perform in gathering information about them for underwriting purposes, such as credit reports or investigative inspection reports. Applicants must also be told whether any information will be used for marketing purposes.

Effective Date of Coverage

No coverage is in effect until the initial premium is paid in full to the insurance company. A conditional receipt is given to the applicant at time of application and receipt of initial premium acknowledging that the insurance is in force from the date of receipt or medical exam if a medical exam is required, assuming the applicant is insurable at standard rates. This is called an "Interim Insuring Agreement" or a "Temporary Insuring Agreement." The conditional receipt/interim insuring agreement/temporary insuring agreement is replaced later with a permanent policy once insurability has been determined. If the applicant would not be insurable with standard rates and dies before the policy is issued whether or not a counter offer is made by the insurer (to rate the policy, for instance) there would be no payment of death benefit. If the full initial premium is not collected at the time of application, no coverage will be effective until the policy is delivered and the insured signs a statement of continued good health and pays the initial premium

Exemptions

Replacement regulations do not apply to: group life policies, including credit life and pension, profit sharing, group annuities, and other plans with tax-deductible premiums. variable life policies. proposed policy changes with the same insurer; for example, exercising a conversion option. life binders or conditional receipts with the same insurer. registered contracts, provided that the premium or contract contribution amounts and the prospectus or offering circular are furnished in place of a policy summary

Violent Crime Control Act

Section 1033 of this Act deals with interstate insurance fraud. Purpose The purpose of this act is to prevent the destructive effects of embezzlement by multiple employees, agents and officers in the insurance industry. Interstate Insurance Fraud According to the National Association of Insurance Commissioners (NAIC): Insurance fraud is estimated to cost between $80 billion and $100 billion annually. The average cost of insider insurance fraud is $72,000 per incident. What it Does Creates criminal and civil penalties for insurance fraud committed by individuals in the insurance industry. Prohibits any individual with certain felony convictions from working in the business of insurance without a wavier. Outlines civil and criminal penalties, including prison terms, for individuals who have been convicted of any criminal felony involving dishonesty or breach of trust and who willfully continue to work in the business of insurance without receiving written consent from the appropriate regulatory official. Any individual who works in the business of insurance without receiving this written consent is considered a person who is prohibited Also provides for fines and imprisonment to those who knowingly employ such individuals. Activities and penalties set forth in the Act The prohibition against working in the insurance business with a felony record applies to agents, directors, officers, administrators and even support staff. Any individual who has been convicted of a criminal felony involving dishonesty or breach of trust and willfully engages in the business of insurance, is subject to fines and/or imprisonment of not more than 5 years. A felony involving dishonesty typically includes any offense constituting or involving perjury, bribery, forgery, counterfeiting, false or misleading oral or written statements, deception, fraud, schemes, material misrepresentations and the failure to disclose material facts. A felony involving a breach of trust would include crimes constituting or involving misuse, misapplication or misappropriation of anything of value held as a fiduciary (i.e., as trustee, administrator, executor, conservator, receive, guardian, agent, employee, partner, officer, director or public servant) or the misuse of one's official or fiduciary position to engage in a wrongful act or misappropriation.

Use & Disclosure of Insurance Information

The insurer must provide a buyer's guide and a policy summary to all prospective buyers at least seven days prior to accepting the applicant's initial premium, unless the policy or policy summary contains an unconditional refund provision of at least ten days. In that event, the buyer's guide and policy summary must be delivered with or prior to delivery of the policy. The insurer must provide a buyer's guide and a policy summary to any prospective purchaser upon request. If the policy's equivalent level death benefit does not exceed $5,000, then the requirement for providing a policy summary is satisfied by delivery of a written statement containing the appropriate information.

Morbidity

The likelihood of illness or accident happening within a particular group of people. Accident and health insurance policies are concerned with morbidity and actuarial tables help to show that morbidity. These statistics are then used to help determine the premium for health and accident policies for different groups.

Viator

The owner of a life insurance policy or a certificate holder under a group policy who enters or seeks to enter into a viatical settlement contract. A person with a catastrophic or life-threatening illness who has a life insurance policy and sells or intends to sell it in a viatical settlement; one who owns and assigns a life insurance policy in a viatical settlement.

Agent/Producer Report

The producer report consists of any relevant information the producer knows of that is not included in the application. For example, an individual who exercises a lot could appear to be heavy or obese if weight and height alone are taken into consideration, but may actually be in better-than-average physical condition and qualify for discounts.

Fixed Life Insurance Policy

life insurance policy is one that has a set, guaranteed interest rate The cash value within the fixed product will always increase at a pre-determined rate

Variable life insurance policy

policy has an interest rate that changes along with a set of mutual funds or other stock market indicator. When the stock market performs well the cash value in the variable products increases. If the value of the stocks, mutual funds, or other indicators decreases, the cash value in the variable product will also decrease. but because there is more risk with the variable policy there is a chance for greater return on the cash value (as well as the chance for loss).

Load Expense Charges

that compensates the advisor for his or her services, including fund selection advice when you buy shares of the fund and throughout the course of the investment. There are two general categories of mutual fund costs: sales charges and annual expenses Front end load A sales charge at the time the investor/insured buys the shares. Also called A shares. Rear end load Sales charge at the time the investor/insured sells the shares. Also called B shares. Level load When funds have a level load, the investor pays an annual sales charge. A level load may be lower than a front- or back-end load, he/ she may pay more if the shares are owned for many years. Shares that have a level load are referred to as C shares. There are also No-Load Mutual Funds, that do not have sales charges. Net Premium Gross policy premium minus agent's or broker's commissions; the premium available to pay anticipated losses, prior to any loading for other expenses.

Insurability

This concept refers to the acceptability to the company of an applicant for insurance.

Application Procedures

An insurance company requires much information about the insured's background before they will issue a life insurance policy. The agent must begin the collection of this information at the time of application for the policy. The application is the basic and initial source of information to be reviewed in determining whether or not the policy will be issued. In most life insurance applications, there are three basic areas: general information medical information the agent's report. General Information This part of the application records simple informational items about the applicant, including: name address date of birth age sex marital status occupation income. There are also basic details about the policy- the type of policy, the amount of insurance, beneficiary information, and other insurance the applicant owns or has applied for that is of the same type. Medical Information Information about the present health and the health history of the applicant is essential to the insurer's decision about policy issue. Family health history is also vital to the process. Depending on the type of policy and the policy amount, a medical examination may also be required. Agent Report The agent report details the agent's observations about: the character and condition of the applicant the means of contact (mail solicitation, contact of the agent by the insured, etc.) the purpose of the sale any policy replacement information. One of the most important responsibilities of an agent is to aid the customer in fully and accurately completing the applications. Backdating of Policies Some states do not allow backdating. For those that do insurers may compute premiums back to an applicant's previous birthday (six months), resulting in a slightly lower premium. If a policy is backdated, premiums must be collected from the date at which the policy is backdated to, and that date then becomes the anniversary of the policy. Changes/Modifications in the Application Any changes made in the application must be signed by both the applicant and the agent to signify that each is aware of the change. The insurance company may not make any changes to an application once it is received unless those changes are signed by the applicant. Any changes made to a policy before it is issued that are materially different from the policy for which the applicant applied must be explained to the applicant at the time of policy delivery and the policyowner's signature must be obtained to acknowledge the changes. Consequences of Incomplete Applications Underwriting requires information from the applicant, gained through either the agent or a mailed questionnaire. The policy may be held up and possibly even declined if not returned within the prescribed time frame. If an application is incomplete, the insurer will return it to the applicant who will have to furnish further information, or initial areas that are actually correct Miscellaneous Concepts Warranties A warranty is the guarantee given to the insured that specified conditions will be fulfilled in the contract. They can also be specific, guaranteed statements made by an insurance applicant in answer to specific questions (in regard to medical history, nicotine use, dangerous recreational or occupational questions) asked in the life insurance application. Making false statements (false warranties) in an effort to gain from an insurance company constitutes fraud. Representations Representations are statements of what an individual believes to be true. Representations will often be made by the insured during the application process. The insured's false representation will not affect the insurance contract or policy unless it affects the conditions under which the policy would be issued or not. Said another way, it must be material to the risk. An individual could represent that no one in their family has had a heart attack before age 50, for instance, but may be unaware that his father and grandfather both had one in their late 40s. The insured's misrepresentation will not affect the insurance contract or policy: : a) unless it is fraudulent OR b) if the truth had been known, the policy would not have been issued (material misrepresentation). False statements made by the insurance agent, whether intended or not, are more likely to void a policy. For example, an agent may falsely represent that certain coverage is contained in the policy, when in fact it is not. All statements on a life insurance application are representations, but not all are necessarily Signatures The signature of all insureds is required on the application unless the insured is a minor child, in which case the child's parent or guardian's signature is required. State laws usually require that all adults that are to be insured must sign the application, and many companies require any child 15 years of age or older to sign an application if they are to be insured. It must be the insured's own signature. An agent or another individual who signs another person's name on the application is guilty of forgery and, possibly, fraud. Fraud Fraud is a deception deliberately practiced in order to secure unfair or unlawful gain, e.g., making false or misleading statements or concealing circumstances in relation to a claim or on an application.

Mortality

The likelihood of death among members of a group. Life insurance policies deal with mortality. Mortality tables use individual health factors along with age and sex to help predict longevity. Example-An overweight person's life expectancy may be less than that of the same person with a normal weight, and could be moved to the rate of an individual of an older age.

Viatical Settlement Broker

A person that on behalf of another and for a fee, commission or other valuable consideration introduces viators to viatical settlement providers, or offers or attempts to negotiate viatical settlement contracts between a viator and one or more viatical settlement providers.

Viatical Settlement Purchaser

A person who gives money as consideration for a life insurance policy or an interest in the death benefits of a life insurance policy. A person who owns, acquires or is entitled to a beneficial interest in a trust that owns a viatical settlement contract or is the beneficiary of a life insurance policy that has been or will be the subject of a viatical settlement contract, for the purpose of deriving an economic benefit.

Expense Charge

A premium expense charge imposed by an insurer is typically found on universal life insurance policies and is designed to enable the insurer to recover its business acquisition costs and premium taxes

What Must Be Disclosed

Any affiliation between the viatical settlement provider and the issuer of the insurance policy to be viaticated The name, address, and telephone number of the viatical settlement provider The dollar amount of the current death benefit payable to the viatical settlement provider under the policy or certificate. Also, the availability of any additional guaranteed insurance benefits, the dollar amount of any accidental death and dismemberment benefits under the policy or certificate, and the viatical settlement provider's interest in those benefits. The name, business address, and telephone number of the independent third party escrow agent, and the fact that the viator or owner may inspect or receive copies of the relevant escrow or trust agreements or documents. That coverage on the lives of any other joint or additional insureds or family riders could be forfeited. Any change in ownership or beneficiary must be communicated by the provider to the insured within 20 days after the change.

Effect of Non-payment of Premium

If the insured does not pay the premium when due, and after any grace periods expire, the policy is canceled and the insured no longer has insurance. In some policies, however, a method is built in to avoid policy cancellation.: Whole life and other cash value policies can have an automatic premium loan, which pays the premium from the policy's cash value. With a Universal Life policy, the premium will come out of the cash account in the policy if the insured misses a payment. If there is no cash left in the account, the policy will cancel. Care must be taken to ensure the insured knows that decreases in interest will cause more money to be paid in premium to cover these decreases. The insured should take particular caution if paying premiums through auto bank deduction. If he/she changes banks, he/she will need to note the change with the insurer.

Life and Health Guaranty Association

Most states have a Life and Health Insurance Guaranty Association (the "Association"), which protects insureds against an insurer's inability to meet contractual obligations due to impairment or insolvency. The Association provides coverage for people with direct, non-group life, health, or annuity policies by: providing payment of covered claims under certain insurance policies avoiding excessive delays in payment minimizing financial loss to claimants assisting in the detection and prevention of insurer insolvencies providing an association to assess the cost of this protection among insurers. All insurers, as a condition of their ability to write insurance, are required to be members of the Fund. Guaranty Association Disclosure: In most cases, it is prohibited for a producer to use a state's Life and Health Guaranty Association for the sale or solicitation of insurance.

Risk Classification

Standard Risks--Normal risks with standard premium rates. Preferred Risks--Insureds with better than average health who consequently may have lower premium rates. Substandard Risks--Individuals with higher than average risk because of poorer health or hazardous occupation or hobbies. Results could be an exclusion or impairment rider or waiver attached to the policy, an extra premium charge, or the limitation of type of policy. A waiver, in this case, is the relinquishment by the insured to the right of coverage for the problem. Uninsurable/Declined--Applicants who are rejected or denied coverage due to excessive risk(s) that the insurance company does not want to accept. There is a significant relationship between the level of risk and the premium charged, in that the different levels of risk classification help to determine the premium amount--the greater the risk to the company, the greater the charges will be. Other items that affect the individual's health and are therefore taken into consideration in determining classification of the risk include: age gender tobacco usage occupation avocations (hobbies) These factors may well incur a higher premium charge, while injury or illness incurred while engaged in a dangerous occupation or avocation may well be excluded.

Medical Reports

These include the health questionnaire, paramedical report, physician's report, etc.

Replacement Violations

A violation of replacement regulations occurs if an agent, broker, or insurer recommends the replacement or conservation of an existing policy through the use of a substantially inaccurate or incomplete presentation or comparison of an existing contract's: premiums benefits dividends values. Any comparison of a participating policy that does not include projected dividends based on the most recent dividend scale will be presumed to be incomplete. If a policy owner purchases replacement policies from the same agent/broker, after indicating on applications that replacement is not involved, the pattern of action will be considered prima facie evidence of the agent's or broker's knowledge that replacement was intended. Such patterns will be considered prima facie evidence of the agent's or broker's intent to violate replacement regulations. The replacement of a life insurance policy or annuity that is transacted improperly will be considered: an unfair method of competition a deceptive practice.