Wisconsin Life Insurance Course

Graded Premium Whole Life

Premiums are lower than typical whole life rates during the preliminary period after the policy is issued (usually lasting 5 to 10 years). The premiums will initially increase yearly during the preliminary period then remain level afterwards

increasing term

The amount of increase is usually stated as specific amounts or as a percentage of the original amount, associated with cost of living rider to a policy

Noncontributory

The employer pays the entire cost of the plan -100%participate

Tax Treatment of Cash Values

The total of the premiums paid into the policy minus total dividends recieved in cash or used to offset premiums is referred to as the cost basis. The portion that exceeds the premiums paid is taxable

Franchise Life insurance

This is used where participants are employees of a common employer or are members of a common association or society. The employer/association/society is a sponsor of the plan and may or may not contribute to the premium payments. Unlike the employer's group plan, each individual will be issued an individual policy which will remain in force as long as premiums are paid and the employee/member maintains their relationship with the sponsor. These are used by small groups who individually do not meet the state's minimum numbers required by law.

Law of Large Numbers

This law states that larger groups provide an increased degree of accuracy in loss predictions, based on past experience.

Unilateral

This means that only on party (the insurer) makes any kind of enforceable promise -applicant does not promise to pay premiums but insurer can cancel contract if they are not paid

Insurable Interest

This means that the person acquiring the contract must be subject to loss upon the death, illness, or disability of the person being insured. To have " an insurable interest" in the life of another person, an individual must have a reasonable expectation of benefiting from the other person continued life

Conditional

This means the insurer's promise to pay benefits depends on the occurrence of an event covered by the contract. If the event does not materialize, no benefits are paid. If the premiums are not paid the condition for keeping the contract in force no longer exists and the companies obligation to pay is relieved

Collateral Assignment

a collateral assignment is one in which the policy is assigned to a creditor as security, or collateral, for a debt. If the insured dies, the creditor is entitled to be reimbursed out of the benefit proceeds for he amount owed.

Offer and acceptance

a definite, unqualified proposal which can be accepted but if a counter offer is made then the first offer is void

Mortality Factor

a measure of the number of deaths in a given population. Mortality is based on a large risk pool of people and time. Insurance companies use mortality tables to help predict the life expectancy and probability of death for a given group.

Warranty

a statement made by the applicant that is guaranteed to be true in every respect. Warrenties are presumed material

Representation

a statement made by the applicant that they consider to be true and accurate to the best of the applicants belief. A false statement is considered a material misrepresentation

value or indemnity

a valued contract pays a stated sum regardless of the actual loss incurred. These tende to be life insurance contracts. An indemnity contract is one that pays an amount equal to the loss. These tend to be fire and health

Reinstatement Provision

allows a policy to be reinstated after a lapse in payment with some limitations. a policy will be restored to its original status and its values are brought up to date. Required to reinstate -All back premiums must be paid -Interest on past-due premiums may be required to be paid -any outstanding loan on the lapsed policy may be required to be paid -the policy owner typically will be asked to prove insurability

Automatic Premium Loan RIder

allows the insurer to pay premiums from the policys cash value if premiums have not been paid by the end of the grace period. These deductions are treated as loans and are charged interest.

Contributory

an employee group insurance plan in which employees share the cost -75% must participate

Pure Risk

are the only insurable risks and present a potential for loss only with no possibility of gain ex. death

Automatic Premium Loan Provision

authorizes the insurer to withdraw from the policy's cash value the amount of overdue premium if the premium has not been paid by the end of the grace period

decreasing term

benefit amounts that decrease gradually over the protection and have level premiums -Credit life insurance, sold to cover the outstanding balance on a loan, is based on decreasing term insurance -decreasing term insurance is commonly used to protect an insureds mortgage

Paid-Up Additions Option

can be used to buy additions to life insurance. The amount purchased is determined by the insured's attained age, amount dividend paid, and the type of coverage.

Waiver of Premium Rider

can prevent a policy from lapsing for nonpayment or premiums while the insured is disabled or unable to work. It is available on both permanent and term insurance policies. Must be seriously disabled for a certain length of time. The insured must meet the policy's definition of totally disabled.

Morale Hazards

careless attitude

Family Income Policies

combination of whole life and decreasing term insurance -provide monthly income to family if death occurs during a specified time after purchase -after special time expires the whole life policy is still in effect

Family Maintenance policy

consists of both whole life and level term insurance, which provides income for a specific period beginning on the date of death of the insured -beneficiary will receive whole life after tem lifetime expires

Joint Life policies

covers two or more people, using permanent insurance which pays the death benefit at first insured's death. Survivor has option of purchasing a single individual policy without evidence of insurability. Ages are averaged and a single premium is used

Moral Hazards

dishonesty, drugs, alcohol abuse

Modified Whole Life

distinguished by premiums that are lower than typical whole life premiums during the first few years (usually 5) and then higher than typical thereafter

Avoidance

elimination of the hazard

Concealment

failure by the applicant to disclose a known material fact when applying for insurance. If discovered the insurer has the option to void contract but after a period of two years the contract can no longer be voidable for these reasons

Entire Contract Provision

found at the beginning of the policy, states that the policy document, the application, and any attached riders constitute the entire contract -policy cannot refer to any outside documents -prohibits insurer from making any changes to the policy

Suicide Provision

found in most life policies, protects the insurer against the purchase of a policy in contemplation of suicide

Payor Provision Rider

if the adult premium-payor should die or, with some policies become totally disabled. This extends until the child reaches 21 or 25

Cost of living rider

increases with inflaition to protect investment.

Speculative Risk

is a risk that presents the chance for loss and a gain ex. Gambling

Master Contact

is issued to the employer when there is an insurance plan for employees while employees receive certificate

cash values

is often regarded as a savings element because it represents the amount of money the policy owner will receive if the policy is ever surrendered

Apparent Authority

is the appearance or assumptions of authority based on the actions, words or deeds of the principal. It can also exist because of circumstances the principal created

Express Authority

is the authority a principal deliberately gives to its agent

Estoppel

is the legal impediment to one party denying the consequences of its own actions or deeds if such actions or deeds result in another party acting in a specific manner or i certain conclusions are drawn. it is the loss of defense

Implied Authority

is the written authority that is not expressly granted but which the agent is assumed to have in order to transact the business of the principal

Joint Life and survivor policies

last survivor policies aslo know as second to die policy. This plan also covers two lives, but the benefit is paid upon the death of the last surviving insured

Accumulation at Interest Option

leaves the dividends with the company to collect interest. interest is taxable but the dividends are not

Elements of Insurable Risk

loss must be -due to chance -definite and measurable -predictable -cannot be catastrophic -exposure to be insured must be large -loss must be randomly selected

Reduction

minimizing the severity of a potential loss

Fixed-Period Option

payment is received in equal installments over a set period of years. Part of the installments consist of interest gained on the policy.

Fixed amount option

pays a fixed death benefit in specific installment amounts until the principal and interest are exhausted.

Cash dividend option

policyowner elect to have their dividends paid to them by check

Physical Hazards

poor health, overweight, blind

Variable Products

premium payments are fixed but part of the premium is placed into a separate account. This account is invested into the stock, bond, or market fund. The death benefit is guaranteed but the cash value of the benefit can vary considerably according to market conditions. Death benefit increases with the other funds increases. these policies do not guarantee contract cash values and it is the policyowners who assume the investment risk. Policy owners can participate directly in the cash accounts performance which will earn a variable return. Considered securities contracts as well as insurance contracts.

Tax Treatment of Premiums

premiums are not tax deductible Three Exceptions -Premiums used for a charity -Life insurance premiums paid by an ex-spouse as court-ordered alimony -Employer-paid premiums used to fund group lide insurance

Free-Look Provision

required by most states, gives policyowners the right to return the policy for a full premium refund within a limited period of time after the delivery of the policy

Retention

self insure, used when losses are highly predictable and the worst loss is not serious

Insuring Clause

sets forth the company's basic promise to pay benefits upon the insured's death. Generally, this clause is not actually titled as such, but appears on the cover of the policy

Incontestable Clause

specifies that after a certain period of time has elapsed (usually 2 years) the insurer no longer has the right to contest the valididity of the life insurance policy so long as the contract continues in force

Consideration Clause

states that the policy owners considerations consists of completing the application and paying the initial premium.

Reduced Paid up Option

take a paid up policy for a reduced face amount of insurance.

Universal Life

term policy with cash value, and an adjustable death benefit. It allows its policy owners to determine the amount and frequency of premium payments and adjust the death benefit up or down to reflect changes in needs. Consequently, changes may be made with relative ease by the policyowner and no new policies will need to be issued when changes are desired. Mortality charge may also include a company expense, or loading charge. The policy pays the death benefit plus the savings element. The policy specifies the percentage of each premium that goes toward the insurance protection and that which is used to build cash value. As premiums are paid and as cash values accumulate, interest is credited to the policy's cash value. This interest may be either the current interest rate declared by the company (and dependent on current market conditions) or the guaranteed minimum rate, specified in the contract. Partial withdrawals can be made from the cash value account. COmpany will assess a surrender charge and the company must disclose this charge.

Competent Parties

the insurer must be licensed or authorized while the insured is presumed competent with three exceptions -Minor -The mentally infirm -Those under the influence of alcohol or drugs

Legal Purpose

the reason the parties enter into the agreement must be legal

Absolute Assignment

the transfer is complete and irrevocable, and the assignee receives full control over the policy and full rights to benefits.

Equity Index Whole Life

type of whole life where 80 to 90 percent of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index

Aleatory

unequal exchange of value or consideration for both parties

One-Year Term Dividend Option

use dividends to purchas as much one year term insurance as possible.

Extended term option

uses policy cash to purchase a level term in an amount equal to the original policy's face value, for as long a period as a cash value will purchase.

1970 Fair Credit Reporting Act

which is the authority that requires fair and accurate reporting of information about consumers, including applicaitons for insurance. Insurers must inform applicants about any investigations that are being made

Lloyd's of London

-A syndicate of individuals who underwrite insurance

Eligibility of Group Members

-Must work full time -If contributary, employees must approve of automatic payroll deduction -New employees probationary period is usually 1 to 6 months -employee has 31 days during the enrollment period to sign up. Otherwise, they may need to provide evidence of insurability -must benefit 70% of all employees, and 85% must not be key employees

Reinsurers

-are a specialized branch of the insurance industry because they insure insurers -reinsure risk to lessen it if a large claim would be made

Modified Endowment Contracts

-cash value accumulations are not taxed to the policy owner as they build inside a policy -Policy withdrawals are not taxed to the policy owner until the amount withdrawn exceeds the total amount the policy owner paid into the contract -Policy loans are not considered distributions and are not taxed to the policy owner unless or until a full policy surrender takes place, and then, only to the extent that the distribution exceeds what was paid into the policy -is considered to be a policy that is overfunded

Mutual Companies

-have no stock holders -owners are policy owners -policy holders can vote for members of the board -policy owners receive dividends

Whole Life

-insurance is called this because it provides permanent protection for one's entire life from the date of issue to the date of insureds death -face amount of policy remains constant throughout the policy's life -premiums remain level too -matures at age 100

Converting to Plans

-member's coverage is terminated the insured has the opportunity to convert their group policy to an individual whole life policy -an individual must apply for this within 31 days and the person is covered during that time by the group policy

Policy Loan Provision

-policy owners may borrow money from the cash values of their policies -if not repaid by the time the insured dies, the loan balance and any interest accrued are deducted from the policy proceeds at the time of claim. -when a policy owner obtains a policy loan, the collateral for the loan is the cash value of the policy -Some newer policies are issued with a variable interest rate tied to the Moody's corporate bond index -If the policy owner does not make a scheduled interest payment on a policy loan, the amount of interest due will be added to the loan balance -In the event a policy loan plus interest exceeds a life insurance policy's cash value, the policy is no longer in force

Stock Companies

-private organization focused to make profits for shareholders -Stock dividends are paid to stock holders -policyholders do not participate

Term Life

-provides low-cost insurance protection for a specified period (or term) and pays a benefit only if the insured dies during that period -one advantage of this is the initial premium is lower than for an equivalent amount whole life insurance -provides the greatest amount of death benefits per dollar of initial cash outlay -issued for a specified number of years provide coverage from their issue date until the end of the years so specified. Policies issued until a certain age provide coverage from their date of issue until the insured reaches the specified age

State Guaranty Association

-state established guaranty funds or guaranty associations to support insurers and protect consumers -should an insurer be unable to pay its claims the association will step in and cover the consumers unpaid claims

Exclusions

-war -aviation -hazardous occupations or hobbies -commision of a felony -suicide

AM Best

A+

Fitch

A1

Standard and Poors or Moodys

AA-

NAIC

All State insurance commisioners or directos are members Broad objectives 1. To encourage uniformity in state insurance laws and regulations 2. To assist in the administration of those laws and regulations by promoting efficiency 3. To protect the interest of policy owners and consumers 4. To preserve state regulations of the insurance business

Reduced Premium Dividend Option

Allows a policy owner to use the dividend to pay all or part of the next premium due on the policy.

Transference

Buying insurance is the best way to transfer risk

Blanket Life Insurance

COvers groups of people exposed to the same hazard, such as passengers on an airplane. No one is named on the policy and there is not a certificate of coverage given out. Individuals are only covered for the common hazard.

Lump-Sum option

Death benefit is paid in a single payment, minus any outstanding policy loan balances and overdue premiums. Default option

Grace Period Provision

If an insured dies during the grace period and the premium has not been paid, the policy benefit is payable. however the premium amount due is deducted

Waiver

If an insurer fails to enforce a provision of a contract, it cannot later deny a claim based on a violation of that provision

Misstatement of Age or Sex Provision

If sex or age is misstated the insurance company holds the right to make adjustments.

Utmost good faith

Insurance applicants are required to make a fll, fair and honest disclosure of the risk to the agent and insurer. Both parties must know all material facts and information

Expense Factor

Insurance companies are just like any other business they have operating expenses which need to be factored into the premiums. The expense factor is also known as the loading charge.

Interest Factor

Insurance companies invest the premiums they receive in an effort to earn interest. This interest is one of the ways insurance company can lower the premium rates

Interest Option

Insurance company holds death benefit for a period of time and pays only the interest earned to the beneficiary. A minimum rate of interest is guaranteed and the interest must be paid at least annually

Adhesion

Insurance contracts are contracts of adhesion. This means that the contract has been prepared by one party with no negotiation between the applicant and insurer. In effect, the applicant "adheres" to the terms of the contract on a take it or leave it basis when accepted. Any confusing language of the contract would be interpreted in favor of the insured. A policy would also be considered this it the insurance company could modify

1945 McCarren-Ferguson Act

Insurance would be regulated by the states but would conform to federal anti trust laws

Cash Surrender Option

Insurers are required to make cash surrender values available for ordinary whole life insurance after the first three policy years. Some policies require a penalty to be paid if a policy is surrendered in its early years. These surrenders charges, sometimes referred to as a "rear-end load", are deductible from the cash value when the policy is discontinued. A partial surrender can allow the policy owner to withdraw the policy's cash value interest free

Family Plan Policies

Insures all family members under one policy, ensures the breadwinner for 20,000. the coverage on the spouse and children is level term insurance in the form of a rider

Parol Evidence Rule

Is oral or verbal evidence, or which is given verbally in a court of law. The rule states that when parties put their agreement in writing, all previous verbal statements come together in that writing and a written contract cannot be changed or modified by parol evidence

personal contract

Life insurance is a personal agreement or contract between the insurer and the insured. The owner has no bearing on the risk that the insurer has assumed. Policy owners can give their policies away if they wish