Chapters 1, 2, 3, 4, and 5
Joint Survivorship Life (Last to Die) (Specialized Policies)
a whole life policy that is written to cover 2 or more lives, and the death benefit is not paid until the last insured dies - Premiums are based upon a joint issue age which is obtained by average of bother insureds' ages resulting in a lower premium than two separate policies - the policy is often purchased to provide a lump sum benefit to pay estate taxes once the second spouse dies
Determining Amount of Personal Life Insurance Needed
there are two approaches to determine the amount of life insurance needed: - Human Life Value - Needs Analyses
Types of Beneficiaries
there are two types of beneficiaries: - Revocable - Irrevocable
Policy Delivery
will be accomplished by: - personal delivery, with signed receipt of delivery - registered or certified mail w a signed receipt of delivery
Specialized Policies
- Juvenile Insurance - Joint Life (First to Die) Insurance - Joint Survivorship Life (Last to Die) - Return of Premium Term
Types of Term Life Insurance Policies
- Level - Decreasing - Credit Life Insurance - Increasing - Annually Renewable Term - Re-Entry Term Option
Annuity (Benefit) Payment Options
- Life Income (Pure or Straight Life) - Life Income Period Certain - Life Income with Refund (Installment or Cash Refund) - Life Income Joint & Survivor - Joint Life - Annuity Certain
Riders Affecting the Death Benefit Amount
- Accidental Death Benefit (Double or Triple Indemnity) - Accidental Death and Dismemberment - Guaranteed Insurability - Return of Premium - Return of Cash Value - Cost of Living (COL)
Legal Purpose (Legal Contract)
- All parties to a contract must enter it for a legal purpose; public policy cannot be violated by a legal contract. - All parties to a contract must enter it in good faith. - impersonation of any person applying for insurance removes legal purpose
Dividend Options
- Cash - Premium Reduction - Accumulate at Interest - Paid-Up Additions - 1-Year Term - Paid-up Option
Universal Life
- Death Benefit = Adjustable; Guaranteed Minimum - Cash Value = Guaranteed Minimum - Premiums = Flexible - Loans/Partial Surrenders = Loans and Partial surrenders - Risk = Insurer
Variable Universal Life
- Death Benefit = Adjustable; no guaranteed minimum - Cash Value = not guaranteed - Premiums = flexible - Loans/Partial Surrenders = loans and Partial surrenders - Risk = policyowner
Whole Life Insurance
- Death Benefit = Fixed - Cash Value = Guaranteed - Premiums = Fixed - Loans/Partial Surrenders = Loans available - Risk = Insurer
Variable Life
- Death Benefit = Fixed; Guaranteed minimum - Cash Value = Not guaranteed - Premiums = Fixed - Loans/Partial Surrenders = Loans amiable - Risk = Policyowner
All Policies and Insurable Interest
- Insurable interest must exist in every enforceable contract - it requires the potential for an insured to suffer financial or economic hardship in the event of a loss, as well as a valid legal purpose for the contract
Life Policy Settlement Options
- Interest Only - Fixed Amount - Fixed Period - Life Income Option
Annuity Classifications
- Method of premium payment (single, flexible, and periodic) - Funding (fixed vs. variable) - When income benefits are payable (Immediate vs. Deferred) - The payout option selected (Life only vs. Annuity Certain) - Number of lives covered (single vs. joint)
Annuity Premium Payment Options
- Single Premium - Periodic Premium - Fixed Premium - Flexible Premium
Riders Covering Additional Insureds
- Spouse (Other Insured) Rider - Child Rider - Family Rider - Nonfamily Rider
Different Life Income Options
- Straight Life (Pure or Life Income Only) - Life Income Period Certain - Life Refund - Joint and Survivor Income Option - Joint Life Income Option -
Violent Crime Control and Law Enforcement Act of 1994
- The largest crime bill in U.S. history expands funding to federal agencies such as the FBI, DEA, and INS and includes provisions that address (among other topics) domestic abuse and firearms, gang crimes, immigration, registration of sexually violent offenders, victims of crime, and fraud. - made it a felony for a person to engage in the business of insurance after being convicted of a state or federal felony crime involving dishonesty or breach of trust.
Credit Term Life Insurance Characteristics
- although Credit Life Insurance (term) can obtained as an individual, it is usually sold on a group basis to a creditor, such as a bank, finance company or a company selling high priced items on the installment plan - the policy generally pays the outstanding balance of the debt at the time of the borrower's death, subject to policy maximums
Sources of Information used in Underwriting
- application - medical exams - Attending Physicians Statement (APS) - Medical Information Bureau - inspection report - agent's report
self-insurers
- assume all financial risk faced w/o transferring that risk to an insurer - rather than paying premiums to a third-party, they set aside funds in an amount equal or greater than expected losses - if losses are less than what is reserved, it is a gain - losses in excess of the reserve will require additional funding - generally only an option for large companies who limit their risk by only self-insuring a certain dollar amount of risk and requiring insurance for dollar amounts in excess of that
The Producer's Responsibilities:
- completing a Notice Regarding Replacement which must be signed by the applicant and producer - Obtain information regarding any existing policies, including the names of the existing insurers and policy numbers - providing copies of the Notice Regarding Replacement and any sales proposals to the applicant and replacing insurer
Employer Sponsored Qualified Retirement Plans (Annuity Business Uses)
- corporations may use annuities to provide pensions for employees, funding non qualified deferred compensation plans or qualified retirement plans, and even to structure payments from liability settlements, known as structured settlements - corporate owned annuities lose the tax-deferral aspect of the policy and interest or gains are taxable as income in the year earned
Characteristics of Term Insurance
- coverage can be written separately or with other types of insurance (as a rider) to suit individual needs - rates charged are based upon underwriting class, the age and gender of insured, and upon the length protection is provided
5 elements of fraud
- false statement, made intentionally and that pertains to a material fact - disregard for the victim - victim believes the false statement - victim makes a decision and/or acts based on the belief in, or reliance upon, the false statement - the victim's decision and/or action results in harm
Fraud and False Statements (Fraudulent Insurance Act)
- fraud always involves a false statement and deceit; it can either be criminal or civil crime - federal law prohibits the commission of fraud - In 2001, the NAIC adopted model legislation for the prevention and enforcement of insurance fraud and subsequently, each of the states enacted its own Fraudulent Insurance Act
Lloyds of London
- group of syndicates who specialize in a particular risk - they are not an insurance company by definition - provides a meeting place for syndicate members to transact business - each member is liable for each risk they assume
Risk Retention Groups (RRG)
- group owned insurers that primarily assume and spread the liability-related risks of its members - they are owned by policyholders, and licensed in at least one state, but may insure members of the group in other states - made up of large similar units - membership is limited to risks with similar liability exposures and have sufficient liquid assets to meet loss obligations - each member assumes a portion of risk - theme parks, go-cart tracks, or water slides
Reciprocal Insurance Company
- group-owned insurer whose main activity is risk sharing by unrelated individuals - each member is known as a subscriber - the exchange is run through an Attorney-In-Fact - if premiums paid do not cover claim, an assessment of additional premium can be made
Interest Rates and Market-Value Adjustment (Adjusted) Annuity
- if the interest rates on which the MVA is based are higher than when the annuity was purchased, the MVA will likely be negative, meaning an additional amount may be deducted from either the annuity or the withdrawal amount - if the interest rates on which the MVA is based are lower than when the annuity was purchased, the MVA will likely be positive, meaning money may be added to either the annuity or to the withdrawal amount
Adjustable Life Insurance Characteristics
- they allow policy owners to manipulate the period of protection (to age 100 or shorter), increase (w insurability) or decrease the face amount w insurability, raise or lower the premium amount, and change the length of the premium payment period - these policies also provide cash value, although reducing the premium could stop the cash value from increasing therefore adjusting the coverage to term insurance
Life & Health Policies and Insurable Interest
- insurable interest must exist at the time of application, but not at time of loss - coverage is determined based on possibility of an economic or financial loss due to an accident, sickness, or death of the insured - amount of purchase that can be purchased varies based on type of coverage. each person has unlimited insurable interest in his/her own life but this does not prevent an insurance company from limiting the amount of life insurance it makes available to each person; the insurer does not want to over insure which increases likelihood of a claim
Casualty and Insurable Interest
- insurable interest must exist at the time of loss, but need not be continuous - insurable interest usually results from property or contract rights and potential legal liability
Characteristics of Term Insurance
- is considered pure insurance and provides a pure death benefit - it does not offer any cash value or living benefits - premiums paid for these types of policies purchase strictly death benefits and because of this they are less expensive in the early years as compared to permanent forms of insurance
Consequences of Incomplete Applications
- is the producer's responsibility to make certain the application is filled out completely, correctly, and to the best of the applicant's knowledge. The producer's primary underwriting role is to make sure the application provides proper information for the insurer - the underwriter will return an incomplete application to the producer for completion by the applicant. If a policy is issued with questions unanswered, it is assumed the information is not material to the issuance and the insurer waives the right to challenge a claim based on the incomplete application
Characteristics of Term Insurance
- it can expire at an attained age or after a specified period of time - the face amount is paid out to the named beneficiary if the insured dies during the specified term - the low, initial premium outlay when the insured is young can increase at renewal or upon conversion, and as insured gets older the policy can become more expensive
State Level Regulation
- legislative branch writes and passes state insurance laws, or statutes, to protect the insuring public - Judicial branch is responsible for interpreting and determining constitutionality of the statutes - the executive branch enforces existing statutes that have been put in place - The Commissioner of Insurance is elected in NC and has the power to issue rules and regulations to help enforce the statutes
Private vs. Government Insurers
- most insurance is written through private insurers - there are instances government-based insurers step in to offer an insurance alternative when private insurers are unable to provide protection, usually related to the catastrophic nature of risk, capacity to handle the risk, and lack of desire to engage in a line of insurance where experience to evaluate necessary premium intake to offset potential loss is lacking
Deferred Annuity Characteristics
- normally purchased to defer taxes on any contract earnings - they are ideal for accumulating a retirement fund - during the accumulation period, only the contract owner can sign the request for surrender of the annuity - during the early parts of the accumulation period, the insurer normally assesses a surrender charger - Tax-Deferred Growth
Red Flags for Anti-Money Laundering
- paying for an entire policy up front with cash - early cancellation of the policy, regardless of cancellation fees (surrender charges) - the heavy use of third parties for policy transactions - strong reliance on wire or electronic fund transfers to foreign accounts
Debts Covered in Credit Life
- personal loans - loans to cover the purchase of appliances, motor vehicles, mobile homes, farm equipment - educational loans - bank credit and revolving check loans - mortgage loans, etc.
Beneficiary Succession
- primary beneficiary - contingent or secondary beneficiary - tertiary beneficiary
Insurance license applicants and producers
- producers must apply for consent in their residential state - officers and employees must apply for consent in the state where their home office is located - prohibited persons must apply for consent in order to discover if they are permitted or prohibited from the insurance business
Personal Uses of Annuity
- purchase other insurance - education funding - retirement fund accumulation - retirement income - long-term care benefits - lump sum structured settlements
DNC Registry Guidelines
- telemarketers and sellers are required to search the registry at least once every 31 days and drop from their call lists the phone numbers of consumers who have registered - Telephone solicitation calls to your home before 8 am or after 9 pm are prohibited - anyone making a telephone solicitation to your home must provide his/her name, the name of the entity on whose behalf the call is being made, and a telephone number or address at which you may contact that entity
Factors to Determine Human Life Value
- the individual's age and gender - the individual's occupation - the individual's annual wage and employment benefits - the individual's planned retirement age - inflation
Advantages of Reinstatement
- the premium on the reinstated policy will be based on the original policy so premiums will be lower - the policy's cash value will be greater - the policy's original contestable period and suicide clause may have expired
Premiums in Traditional Whole Life Policies
- these policies have a level premium and level face amount - to keep the premium rate level, the premium at younger ages exceeds the actual cost of protection - Whole Life policies stretch the cost of insurance over a longer period of time in oder to level out the increasing cost of insurance - the extra premium builds a reserve (cash value) which helps pay for the policy in later years as the cost of protection rises above the premium - the cash value provides an accumulation element - traditional policies earn a specified guaranteed rate of return - Once the cash value has accumulated for a certain number of years (typically 3 years) the owner can borrow against the policy
Policy Loans (Variable Whole Life Insurance)
- they are available from either the general account or the separate account - Typically 75-90% of the cash value can be borrowed - Partial surrenders are not allowed from a variable whole life policy
Dividend Options Characteristics
- they are available on participating policies issued by mutual insurers - they are paid annually and cannot be guaranteed - since they are essentially a return of excess premium paid, they are not taxable as income until all of the premiums paid in have been recovered - if the total accumulation of dividends exceed the total premiums paid, the excess amount is taxable as ordinary income - interest earned on dividends left to accumulate is taxable as ordinary income - the policyowner decides which dividend option is in effect and can change the election at any time - if they are designated for any option rather than cash and all current accumulations are withdrawn, this option will begin again at the next declared dividend
Characteristics of Life Policy Settlement Options
- they are used in place of receiving a lump sum death benefit or living benefit at the time of maturity - the choice of settlement option may be made by the policyowner if the insured is living or by the beneficiary if the insured is not living and if no option has been previously selected - it is important to note that if the owner has selected a settlement option, a beneficiary cannot change that option
The Replacing Insurer's Responsibilities:
- upon receiving proper notification w the new application, the replacing insurer must notify the existing insurer of the planned replacement - maintaining copies of the information regarding replacement for a specified period of time
Property + Insurable Interest
- while it is unlikely an insurer will issue a policy if there is no insurable interest at the time of application, insurable interest must specifically exist at the time of loss - property ownership (or mortgage or lien) is evidence of insurable interest
Insurance Contract
-A legal contract purchased to indemnify the insured against a loss, damage, or liability arising from an unexpected event. -The exchange of a relatively small and definite expense for the risk of loss that, if it occurs, may be large or small. -A contract designed to transfer risk from the insured to the insurer.
Characteristics of Term Insurance
-offers temporary life insurance protection for a specified period of time - the period could be as short as 1 year, or provide coverage for a specific number of years such as 5, 10, 20 years - it could also be purchased to provide coverage up to a specified age, such as 65 - the premium is level for the stated term, which represents the average level of risk over the course of the policy
Hold Harmless Agreement
A contractual agreement that transfers the liability of one party to another party; it is used by landlords, contractors, and others as a way to avoid or reduce risk
Buyer's Guide
A generic brochure developed by the NAIC to assist prospective buyers of life insurance. Descriptions of all basic types of life insurance as well as comparative costs of each are included.
Collecting the Initial Premium and Issuing the Receipt
A producer should attempt to collect the initial premium and submit it along with the application to the insurer, because the policy will not go into effect until the first premium has been paid. If the premium is paid with a check that is not signed (or does not clear), it is not considered paid and coverage is not effective.
Fraternal Benefit Society
A social organization engaging in charitable activities and provides life insurance and annuities to members. Is a non-profit organization based on a lodge or fraternal system and offers insurance only to members of the organization
Contract
An agreement between two or more parties in which there is a promise to do something in return for a valuable benefit known as consideration
Completing the Application and Field Underwriting
An application is a written formal request by an applicant to an insurer requesting the insurer issue a policy based upon information contained in the application. It is the consumer making an offer to the insurer. It is the producer's responsibility to probe beyond the stated questions, which is known as field underwriting. The application is the primary source of information for an insurer underwriting a potential risk. In fact, a copy of the application if attached to the policy becomes part of the entire contract.
Insurance Aspects of an Annuity
Annuities are insurance products based on a mortality table. If a life contingency settlement option is chosen, the insurance company guarantees to provide an income benefit payment as long as the annuitant live - actuarial assumptions based off of the law of large numbers allows this to occur - those who have a shorter life span than expected allow the insurance company to have the reserves in place to be able to pay out guaranteed lifetime income benefit payments to those who live well beyond life expectancy
Convicted Felons (Fraud)
Any individual who has been convicted of a felony involving dishonesty or a breach of trust, who then willfully engages or permits an individual to engage in the business of insurance, and whose activities affect interstate commerce, will be fined up to $50,000 or imprisoned up to 5 years, or both.
Capital Liquidation (Income Objective)
Assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for the dependents. When income is paid out using this method of Income Objective, the account balance will decrease as each payment is distributed.
Utmost Good Faith
Both parties bargain in good faith when forming and entering into the contract. The two parties rely upon the statements and promises of the other and assume no attempt to conceal or deceive has been made.
Conditional Contract
Both parties must perform certain duties and follow rules of conduct to make the contract enforceable - the insurer must pay claims if the insured has complied with all the policy's terms and conditions - w/o premiums being paid on time and in full the insurer is not obligated to pay the claim if the policy lapses
4 Necessary elements in a contract
Competent Parties, Legal Purpose, Agreement, Consideration
Applicant Challenge (FCRA)
Credit reporting agency must reinvestigate within 6 months if applicant challenges accuracy
Flexible Premium Deferred Annuity (FPDA)
Flexible premiums are made as installments and can fluctuate. The benefits begin more than 1 year from the issue date
Investigation of Disputed Information (FCRA)
If a consumer's file contains inaccurate information, the agency must promptly investigate the matter with the source that provided the information. If the investigation fails to resolve the dispute, a statement may be added to the credit file explaining the matter
Threats and Forces
If a person uses threats, force or attempts to impede/obstruct the administration of the law during any proceeding involving the business of insurance before any insurance regulatory official, he/she will be fined up to $50,000 or imprisoned up to 10 years, or both.
Misstatement of Age or Gender
If the age and/or gender of the insured have been misstated in a policy, all benefits under the policy will be provided based upon the insured's correct age and/or gender according to the premium scale in effect at the time the policy was issued. An insurer can refund any overpaid premiums if the amount of premium paid was greater than should have been paid. The insurer can reduce the face amount in cases where the amount of premium paid was less than that which should have been paid. There is no time limit for discovery, and this provision never cancels or voids a policy. The incontestability clause does not apply. Age and/or gender are not considered material to the policy issuance.
Payor Benefit (Waiver of Payors Premium) (Disability Riders)
If the payor (policyowner) dies or becomes disabled and is unable to make the premium payments, the insurer will waive the premiums payments for a specified period of time - because this rider is commonly added to a juvenile policy, the payor typically most show evidence of insurability before the rider can be added to the policy
Annuity Death Benefits
In addition to providing a guaranteed benefit payout for life, an annuity also has another guarantee if the annuitant dies prior to annualizing the contract - In this case, the policy has a named beneficiary, just like a life insurance policy, whereby the insurer pays out an amount equal to the premium paid or the account value, whichever is greater
Graded (Lien) Plan
Initially, only the premium would be refunded in case of death. The death benefit increases over time, maxing out when the full face amount is payable. This is generally used with senior life insurance plans to provide minimal benefits without a medical examination.
Disclosure at Point of Sale - Issues Relating to AIDS
Insurers must: - avoid making or permitting unfair discrimination between individuals of the same class in the underwriting for the risks of Acquired Immune Deficiency Syndrome (AIDS) - require the maintenance of strict confidentiality of personal information obtained through testing and to require informed consent before testing for HIV
Premium Payment Mode
Mode reflects the frequency of payment. Premium payments are made either monthly, quarterly, semiannually, or annually - Monthly (highest costs) - quarterly - semiannually -annually (lowest costs)
Total Premium paid to Insurer
Mortality - Interest + Expenses = Total premium paid to the insurer
Agreement (Legal Contract)
One party must make and communicate an offer to the other party and the second party must accept that offer. Without an offer, there is nothing to accept, and without acceptance of an offer, there can be no agreement. Offer, acceptance, or agreement can represent this element.
Unilateral Contract
Only one party is legally bound to the contractual obligations after the premium is paid to the insurer - Only the insurer makes a promise of future performance, and only the insurer can be charged with breach of contract - the policy owner can cancel the policy at any time and for any reason and is not required to continue paying future premiums
Partial Withdrawals or Partial Surrenders (specific to Cash Value Policies)
Partial withdrawals of cash value are permitted in a Universal or a Variable Universal Life policy - a partial withdrawal is considered a partial surrender of the policy - a partial surrender is actually paid from the policy value and either reduces the amount of the death benefit or the amount of cash value in the policy - since its not considered a loan, annual interest is not charged - taxation applies to any interest on the cash value paid out as a withdrawal - in other words, any amount paid in excess of the premium is subject to taxation - when a partial withdrawal is made, the policy's cash or account value will be reduced by the amount of the withdrawal - there may be a surrender or withdrawal charge associated with the withdrawal - the insurer may limit the number of withdrawals that can be made annually or the amount of the withdrawal specifying minimums and maximums
Limited Payment (Ordinary Whole Life Payments)
Premium payments are for a specified time (20-pay Life or 30-Pay Life) or to a specified age (Life Paid up at 65) - the face amount remains level and cash value continues to earn interest and mature at age 100 - while annual premium is higher than Straight Life, it is paid for a shorter period of time and will have a lower total premium outlay
Paid-up Additions (Dividend Options)
Purchases single premium, additional permanent benefits at the insured's attained age - the additional insurance is paid out in addition to the face amount if the insured dies - while insured is living, it generates cash value and dividends as if the paid-up additional benefit was part of the original policy
Change in Institutions Privacy Policy
Should the financial institutions privacy policy change at any point in time, the consumer must be notified again for acceptance. Each time the privacy notice is re-established, the consumer has the right to opt out again.
Consideration (Legal Contract)
Something of value is exchanged by each of the parties to the contract; the exchange of money (first premium only) for a promise (the guarantees within the contract)
Do Not Call Registry
The Federal Trade Commission amended the Telemarketing Sales Rule to give consumers a choice about whether they want to receive most telemarketing calls. It is prohibited under the Telephone Consumer Protection Act (TCPA) for most telemarketers or sellers to call a number listed on the National Do Not Call Registry. Companies must update their list at least once every 31 days.
Acceptance (Agreement)
The acceptance of an offer to provide an insurance contract takes place when the insurance company agrees to issue the insurance applied for, after receiving an initial premium and complete application. If the applicant is insurable, but only under less favorable terms, the insurer may make a counteroffer. In such cases, the insured has been determined to be acceptable to the insurance company but a policy will not be in force until the applicant pays a higher premium and/or accepts any conditions imposed on the coverage (such as reduced benefits)
Aleatory Contract
The exchange of value is unequal - Insured's premium payment is less than the potential benefit to be received in the event of a loss - The insurer's payment in the event of a loss may be much greater, or much less, than the insured's premium payment
Offer (Agreement)
The offer made to enter into an insurance contract is most commonly an application, accompanied by an initial premium, and submitted by the applicant.
Primary Beneficiary
The person who is named as first to receive benefits from a policy
Tertiary Beneficiary
The third in line to receive the benefits of a life insurance policy
Policy Cost Comparison Methods
There are two common methods: - Traditional Net Cost - Interest Adjusted Method
USA Patriot Act
This act specified which financial institutions would be required to institute AML training programs including insurance companies. The act specified which insurance products require anti-money laundering training and how to respond to suspected laundering activity. It also helped expand the definition of money laundering to include the money's ultimate purpose as well as its origin. The insurance products being used are mostly single premium permanent life insurance and annuity products, as they generate cash value.
Indexed Universal Life (Equity Indexed)
This policy gives policyowners the opportunity to decide the percentage of cash value that is invested in traditional fixed income securities. The remainder of the cash value is invested in an equity index account linked to a stipulated stock index, typically the S & P 500. - When there is an increase in the market, a given percentage of the gain is used to determine the interest credited to the policy. - When the market declines, the policy is credited with the minimum guaranteed interest rate or zero interest. - The policy typically guarantees the principal amount in the indexed account.
Tort Law
Torts are civil wrongs; they're not crimes or breaches of contract. They result in injuries or harm that constitute the basis of a claim by a third party
Death Benefit Options (Universal Whole Life Insurance)
Universal Whole Life allows a policyowner to choose from two death benefit options: - Option A - Option B
Flexible Life Insurance
Universal and Variable Universal Life policies have given the policyowner more flexibility in terms of premiums, investment objectives and other policy benefits. These policies assist the insured during inflationary periods w the changing needs of the policyowner and insured
Accounts (Variable Whole Life Insurance)
Variable Whole Life Insurance policies have two separate accounts - a General Account, which features guaranteed values - a Separate Account, which features nonguaranteed values
Anti-Money Laundering
With the increase of drug trafficking and acts of terrorism, the desire and demand for laundered money has also increased. As of May 2006, insurance companies have been required to provide anti-money laundering training to their producers. Brokers as well as agents are required to undergo training as insurance products are now being used to give legitimate appearance to money financed by and for illegal activities.
Material Misrepresentation
a misstatement in which the insurer would not have issued the policy had they known the true information
Renewable (Special Features)
a benefit that will renew the contract on the renewal date without evidence of insurability - the policy may be a 1, 5, 10, or 20 year renewable contract up to a specified age, with premiums increasing at the beginning of each renewal period - the renewal premium is based upon attained age - it is important because the risk that the insured's health may deteriorate and the insured may be unable to obtain a policy at the same rates or even at all, leaving the insured without coverage - level term policies offer this option for an additional premium
Participating Life Insurance
a class of policy marketed by a mutually owned company - a dividend may be paid to the policyowner when they are declared by the board of directors - company is not required to issue only participating policies, but only participating policies will be eligible for dividends - the dividends are treated as a refund of premium for tax purposes initially but once all premiums have been recovered, any further dividends are taxable
Variable Universal Whole Life Insurance (VUL)
a combination of Universal and Variable Life Policies. Like Universal life, this policy provides for flexible premiums and adjustable death benefits - Death benefit Option A and Option B are available to policyowners
Family Rider
a combination of writing both the Spouse and Child Rider on one policy - this may be written as a policy or a rider; in the market today, it is normally written in the form of a rider - they are usually sold in units (packages) of protection, such as $5,000 on the main wage earner, $1,500 on the spouse and $1,000 on each child
Flat Rate
a constant dollar amount added to the standard rate per $1,000 of coverage. If the standard premium is $25 annually for $1,000 of insurance, with a flat rate of $5/$1,000 added to the standard premium the new total premium per $1,000 is no $30. - a student pilot or someone who has a hazardous hobby would be flat rated
Limited Access to Information (FCRA)
a consumer reporting agency may not provide a credit report to any party that lacks a permissible purpose, such as the evaluation for a loan, credit, service, or employment. - permissible purposes also include several business and legal uses
Correct or Delete Inaccurate Information (FCRA)
a consumer reporting agency must correct or, if necessary, delete from a credit file the information that is found to be inaccurate or can no longer be verified. The consumer reporting agency is not required to remove accurate data from a file unless it is outdated. Adverse information that is more than 7 years old (10 years for bankruptcies) must be removed from the file
Personal Contract
a contract between the insurance company and an individual that are specific to the person insured at the time the contract is formed - Owner and insured cannot be changed w/o consent of insurance company - Property contracts are person, but life contracts are not
Group Annuity
a contract between the insurer and the employer and is set up for eligible employees - each employee receives a certificate - this is a defined benefit plan under IRS rules
Valued Contract
a contract that pays a specified amount regardless of the actual loss. A life insurance contract is an example. It has a face value that provides a death benefit in the event of a loss
Retirement Fund Accumulation (Annuity Personal Uses)
a deferred annuity that is held outside an IRA allows for the accumulation of earnings on a tax-deferred basis - the earnings may come from current or guaranteed interest credits, excess interest credits linked to the performance of a stock index, or from separate account investment performance - the premiums paid-in are not eligible for a tax deduction - an IRA annuity may allow for all or part of the premiums paid to be tax deductible - since an annuity is already tax-deferred, having it held inside an IRA account does not provide any additional tax deferral benefit
Per Stirpes (Beneficiary Designation)
a designation that will pay a deceased beneficiary's share to the heirs of the beneficiary who predecease the insured - if an insured names his/her 3 children as beneficiaries and one of the children predeceases the insured, the deceased beneficiary's share will be paid to their heirs - the surviving beneficiaries will each receive 1/3 of the benefit and the remaining 1/3 will be paid to the deceased beneficiary's heirs in this example
Per Capita (Beneficiary Designations)
a designation that will pay to surviving beneficiaries equally if a named beneficiary predeceases the insured
Misrepresentations
a false statement contained in the application; usually does not void coverage of the policy, if it is immaterial - if material to issuance of coverage then coverage does not apply - a material misrepresentation may void the policy
Vanishing Premium
a feature in a Universal Whole Life policy that is created because the policyowner can increase premiums during working years to accumulate enough cash value to make future premium payments in later years
Fraud Penalties
a fine of no more than $50,000, imprisonment for up to 10 years, or both
Current Assumption Whole Life (or Interest-Sensitive Whole Life)
a form of Whole Life in which the insurance company can change the premiums or interest rate being credited to the account based on current money market rates - Interest rate changes affect the policy premiums - policy has a guaranteed minimum death benefit, but may increase based on the growth of the cash value - if current rates increase, either the policyowner pays a reduced premium or the cash value will increase at a faster rate - If cash values increase too quickly, this could cause the policy to mature prior to age 100 - To prevent this from happening, the insurer will add a corridor of insurance protection to keep the policy from endowing - this increase is provided without evidence of insurability
Inspection Report
a general report of the applicant's finances, character, morals, work, hobbies, and other habits - sometimes referred to as a Consumer Investigate Report - can be completed by the insurer or a third-party provider - the applicant must be made aware of any information gathering and has rights provided under the FCRA
Interest Rate and General Account
a guaranteed minimum interest rate applied to the policy (usually 3-4%) means that, no matter how the investments perform, the insurance company guarantees a certain minimum return on the cash value - if the insurance company does well with its investments, the current interest rate will be credited to the cash value causing the cash value to grow at a faster rate - since it has a general account, the producer only needs a life insurance license to sell it - premiums are paid into and interest is credited into the general cash value account - Expenses, loans or withdrawals, and mortality charges are deducted from the cash value account
Variable Life Insurance
a life insurance policy introduced in the 1970s that uses separate accounts for the cash value accumulation - the separate accounts are similar in nature to mutual funds, and a securities and life insurance license are required to sell this policy - the policyowner takes on the investment risk of the policy - the policy's overall death benefit can increase along with the cash values w positive investment performance coming from the separate accounts selected, however there is no guarantee of return and down markets can cause significant loss of policy value
Nonparticipating Life Insurance
a life insurance policy marketed by a stock insurer. - a stock insurance company is a company under the control of stockholders who would receive a share of any profits in the form of a corporate dividend as opposed to policy dividend - stock dividends are treated as ordinary income for tax purposes - a policyholder does not have to be a stockholder
Permanent Life Insurance
a life insurance policy that remains in force to age 100 or beyond - the premium is always larger than that of a term policy at issuance when the amount of coverage and underwriting factors are equal - it provides for living benefits for the policy owner or insured by way of its cash values - also has many options available to the policyowner
Policy Loans and Cash Value
a loan against the cash value does not immediately reduce the cash value in a policy - rather the cash value is used as collateral against the loan - interest will be charged annually, and if unpaid will be added to the balance of the unpaid loan - Interest charge may be fixable or variable
Loans (Universal Whole Life Insurance)
a loan is taken against the cash value remaining in the policy - the cash value secures the loan and cannot be used for other purposes, but it remains in the policy - the loan itself neither decreases the total cash value, nor the face amount - the amounts payable would decrease if the loan is not paid back before the insured dies or the policy terminates
Single Premium
a lump sum payment is made into an annuity
Intermediate Premium (Nonguaranteed) Whole Life Insurance
a nonparticipating whole life policy that provides for two premium rates - the company initially charges a "current" premium based on its current estimate of interest earnings, mortality, and expense costs - this rate is lower than traditional whole life in the early years - if these estimates change in later years, the company will adjust the premium accordingly but never above the maximum guaranteed premium stated in the policy
Partial Withdrawals (Universal Whole Life Insurance)
a permanent transaction, and cannot be reversed. It is different from a loan - the funds are paid from the general account - the cash value decreases, and the face amount may be affected as well - depending on the policy, the withdrawal may also be taxable
applicant
a person making application for himself/herself or another to be insured under an insurance. They may be the insured, the owner or both
Agent's Report
a personal statement submitted by the producer to the insurer regarding the applicant's financial condition, any personal knowledge of the applicant, etc. - the info remains confidential between the producer and the insurer, and it does not become part of the entire contract
Family Plan (Family Protection Plan)
a plan that provides a base policy of whole life insurance on the primary insured and the spouse and children are covered by level term riders - the spouse's coverage is written to a specified age, such as 65, and is usually convertible to a whole life policy any time prior to expiration without proof of insurability - the children are covered by a single level term insurance rider with one premium covering all of the children under age 18 who meet underwriting guidelines - Newborn or adopted children will automatically be covered once they are 15 days old w/o an additional premium as long as the insurer is notified in writing - the children's coverage is also convertible to a whole life policy at a specified age (up to age 25) without proof of insurability
Policy Loans Provision
a policy loan may be made in a cash value policy once there is sufficient cash value to borrow against. In most policies, cash value must be made available to borrow against after 3 years - the insurer may defer granting a loan for up to 6 months unless the loan was intended to repay any premium, such as an automatic premium loan - failing to repay a loan or interest will not void the policy until the total amount of the outstanding loan and unpaid interest equals or exceeds the policy's total cash surrender value - any outstanding loans will be deducted from the face amount at time of claim or from the cash values upon surrender along w any interest due
Third-Party Ownership
a policy owned by a person other than the insured
Family Income
a policy that combines whole life insurance with a Decreasing Term Rider - the length of the rider is based on the number of years until the youngest child is no longer a dependent, such as age 21 - if the insured dies while the rider is in force, the death benefit of the rider is paid in equal monthly installments (including interest) for the remaining number of years the rider would have been in effect - this benefit is in addition to the face amount of the whole life policy - if insured is still living at the end of the decreasing term, the rider drops and the premium decreases
Family Maintenance
a policy that combines whole life insurance with a Level Term rider - if the insured dies while the rider is in force, the death benefit of the rider is paid in equal monthly installments (including interest) for the full number of years for which the rider was issued - this benefit is in addition to the face amount of the whole life policy - if the insured is still living at the end of the term, the rider drops and the premium decreases
General Account (Universal Whole Life Insurance)
a portion of the premium is invested by the insurance company and held in its general account. The current return on the investments is credited to the UL policy -
Waiver of Cost of Insurance/Waiver of Monthly Deduction (Disability Riders)
a rider that waives the deduction of the monthly cost of insurance and expense charges associated with a Universal Life type policy while the insured is totally disabled, usually after 6 months of continuous disability - usually, the disability must occur prior to a stipulated age
Single Premium Immediate Annuity (SPIA)
a single premium (lump sum) is put into an annuity from which the annuitant may immediately begin drawing benefits (within a year of the issue date) - a retirement plan, rollover, savings account balances or CDs, mutual funds, deferred annuity values, or the death proceeds of a life insurance policy might be used to purchase a SPIA
Single Premium Deferred Annuity (SPDA)
a single premium (lump sum) is put into an annuity from which the annuitant will draw the benefits at some specified time in the future, more than 1 year from the issue date
Tabular Rate
a surcharge is calculated using a table showing past claims history of individuals with similar impairments
Flexible Premium (Universal Whole Life Insurance Feature)
a target premium established by the insurer, which is the minimum amount that must be deducted from the cash value to maintain the policy to age 100, based on current interest rates, mortality and expense charges - because mortality and expense charges are deducted from the cash value monthly, the policyowner has more flexibility with universal life premium payments - the premiums can be increased, decreased, or even skipped at the policy owner's discretion as long as there is sufficient cash value to cover these deductions - the feature also allows the policyowner to increase premiums during working years to accumulate enough cash value to make future premium payments in later years, known as the vanishing premium - if the cash value becomes insufficient to pay the monthly deductions, the owner will be required to start paying premiums to keep the policy from lapsing
Viatical Settlements (Personal Life Insurance)
a terminally ill insured/owner selling his/her policy to a third party for less than the death benefit but more than the cash values in order to obtain funds when no other sources are readily available
Pre-need Plan (Personal Life Insurance)
a type of coverage with a small face amount, typically purchased to pay the burial expenses of the insured
Adjustable Life Insurance
a type of permanent life insurance that combines features of term and whole life coverage, giving policy owners the option to change the characteristics of their policies - it is most appropriate for those whose income is expected to fluctuate from year to year or those persons who may have a change in needs - all the common features of level premium cash value life insurance are still present
Joint Life (First to Die) (Specialized Policies)
a whole life policy that is written to cover 2 or more lives, and the death benefit is paid upon the first insured to die - once payment is made, the policy no longer exists - premiums are based upon a joint issue age which is obtained by an average of both insureds' ages resulting in a lower premium than two separate policies - the policy is designed to provide income protection for the surviving spouse when both have earned income
Variable Whole Life Insurance
a whole life policy with certain benefits that will vary based on market conditions - they feature a fixed premium, two separate accounts (general account and separate account)
Parol Evidence Rule
a written contract may not be altered without the written consent of both parties
application
a written formal request by an applicant to an insurer requesting the insurer issue a policy based upon information contained in the application. It is the primary source of information used in underwriting
Capital Retention/Conservation (Income Objective)
assumes the desired income will be generated by the interest only, thus retaining or conserving the principal
Gross Premium
additional charges (expenses) are added to the net premium rate to enable an insurer to meet all costs under the contract - Net Premium (Mortality - Interest) + Expenses = Gross Premium
Inaccuracies (FCRA)
agency must forward to applicant inaccurate information given out within previous 2 years
Reporting money-laundering activity
agents/brokers are required to report any activity they believe or have reason to believe is an effort to launder money - Depending on the producer's involvement in transaction, failure to comply can result in dismissal and civil or possibly criminal prosecution
Competent Parties (Legal Contract)
all parties to a contract. Those without legal capacity include: - Minors - the insurer may be held responsible for obligations but in most cases a minor cannot enter into a contract. There are exceptions such as purchase of auto insurance - the mentally incompetent or incapacitated - persons under influence of drugs or alcohol
Regulation and Separate Account (Variable Whole Life Insurance)
all variable products are subject to FINRA regulation - it is considered a security and can only be sold by individuals with a life insurance license and FINRA registration, Series 6 or 7 - a prospectus must be provided prior to the sale of a variable policy, and there are suitability requirements that must be met before a variable policy can be sold
Regulation and Variable Universal Life Policies
all variable products are subject to FINRA regulation. It is considered a security and can only be sold by producers registered with FINRA and holding either a Series 6 or 7 registration - this securities registration is required in addition to a life insurance license - In some states, a variable contracts insurance license and state securities registration (series 63) is also required - a prospectus must be provided prior to the sale of a variable policy and there are suitability requirements that must be met before a variable policy can be sold
Guaranteed Insurability Rider
allows the insured to purchase amounts of additional insurance every 3 years based on certain ages (specifically 25, 28, 31, 34, 37, and 40), events, or specified dates w/o evidence of insurability up to a maximum age, usually 40 - the premiums are based on attained age - the events which will allow the insured to obtain additional insurance in between the specified ages include marriage and the birth or adoption of a child, when the need for insurance coverage may increase - it normally limits the insured to acquire additional amounts of the same type of coverage already in force - the insurer often limits the amount of coverage that may be added - the rider drops at age 40
Free Look (Right to Examine Period)
allows the policyowner a specified number of days following receipt of the policy to look it over - if dissatisfied for any reason, the owner has the right to return it for a full refund of any premiums paid - the period is usually 10 days, unless state law specifies otherwise - it starts the date when the policy is delivered to the owner of the policy making it important for a producer to collect a delivery receipt when delivering the policy
Life Insurance Policy Riders
also known as an ammendment. They modify conditions of the policy by expanding or decreasing its benefits, or excluding certain conditions from coverage, and are at the option of the insured - they are available for an additional premium in most cases - they are provided for a specified period of time as stated in the policy - it is typical for a them to end at a specified age - once they drop from the policy, the additional premium will also drop - most are added at the time of policy issue - any riders after the policy has been issued usually require evidence of insurability
Factor for Needs Analysis
an Emergency Reserve Fund or lump-sum needs may be part of the calculation to provide for unexpected emergencies the family might encounter immediately after the death of the insured
Rider
an added benefit to the policy that supplements existing coverage. It is usually added at the time of application and typically requires a small increase in premium
Cash Accumulation (Personal Life Insurance)
an amount of cash accessible to the policy owner from within permanent life insurance policies
Education Funding (Annuity Personal Uses)
an annuity can provide funds to help offset the costs of a college education. Using a systematic withdrawal or a settlement option will provide for an income stream to help meet or offset some of the expenses incurred
Qualified Annuities
an annuity funded with pre-tax dollars, meaning the contribution itself could qualify for a tax deduction, lowering taxable income - the entire distribution from a qualified annuity (contributions and earnings) is subject to ordinary income taxes
Nonforfeiture Provisions (Annuities)
an annuity owner will not lose the value accumulated up to the point where they stopped paying into the contract - these options give the owner the rights to the accumulation in the contract - the owner has the right to surrender the contract during the accumulation period - these provisions only apply to deferred annuities since immediate annuities do not have an accumulation period
Market-Value Adjustment (Adjusted) Annuity
an annuity product that features fixed interest rate guarantees combined with an interest rate adjustment factor that can cause the surrender value to fluctuate in response to market conditions. Upon withdrawal, the MVA will add or deduct an amount from the annuity or the withdrawal amount
Indexed (or Equity Indexed) Annuity
an annuity product with interest rates that are linked to the positive performance of a stock market related (equity) index, such as the S&P 500 Index - the contract owner enjoys safety of principal and some guaranteed minimum returns - the safety of the principal and previously locked-in interest is backed by the insurer's general account. The minimum guarantee can be as low as 0% reflecting that the policy will not be adversely affected by negative stock market index performance - these contracts typically have a fixed account from which funds are transferred into the index selected. They also tend to have higher surrender charges an longer surrender charge periods
Nonmedical Application
an application used when a policy requested does not require a medical examination for underwriting - health questions on the application are asked by the producer and are the only medical info required
Return of Cash Rider
an increasing term rider that provides coverage equal to the amount of cash value at the time of death - upon insured's death, the beneficiary would receive the face amount plus a return of the amount of cash value - this does not relieve the obligation to pay loans from the claim proceeds at the time of death
Return of Premium Rider
an increasing term rider that provides coverage equal to the amount of premiums paid into the policy - benefit is paid in addition to the death benefit - if the insured dies within the term, the beneficiary would receive the face amount plus a return of premium
Group Life Insurance
an insurance plan normally owned by an employer, credit or association, under which coverage is provided for the employees, debtors, or members. - generally provides protection for an employee's named beneficiary, typically their spouse if married - the coverage may be changed only in the Master policy - it is normally written on a renewable term basis providing no cash value or living benefits as found in individual cash value policies - the amount of coverage can be limited to a fixed dollar amount or a multiple of earnings - some allow for the purchase of additional coverage which may be partially or fully underwritten - Upon retirement, group coverages can be converted to an individual permanent life insurance plan without having to prove insurability
Alien Insurer
an insurer organized under the laws of any jurisdiction outside the United States, whether or not it is admitted to do business in this state
Foreign Insurer
an insurer organized under the laws of any other state, possession, territory, or the District of Columbia, whether or not it is admitted to business in this state
domestic insurer
an insurer organized under the laws of this state, whether or not it is admitted to business in this state
Guaranteed Minimum Withdrawal Benefit (GMWB) (Retirement Income)
an optional benefit that can be purchased to help annuitants protect their retirement income from a down market - this option allows the annuitant to withdraw a maximum percentage each year until the initial investment has been paid out
Employer Sponsored Qualified Retirement Plans (Annuity Business Uses)
annuities are usually purchased by individuals. They may also be purchased as part of a structured corporate pension plan referred to as a Group Annuity
Purchase Other Insurance (Annuity Personal Uses)
annuities can be used as a funding vehicle for insurance premiums for which the consumer may have a need - if an annuity has a large amount of tax deferred earnings then, upon death, the beneficiary will receive the payout and be responsible for paying income taxes according to his tax bracket. This could force him into a higher tax bracket overall - Instead the annuity can be used either through systematic withdrawals or a settlement option to buy life insurance which will pay out a death benefit income tax free to the beneficiary
Employer Sponsored Qualified Retirement Plans (Annuity Business Uses)
annuities can be used simply as funding vehicles or provide benefits that other investments cannot, such as a guaranteed minimum death benefit, a guaranteed minimum interest rate, an income benefit payment that cannot be outlived, or other various benefits and riders
Employer Sponsored Qualified Retirement Plans (Annuity Business Uses)
annuities may be used as a nonqualified savings plan or as a qualified retirement plan - when qualified, annuity contributions are limited only to the extent that the insurance company has the right to limit the amount it is willing to accept for deposit at any time - if used as a qualified or other type of retirement plan, contributions are limited by the Internal Revenue Code according to the type of plan
Annuity Certain (Annuity Payment Options)
annuity benefit payments are received for a specified period of time or a specified amount of periodic income. If the annuitant dies with time remaining on the period certain or a balance is left in the account, the named beneficiary receives the balance of the payments - an annuity guaranteed to pay out for a specific number of years (such as a typical, state lottery prize) is called a fixed period - if the periodic amount is specified, but not the number of payments needed to pay out (liquidate) the sum in question, then the annuity certain is called a fixed amount - both forms are often used in settlement options
Life Income (Pure or Straight Life) (Annuity Payment Option)
annuity is payable for as long as the annuitant lives, and upon death all payments cease - this option provides the highest monthly income than any of the other options
Life Income Period Certain (Annuity Payment Options)
annuity is payable for life, or for a specified period of time, whichever is longer - if the annuitant lives beyond the stated period, benefits continue for life of the annuitant - if the annuitant dies prior to the end of the periods certain, a beneficiary receives the balance of the payments for the remaining time period
Life Income with Refund (Installment or Cash Refund) (Annuity Payment Options)
annuity is payable for the lifetime of the annuitant. Upon death, if an annuitant has not received an amount equal to the total of all payments made into the annuity (not the growth), the balance is refunded to the beneficiary as a lump sum, cash refund, or in installments, sometimes referred to as the installment refund
Life Income Joint & Survivor (Annuity Payment Options)
annuity is payable to 2 annuitants (in one check) while both are living. Upon the death of the first annuitant, survivor benefits continue, either paying the full amount or reduced to 2/3 or 1/2 for the survivor's income until the survivor dies - depending on which option is selected, these options may be referred to as a Joint and Full Survivor, Joint and 2/3 Survivor, or Joint and 1/2 Survivor
Joint Life (Annuity Payment Options)
annuity is payable to 2 or more named annuitants while both are living. Upon the death of the first annuitant, the benefits stop
Variable Annuity
annuity payments and cash values fluctuate according to the investment experience of the separate account the contract owner has designated. Payments are based on "units" rather than dollars - while not guaranteed, theses annuities may act as a hedge against inflation - this protects against the purchasing power risk of a fixed payment annuity by providing income that trends toward keeping pace with inflation - These annuities are regulated by the SEC, FINRA, and State insurance departments
Waiver (Annuity Nonforfeiture Options)
annuity surrender charges are generally waived if the annuitant is hospitalized for an extended period, placed in a nursing facility for at least 30 days, becomes disabled, or dies
Insurable Events
any event which may cause loss or damage to a person having an insurable interest in the event
Insurable Events
any event, past or present, which may cause loss or damage, or create legal liability on the part of an insured
Insured
any person, organization or company protected by an insurance policy
Replacement
any transaction in which a new life policy or annuity is to be purchased, and the producer knows, should know, that existing contract(s) will be: - lapsed, forfeited, surrendered or terminated - reduced in value - amended w a reduction in benefit or term - reissued with a reduced cash value - subjected to borrowing
Ordinary Life Insurance
any type of life insurance that is not group, industrial or government insurance. A large number of people are insured with an ordinary life policy making this the largest portion of the life insurance in force today
Partial Withdrawal in VULs (Variable Universal Whole Life Insurance)
are allowed in Variable Universal Whole Life policies and paid from the separate account
Special Features of Term Insurance
are typically available only on level term insurance policies and an additional premium may be charged. The two forms are a Renewable and Convertible term policy and they will cost more than a level term policy
Contingent or Secondary Beneficiary
receives the death benefit only if there is no primary beneficiary alive following the death of the insured.
Breach of Trust (Violent Crime Control and Law Enforcement Act of 1994)
based on the fiduciary relationship of parties and the wrongful acts violating the relationship
Annuity Uses
before determining the use, it is important to determine the suitability of the product to the intended purchaser - suitability describes the steps that must be taken by a producer to ensure that an annuity is addressing a prospective owner's needs and financial objectives at the time of sale - additional factors used when determining suitability include the age, income, risk tolerance, and potential use of the annuity
Life Policy Settlement Options
benefits are paid in a lump sum, unless another mode of settlement has been selected. It directs the insurance company how to pay out the death benefits
Variable Annuity and Regulation
both an insurance license and a securities license (FINRA) are required - a variable annuity is considered a security, and therefore, must comply with the Federal Securities and Exchange Commission (SEC) rules as well as the state insurance laws - a prospective buyer of a variable annuity must be provided with a prospectus - the prospectus gives detailed information on the separate account available in the annuity - this information provides the contract owner the opportunity to make a better decision based on the historical performance of the separate account - the prospectus must be provided at or before the time of the sale
Family Income and Family Maintenance Policies (Family Policies) (Specialized Policies)
both policies begin with a base policy of whole life insurance written on the parent with the largest income and greatest risk of death - they provide protection to age 100 - a term insurance rider may be attached to the base policy that is designed to provide a monthly income to the survivor if the insured dies during the specified term. This greatly increases the total insurance amount w/o affecting the cash accumulation feature of the base policy - both policies only provide insurance protection on one parent
Required Signatures (Completing the Application)
both the producer and the applicant/insured must sign the application. The applicant is representing that statements on the application are true. If the applicant is a minor a guardian must sign the application
Factor for Needs Analysis
calculate all financial needs caused by an immediate death, including debts, medical bills and final expenses
Traditional Net Cost (Policy Cost Comparison Method)
calculated using the policy's premium and dividends that have accumulated over a period of years at an assumed interest rate - this amount is added to the policy's cash value at the end of a period (such as 10 years) - the total of this amount is subtracted from the total premium payments to determine how much the policy actually costs - this is averaged over the specified time period (10 years) to arrive at the average cost per thousand for a policy surrendered for its cash value at the end of the specified time period (10 years)
Exclusions
conditions that stipulated in the contract for which the insurer will not provide coverage. The insurer cannot add or alter any of the exclusions after the policy has been issues. The exclusions are normally limited to the following: - aviation - status clause - results clause (war clause) - hazardous occupation - hazardous hobbies or avocation - suicide
Medical Examinations
conducted by physicians or nurses who provide results of an examination and information regarding the applicant's present health. Is usually requested by the insurer after determining if the amount of coverage, age of applicant, or health history warrant the examination - it is more frequently requested due to the higher amounts of insurance applied for coupled w the high degree of cardiovascular concerns, high cholesterol and enzyme levels, as well as the prevalence of the HIV virus. Medical exams are at the insurer's expense - the results are the only report that may be copied and made part of the policy
Disclosure upon Request (FCRA)
consumer reporting agencies must provide the information on file if requested
Application - Part I
contains general questions about the applicant, such as sex/gender, marital status, residence, date of birth, occupation; and past and present life insurance
Application - Part II
contains questions pertaining to the medical background, past and present health, any medical visits, hospitalizations, or surgeries in recent years, medical status of immediate family members, including their ages and causes of death
Periodic Premium
continuous premiums paid into the contract. The most common example of this premium payment is a flexible premium
Expense Charges (Universal Whole Life Insurance Feature)
cover administrative costs and are deducted monthly from the policy's cash value - it is the insurance company's cost of maintaining the policy and can be impacted by the overall increasing administrative costs associated w a plan - like mortality charges, there is a maximum established within the plan - expenses may be referred as "loads" - Loads charges up front before the premium is added to the cash value are called front-end loads. - most Universal Life policies deduct charges on the back-end in the form of a surrender charge
Concealment
the willful holding back or secretion of material facts pertinent to the issuance of insurance - it may result in denial of coverage and may void the policy
Replacing Insurer
the insurer responsible for issuing the new policy
Spendthrift Trust Clause
denies the beneficiary the right to assign his interest in the policy proceedings - the purpose is to prevent creditors of a beneficiary from claiming any benefits payable to the beneficiary before they are actually received - this clause does not protect the beneficiary if the benefits are payable in a lump sum, only when the proceeds are held by the insurance company under a settlement option
Annuity Suitability
describes the steps that must be taken by a producer to ensure that an annuity is addressing a prospective owner's needs and financial objectives at the time of sale - Additional factors used to determine suitability are: - age - income - risk tolerance - potential use of the annuity
Creditor (Beneficiary Designation)
designated by assignment or named at application to cover indebtedness - the creditor may either be the named beneficiary or can be the assignee under a collateral assignment - the creditor can only receive the amount of the indebtedness - the benefit may be purchased as decreasing term so the benefit will decrease by the amount of the loan automatically
Premium Reduction (Dividend Option)
dividends are applied toward the next premium due. - The same could be accomplished if the policyowner received the dividends in cash and remitted the full premium - if the declared dividends equal or exceed the premium, the premium payment may be suspended
Immaterial Representations
do not affect the acceptance or rating of the risk
State Fraudulent Insurance Acts
do not modify the privacy of any individual; they protect producers, brokers, and insurers in the event fraudulent information is provided by consumers
Aviation Exclusion
does not apply to fare-paying passengers on a regularly scheduled commercial flight. Applies most specifically to student pilots or those with a newly issued pilot's license w a limited number of hours of flying experience
Bailout Provision (Escape Clause) (Annuity Nonforfeiture Options)
during the accumulation period, some contracts offer a "bailout" that allows the owner to withdraw money from the annuity without surrender charges if the crediting rate falls by more than a specific amount - this will enable the policyowner to consider other savings and investment options
Fixed (Guaranteed) Annuity
during the accumulation period, the insurer guarantees a minimum fixed interest rate. At annuitization benefits are paid as a minimum level fixed amount - the fixed amount purchasing power decreases as the cost of living increases. The actual rate of interest created at any one time is based on the earning's rate of the insurer's general account the insurer bears any investment risk - only a life insurance license is required in order to sell fixed annuities in most states - some fixed annuities offer a base interest rate plus a bonus interest rate which becomes the current rate credited into the annuity - the current rate is set by the insurance company at the time the contract is issue and is guaranteed for a specific time period
Standard Provisions-Individual Policies Only
explain what the contract consists of, what duties and responsibilities the parties to the contract have, how the policy works, and basically spells out the agreement between the policyowner and the insurance company. Provisions and clauses, unlike riders, are included in the contract for no additional charge.
Cost of Living (COL) Rider
enables the insured to purchase more insurance each year to help offset increase insurance needs due to inflation - the amount the can be purchased is based on increases in the cost of living index - the additional coverage is usually available at low rates and evidence of insurability need not be provided for such increases
Inadequacy (Errors and Omissions)
failing to obtain proper type or amount of coverage for a client
Universal Whole Life Insurance (or Flexible Premium Whole Life Insurance)
features insurance protection and a savings element (cash value) that grows on a tax-deferred basis. It is an "unbundled policy", which means that the individual elements of the policy and premium--which includes the mortality risk, policy expenses, and the cash value--are credited to the account separately after the premium is paid - they provide guaranteed values regarding the cost of insurance (mortality risk) and the interest rates applied to cash values - this policy has different level of flexibility and features
Change of beneficiary
filed by written request and will take effect on the date the request was signed by the owner, whether or not the insured is alive at the time the insurer actually receives the notice
Surplus Lines Insurance
finds coverage when coverage cannot be obtained from admitted insurers. It cannot be utilized solely to receive lower cost coverage than would be available from an admitted carrier - each state regulates the procurement of Surplus Lines Insurance - can be placed through non-admitted carriers; non-admitted business must be transacted through a Surplus Lines Broker
Penalties
fines and possible prison time
Fixed Premium Deferred Annuity (FPDA)
fixed premiums are made as installments and are scheduled. Benefits being more than 1 year from the issue date
Flexible Premium
flexible contributions may be made as often and in whatever amount the contract owner desires. However, most insurers set a minimum and a maximum dollar amount they will accept
Non-qualified Annuity
funded with after-tax dollars, meaning taxes on the money were paid before it goes into an annuity - upon distribution, only the earnings are taxable as ordinary income
Prospectus (Variable Annuity)
gives detailed information on the separate account available in the annuity - the information provides the contract owner the opportunity to make a better decision based on the historical performance of the separate account - it must be provided to a prospective buyer at or before the time of sale
Uniform Simultaneous Death Act
has been adopted by all states and provides that when the insured and primary beneficiary dies as the result of the same event and the order of death cannot be determined, it is assumed the insured died last, protecting their secondary beneficiary or heirs
Non-admitted (Unauthorized) Insurer
has either applied for authorization to do business in this State and was declined or they have not applied; they are not authorized to transact insurance in this State - excess lines insurance can be placed through non-admitted carriers
Reinstatement
if a policy has lapsed unintentionally due to nonpayment, it can be reinstated by the owner. The period is typically 3 years from lapse (but can be as long as 5 years) In order to reinstate, the insured must provide evidence of insurability and the owner must pay all back premiums from the date of lapse plus interest - they are designed to put a policy back in force as if the lapse never occurred - when used, a new incontestability period takes effect based only on the information contained in the reinstatement application, but no new suicide clause applies
Consent Withdrawal (Violent Crime Control and Law Enforcement Act of 1994)
if conditions of consent are not continually met, the consent may be withdrawn
Reciprocity (Violent Crime Control and Law Enforcement Act of 1994)
if consent is granted by any state, other states must allow the applicant to work in their state as well
Minors (Beneficiary Designation)
if minors are named as beneficiaries, but no trust has been established, the funds are placed in a settlement option with the insurer acting as trustee - the guardian or legally responsible adult may receive payments for the benefit of the child, until the child receives the lump sum at the age of majority
Policy Not Approved
if not approved, the insurer may make a "counteroffer" to applicant - the insurer may issue a policy with a surcharge (higher rating) or exclusions to the policy - the producer must hand deliver the policy to the applicant to collect any additional premium, explain the changes in coverage and premium, and reinforce the value of the contract
Conditional Receipt
if premium is paid, coverage will be in effect the date of application or completion of the medical exam, whichever is later as long as the policy would have been issued as applied for
Binding (Unconditional) Receipt
if premium is paid, coverage will begin immediately for a specific length of time regardless whether the applicant is ultimately approved by the insurer - may be referred to as a temporary insurance agreement
Fraud Penalties
if the amount embezzled or misappropriated does not exceed $5,000, violators will be fined up to $50,000 or imprisoned for up to 1 year, or both
Waiver of Premium (Disability Riders)
if the insured becomes totally disabled, the insurer will waive premiums for the duration of the disability or the end of the policy, whichever occurs first - to qualify for the waiver, the insured must be disabled for a waiting period of 3-6 months - the policyowner must continue to pay premiums during this period, but once eligible, the waiver is retroactive to the start of the disability - during the disability, the insurer will credit the premiums to the policy and all benefits, such as cash value accumulation and dividend payments will continue - unless the insured is disabled, the rider drops at age 65
Suicide Clause
if the insured commits suicide, while sane or insane, within typically 2 years from the issue date, the insurer's liability is limited to a refund of premium - if the insured commits suicide after the suicide clause has expired, the insurer must pay out the death benefit to the named beneficiary - the intent of this clause is to discourage individuals from purchasing an insurance policy while contemplating suicide
Fraud Penalties
if the violation jeopardized the safety and soundness of an insurer and was a significant cause of the insurer being placed in conservation, rehabilitation, or liquidation by an appropriate court; imprisonment can be for up to 15 years
Liquidity (Personal Life Insurance)
immediate funds available upon death to pay creditors, taxes, and final expenses as well as cash values available for policy loans, withdrawals, and full surrenders
Risk in a Traditional Whole Life Policy
in a traditional whole life policy, the net amount at risk if the face value minus the cash value - as the cash value increases over time, the net amount at risk decreases and this does not affect the face amount of the policy as that remains level - since the cash value equals the face amount at maturity, as the cash value grows, the amount of risk to the insurance company decreases
Accident Death Benefit Rider (Double or Triple Indemnity)
in the event of a claim, the policy normally pays double or triple the face amount if death was a result of an accident - the benefit is payable only if death occurs before a specific age and within 90 days of the accident - it does not add any additional values to the base policy - it may be added to any type of individual life policy - Among other exclusions, death due to sickness is excluded - it usually expires at age 65
Disability Income Benefit (Disability Riders)
in the event of total disability and after an initial waiting period (such as 6 months), premiums are waived and the insured is paid a monthly income - the monthly disability income benefit is typically limited to a percentage, usually 1% of the face value - the benefit paid from the rider does not reduce the death benefits paid out upon death
Variable Annuity
in this annuity the contract owner bears the investment risk and receives the return earned on invested assets, less any charges assessed by the insurer and investment managers - there is no guaranteed return - the premium paid during the accumulation period is invested in separate account; the underlying investment in the separate account is similar to a mutual fund
Option A vs. Option B
individuals purchasing Option A will benefit from larger cash value accumulations while individuals purchasing Option B will benefit from greater death benefits
Substandard Risks (Higher Risk Exposure)
individuals who are not acceptable at standard rates because of poor health, bad habits, or occupational hazards - individuals in this category are issued "rated policies", known as surcharges
Standard Risks
individuals who have the same health, habits, sex/gender, and occupational characteristics as those reflected in the mortality table - individuals in this category have an average life expectancy
Preferred Risks
individuals who meet certain requirements and qualify for lower premiums because of ideal health, height and weight - individuals in this category have a longer than average life expectancy
Fraudulent Act
involves a misstatement of material fact by a person who knows or believes that statement to be false. The statement is made to another person who relies on its accuracy to make a decision or to act and is subsequently harmed by relying on the deliberately false statement.
Fraud Disclosures
insurance applications and claim forms must contain a disclosure about how false statements and fraud will be treated by the insurer
Denial due to HIV
insurance companies may refuse to issue a policy to individuals based on positive HIV test results - applicants must be tested for HIV and be informed that testing for HIV may determine insurability
Errors and Omissions
insurance covering the liability of a producer or agency, typically written w a deductible to reduce claims frequency. Claims are filed due to client reports (complaints) and for a number of reasons. The most common complaints are: - Inadequacy - Negligence
Attained Age
insured's age at any point in time, typically used at renewal or conversion
Issue Age
insured's age on the policy issue date
Fraud
intentional deception of the truth in order to induce another to part w something of value or to surrender a legal right
Interest
interest earnings are also used in calculating premium. - Insurance premiums are paid in advance and insurance companies invest these premiums and assume a certain rate of interest will be earned. - the earned interest reduces the amount of premium paid
Credit Term Life Insurance
is a special form of decreasing term - unlike the standard decreasing term, it automatically names the creditor as the beneficiary - the policy cannot be written for more than the outstanding debt, since that is the limit of the creditor's insurable interest - once loan is paid out, the policy ends
Juvenile Insurance (Specialized Policies)
is any policy written on the life of a minor - a common form is a "Jumping Juvenile" policy which provides an automatic increase in the face amount at a given age (usually age 21 to 25) without evidence of insurability - the premium remains level for the life of the policy, and the usual increase in the face amount is 5 times the issue amount
Admitted (Authorized) Insurer
is authorized by this State's Commissioner of Insurance to do business in this state and has received a Certificate of Authority to do business in this state
Interest (Universal Whole Life Insurance Feature)
is credited to the cash value on a monthly basis at the current interest rate, but will never be less than the guaranteed minimum rate established at the time the policy was issued
Characteristics of Traditional Whole Life (Permanent Insurance)
is designed to provide coverage for an entire lifetime - it is permanent protection that matures (endows) at the insured's age 100 (or to age 121 if the policy is based on the 2001 Mortality Table) when the face amount equals the cash value - insurers assume that the insured will not live to age 100 - if the insured is still living at age 100, however, the insurer pays the face amount to the owner - unlike term insurance, a whole life policy cannot be convertible
General Account (Variable Whole Life Insurance)
is fixed and guaranteed and provides for guaranteed minimum death benefit to age 100. Policy loans are available from this account
Insuring Clause (Proof of Death)
is found on the first page of the policy and is considered the most important clause in the policy. It identifies the parties to the contract and the perils or conditions in which it will pay - it is the insurance company's promise to pay the policy's death benefit to the named beneficiary, are receiving proof of death of the insured, as long as the policy is in force
Separate Account (Variable Whole Life Insurance)
is invested in equity securities as offered by the insurance company - the owner may select which separate account they want the premium to be invested in - the cash value in this account will fluctuate based on market conditions and performance, which is similar to a mutual fund - the policyowner has an opportunity to achieve higher investment returns and may also act as a hedge against inflation - there is no guaranteed minimum return on the cash value in this account
Declined
is not a ratings classification, but a decision that the risk is one for which the insurer refused to issue insurance - in this case the applicant is deemed uninsurable
Trial Application
is one submitted without a premium. The policy would not take effect until the policy is issued by the insurer, delivered by the agent and the premium is paid
Beneficiary Designation
is selected at the time of application. a beneficiary can be change by endorsement to the policy, or by written request filed or recorded with the insurer - a change by endorsement requires the insurer to add an endorsement to the policy, naming the new beneficiary, and mailing it to the policyowner
Mortality Charge (Universal Whole Life Insurance Feature)
is the cost of pure insurance, and is deducted monthly - although it is deducted monthly, it is determined annually based on the mortality risk of each age group - the increase in the cost of the mortality charge is limited to a policy maximum - the insurance protection is considered annual renewable term
Accounts in VULs (Variable Universal Whole Life Insurance)
it does not have a general account, only a separate account, and there is no guaranteed minimum death benefit - all values in the policy will fluctuate based on the performance of the separate account - because there is no guaranteed return, the owner bears all investment risk
estoppel
judicial denial of a contractual right based on prior actions contrary to what the contract requires
Estate Creation (Personal Life Insurance)
life insurance proceeds paid in a lump sum provide financial assets to create an immediate estate the insured can pass on the survivors
Personal Uses of Life Insurance
life insurance reduces uncertainty, giving a greater peace of mind while replacing the possibilities of a larger loss (income) with a known smaller loss (premium) - it does not eliminate risk; it reduces the loss by transferring the larger risk from the policy owner/insured to the insurance company
Term Life Insurance
lowest of initial premium outlay and designed for someone w a large insurance need but w limited cash flow - is often referred to as temporary, as it is usually written to cover a short time period - the policy does not build cash values and the benefit will either remain level, increase, or decrease depending on the type of policy - is typically used to cover mortgages, short term obligations, or for younger couples with one more children
Lump Sum Structured Settlements (Annuity Personal Uses)
lump sum payments from lawsuits, lottery winnings, or an inheritance can be used to purchase a structured settlement in the form of an annuity - the annuity can then be used to provided guaranteed lifetime income to the annuitant
Cash Value
money accumulated in a permanent whole life policy that is considered a living benefit which the policyowner may borrow against or receive if the policy is surrendered before the insured dies
Convicted Felon Applicants
must apply for Consent to Work (1033 Waiver) in the business of insurance--prior to applying for an insurance license
Change of Contract (Modifications)
must be in writing, signed by an executive office of the insurer, approved by the policyowner and made part of the entire contract - a producer cannot alter, change, modify or waive any policy provisions
Excess Interest Provision (Provisions Specific to Cash Value Policies)
the interest earned on the cash value above the minimum guaranteed rate - this interest is added to the cash value and may be applied to pay future premiums payments
Privacy Notices
must explain: - the information collected about the consumer - where that information is shared - how that information is used - how that information is protected - must also identify the consumer's right to pot out of the information being shared with unaffiliated parties pursuant to the provisions of the Fair Credit Reporting Act
Status Clause Exclusion
no coverage for individuals with military status, since these individuals are provided coverage through the government
Hazardous Hobbies or Avocation Exclusion
no coverage if death is related to a hazardous hobby as stated in the policy, such as sky diving or hot air ballooning
Hazardous Occupation Exclusion
no coverage if death is related to a hazardous occupation as stated in the policy, such as stunt drivers or auto racers
Results Clause Exclusion(War Clause)
no coverage if death is the result of war declared or undeclared. If death occurs during the period of war, only the premiums are refunded
Policy Summary
normally, a computer-generated illustration detailing: - Premiums to be paid and current interest rates - guaranteed and non-guaranteed cash value and project dividends, if any. Is not require to show time value of money - surrender values and other guaranteed data pertaining to the policy being shown - The producer's name and address, along with the address of the insurance company
Constructive/Legal Policy Delivery
occurs only if the premium was paid at the time of application - once insurer issues the policy, a legal contract has been form - once the policy is mailed to the producer it is considered constructive or legally delivered - it still the producer's responsibility to obtain delivery signatures and explain policy benefits to the policyowner/insured
Subrogation
occurs when a claim is paid by the insurer who has the contract and the right to take legal action against a negligent third party who may have caused the loss. Life policies has no right of subrogation
Fixed Amount (Life Settlement Option)
payments are for a specified dollar amount paid monthly until the benefits, along w the interest, are exhausted - with this option, the interest will extend the time period in which the benefits are paid. Only the interest portion of the benefit is taxable
Annuity Payments
once a contract is annuitized, the insurance company takes ownership of funds in the account. In return, the annuitant is entitled to a guaranteed income stream based on the terms of annuitization - depending on option chosen, the annuitant may be able to name a beneficiary to receive any remaining benefits available upon the annuitant's death - annuity income is based on annuity tables which are similar to mortality tables used for life insurance - other factors that determine the income include the accumulation period, interest rate return, age and gender of the annuitant, and the payment option selected
Beneficiary
one or more "parties" named in the policy to receive the policy proceeds, or death benefits, if the insured dies while the contract is in force
Contract of Adhesion
one party (insurer) prepares the contract and presents it to the other party (applicant) on a "take-it-or-leave-it" basis, without negotiation. - any doubt or ambiguity in the document is construed in favor of the party that did not write it (insured)
Factor for Needs Analysis
pay off a mortgage or other debt
Assignment
the transfer of ownership. There are two types: - Absolute Assignment - Collateral Assignment
Fixed Period (Life Settlement Option)
payments are guaranteed for a specified period of time, such as 10 to 20 years after which time payments will cease - the proceeds and interest are used to make the payments - the interest will increase the amount of each payment, and the interest is taxable
Joint and Survivor Income Option
payments are guaranteed for the lifetime of 2 or more recipients - Upon death of the first recipient, payment continues to the survivors until death of the survivor - the survivors payment may be full (100%), 2/3, or 1/2 of the original payments - The payout option may be referred to as joint and Full Survivor, Joint and 2/3 Survivor, or Joint and 1/2 survivor, depending on which option is selected
Straight Life (Pure or Life Income Only)
payments are guaranteed for the lifetime of the recipient - upon death, payments will cease - the dollar amount of each payment will depend upon the age and gender of the recipient - this is an example of a single life option since payments will not be made to anyone other than the original recipient
Life Income Period Certain
payments are guaranteed for the lifetime of the recipient or a specified period of time, whichever is longer - if the recipient dies prior to the end of the period certain, the payments continue to another person until the end of the period certain
Joint Life Income Option
payments are guaranteed to 2 or more recipients until the first recipient dies, then all payments cease
Life Refund
payments are made for the lifetime of the recipient - Upon death, if a recipient has not received an amount equal to the total death benefit, the balance is refunded to the beneficiary either in a lump sum called Cash Refund, or in installments as in the Installment Refund
Indemnity Contract
pays a specified dollar amount as stated in the contract up to the amount of the actual loss. These contracts are considered reimbursement plans
Paid-up Option (Dividend Option)
pays off the policy more quickly than scheduled. If the company's overall performance declines, premiums may have to be resumed
Option A Death Benefit (Universal Whole Life Insurance)
pays the face amount of the policy and provides a level death benefit - as cash value increases, the company's risk decreases - if cash value approaches the face amount, the death benefit must increase so as to provide for this amount of risk - the minimum separation between the cash value and the death benefit is called the "risk corridor" - this corridor of insurance is automatic and does not require insurability and prevents the policy from maturing too earl
Option B Death Benefit (Universal Whole Life Insurance)
pays the face amount stated in the contract which is level term, plus any cash values accumulated over the years - this provides for an increasing death benefit - the mortality charge for this option is greater than Option A
Security (Personal Life Insurance)
peace of mind knowing that future insurability is not an issue, and benefits will be in place as long as the required premiums are paid
Contract Law
pertains to the formation and enforcement of contracts
Policy Loan Rate Provisions
policy loans with fixed rates can have a minimum fixed interest rate of 8% or less as stated in the policy - for policy loans w a variable interest rate, the maximum rate is based upon Moody's corporate bond yield average and is stated in the policy - the policy loan amount cannot exceed the available cash surrender value
Extended Term (Nonforfeiture Options)
present cash value is used to buy a single premium term policy of the same face amount for as long a period it will buy, expressed as a combination of years and days. - this option provides the largest death benefit and is sometimes referred to as the Automatic (or Default) option if no other option has been selected. - The insured no longer has rights to the cash value under this option, and the policy will expire prior to age 100
Reduced Paid-Up (Nonforfeiture Option)
present cash value is used to buy a single premium, permanent paid-up policy of a reduced face amount - this option provides the longest period of coverage provided by a nonforfeiture option - Coverage, although reduced in face value, will continue to age 100
Death Benefit Payments
principal payments made after an insured's death are not taxable as income. However, any interest received from a settlement option distribution is taxed as ordinary income. Benefits paid in a lump sum are income tax free
Advertising
producers are governed under the rules and regulations (referred to as Unfair Trade Practices) with regard to what they can and cannot use or say when soliciting insurance
Sales Presentation
producers are required to provide all prospective buyers the following: - Buyer's Guide - Policy Summary and they must be provided no later than at the time the policy is delivered
Fair Credit Reporting Act
protects consumer privacy and protects the public from overly intrusive information collection practices. It ensures data collected is confidential, accurate, relevant, and used for a proper and specific purpose. - when an application is taken, it must inform the applicant a credit report can be obtained to determine financial and moral status of an applicant - an applicant has the right to review the report
Factor for Needs Analysis
provide funds for children's education
Factor for Needs Analysis
provide lifetime income to the spouse
Graded Premium Whole Life Insurance
provides a level death benefit and requires that premiums be paid for the life of the policy - the premium starts off lower than traditional whole life and increases each year for the first 5-10 years and then remains level for the life of the policy - in the later years of the policy, the premium is greater than a Whole Life policy
Modified Premium Whole Life Insurance
provides a level death benefit and requires that premiums be paid for the life of the policy (to age 100) - the premiums do not remain level - the policy begins with a premium lower than ordinary whole life for the initial 5 years. After the first 5 years, the premium will increase and remain level throughout the balance of the life of the policy - this type of policy was designed for individuals who cannot afford the premiums of ordinary whole life in the earlier years - because the premium are lower in the first few years, the cash value will take longer to accumulate, and it does not offer immediate cash value
Interest Adjusted Method (Policy Cost Comparison Method)
provides an estimate of the average annual out-of-pocket net premium which is adjusted for the time value of money
Nonfamily Rider
provides coverage on an additional insured, other than a spouse or child, such as a business partner - Insurable interest must exist at the time the rider is added
Ordinary Whole Life Insurance
provides insurance protection to age 100, cash accumulation to age 100, and fixed level premium payments. These premium payments can be structured as: - Straight Life or Continuous Premium - Limited Payment - Single Premium
Child Rider
provides level term coverage on the life of all the insured's children - this rider is usually offered at one premium rate and may cover newborns after 14 days of life and adopted children who can be added to the coverage without increasing the premium - the children have coverage to a specified age (21 to 25) and are usually given the option to convert to a permanent policy without evidence of insurability
estate conservation (Personal Life Insurance)
provides money to pay any estate taxes or loans which must be settled upon the death of the estate owner (the insured) preserving the insured's estate
Common Disaster Clause
provides that if an insured and primary beneficiary are in the same accident, the primary beneficiary must survive the insured by a specific number of days (usually 90) or the insurance company will assume the insured dies last - the provision is designed to pay the benefits to either the contingent beneficiary or the insured/policyowner's estate if no contingent beneficiary has been designated
Survivor Protection (Personal Life Insurance)
providing funds for surviving spouses and dependents
1-Year Term (Dividend Option)
purchases a single premium, 1-year term benefit - premiums are calculated at the insured's attained age; also referred to as the fifth dividend option
Negligence (Errors and Omissions)
quoting inflated information, misrepresenting a plan of coverage, or neglecting to reveal the effect information might have on the client at a later date. The producer may be guilty of negligence whether the mistakes are intentional or unintentional
Rated-Up Age
rates an insured at older than actual age
Dishonesty (Violent Crime Control and Law Enforcement Act of 1994)
refers to misrepresentation, untruthfulness, falsification
domicile
refers to the jurisdiction where an insurer is formed or incorporated
Admitted vs. Non-Admitted
refers to whether or not an insurer is approved or authorized to write business in this state - the domicile does not impact whether an insurer may be admitted to do business in this state
Gramm-Leach-Bliley Act (The Financial Services Modernization Act of 1999)
repealed parts of the Glass-Steagall Act of 1933 to allow the merger of banks, securities companies, and insurance companies. It also established the Financial Privacy Rules and Safeguards Rule for the protection of consumers' privacy
Disallowed Information (FCRA)
report must not include lawsuits over 7 years old or bankruptcies more than 10 years old
MIB Coded Reports
represent general medical information and other conditions affecting the insurability of the applicant. - if the reports are inconsistent w the information provide by the applicant, underwriters are required to conduct a further investigation to obtain more information about the reported medical histories or conditions prior to making an underwriting decision - because the information is general, it cannot solely be used to decline an applicant for insurance
Dividends
represent the favorable experience of the insurer and result from excess investment earnings, favorable mortality and expense savings
Financial Privacy Rule
requires "financial institutions," which include insurers, to provide each consumer with a privacy notice at the time the consumer relationship is established and annually thereafter. In insurance, the consumer relationship is created when the policy is issued to the client. Application information remains confidential and cannot be used for other purposes without prior notice to the consumer.
Surrender Charge Schedule
shows what percent of the cash value is subject to a surrender charge - it typically shows the percentage charge, reducing on an annual basis
Tax-Deferred Growth (Deferred Annuity Characteristics)
since an annuity is an insurance contract, the accumulation value grows tax deferred - deferred annuities allow for the naming of a beneficiary to receive any policy values if the annuitant dies prior to annuitizing - withdrawals prior to age 59 1/2 are subject to income tax and generally receive a 10% tax penalty as well - systemic withdrawals are allowed as a way to access the policies values without having to elect a settlement option
Consideration Clause
specifies the amount and frequency of premium paid by the owner as something of value provided in exchange for the company's promise to pay (insuring clause)
Warranties
statements in the application or stipulations in the policy that are guaranteed true in all respects - if warranties are later discovered untrue or breached, coverage is voided
representations
statements that are believed to be the true to best of the knowledge and belief of the applicant/insured at time of application
Material Representations
statements that impact the acceptance of an insurable risk--whether involving the rating of an acceptable risk, or the decision as to whether to accept or decline a risk
Factor for Needs Analysis
subtract any assets available to fund financial needs after death
Industrial (Home Service) Life Insurance
synonymous with debit life insurance and makes up only about .03% of life insurance today. These small policies, normally $250 to $1,000 were originally sold to pay funeral expenses
Net Premium
takes into account interest and mortality factors only - Mortality - Interest = (Net Premium)
Re-Entry Term Option
term policies with this option will allow the insured, upon the end of the original term, to renew based on attained age and may qualify at a discounted rate by providing evidence of insurability - typically w an annually renewable term policy the term automatically renews as long as the premiums are paid - it will allow the insured to renew at a lower rate than renewable term as long as the insured meets the qualifications of insurability
Federal Level Regulation
the McCarran-Ferguson Act of 1945 established that the federal government will not regulate the business of insurance in areas where the state has historically had the authority to do so unless the state fails to cooperate - congress created federal agencies to provide regulatory oversight impacting insurance practices
Insurability
the ability of an applicant to meet an insurer's underwriting requirements
Conservation
the act of saving or keeping the existing policy and preventing it from being replaced
Expense
the amount charged to cover each policy's share of expenses of operation is called expense load - this can vary from company to company based on its operations and efficiency
Lump Sum (Annuity Period)
the annuitant has the option of cashing out the annuity in a lump sum instead of electing to receive a stream of income - there could be tax consequences and tax penalties depending upon when this occurs
The Annuity Period (Pay-Out/Liquidation)
the annuitization period begins once the policyowner elects to convert a deferred annuity into an income benefit payment - the settlement option selected can provide a temporary or lifetime payment - if a lifetime benefit is selected, in most cases it is an irrevocable election - the cash value goes towards paying for the income benefit
Changes in Adjustable Life
the changes can be exercised annually and are not retroactive - for example, these changes can be exercised annually and are not retroactive - a policyowner is not allowed to decrease the premium starting on a previous date - changes can only be made on a policy anniversary date as approved by the insurer
Individual Selection Criteria
the insurer uses information collected by the field underwriter and other sources to determine the insurability of an individual - is ultimately the home office underwriter's responsibility to determine if an individual meets the underwriting requirements of the insurer
Children in Family Protection Plan
the children are covered by a single level term insurance rider with one premium covering all of the children under age 18 who meet underwriting guidelines - newborn or adopted children will automatically be covered once they are 15 days old without an additional premium as long as the insurer is notified in writing - the children's coverage is also convertible to a whole life policy at a specified age (up to age 25) without proof of insurability
Acceptance (Approval) Conditional Receipt
the coverage becomes effective application approval. If the company doesn't approve the application, coverage was never in effect
Effective Date
the date when insurance coverage begins
Expiration Date
the date when insurance coverage ends
Face Amount
the death benefit amount payable or coverage provided on a life insurance policy. This is also referred to as the limit of liability
Decreasing Term Insurance
the death benefit decreases, but premiums remain level for the policy term - they are often sold as mortgage protection w the amount of insurance decreasing as the balance of mortgage decreases - if insured dies, the proceeds of the policy can be used to pay off the mortgage - the premiums paid are lower than the premiums payable for level term since the benefit decreases throughout the term of the policy
Increasing Term Insurance
the death benefit increases over the life of the policy while the premiums remain level - is usually written as a rider to provide cost of living return of premium benefits
Death Benefits and Separate Accounts (Variable Whole Life Insurance)
the death benefit is tied to the separate account and also varies along with the performance of the separate account - death benefits are recalculated annually - while the account value may decrease, the policy will never pay less than the guaranteed death benefit in the general account - since there is no guaranteed return on this account, the owner bears all investment risk
Interest Only (Life Settlement Option)
the death benefit proceeds may be left with the insurer while interest payments are paid at least annually or more frequently - the principal amount does not decrease, and the interest generated is taxed as ordinary income when paid to the beneficiary - this method of providing incomes is known as capital conservation - the principal is left with the insurer at interest, conserving the capital - when this option is selected, the owner or beneficiary must direct the insurer as to when the principal will be paid as a benefit
Level Term Insurance
the death benefit remains level and the premiums remain level during the policy term
Surrender Charge
the difference between the cash value and the cash surrender value - this provides a means for the insurer to recapture the upfront expenses involved in issuing the policy
Accumulate at Interest (Dividend Option)
the dividends are retained by the insurer and the interest rate paid the policyowner is compounded annually
Annuitization (Annuity Period)
the election to receive payments from the annuity for life, or for a specified period depending on the settlement option selected
Single Premium (Ordinary Whole Life Payment)
the entire premium is paid in a lump sum at the time of purchase and creates immediate cash value - the face amount remains level and cash value continues to earn interest and mature at age 100 - this policy has the lowest total premium outlay for the life of the policy
Estate (Beneficiary Designations)
the estate may be the tertiary beneficiary in case the insured outlives all other beneficiaries - by default, if the insured outlives all other beneficiaries, benefits are paid to the insured's estate - the death benefit increases the estate value and may have tax implications
Existing Insurer
the insurer who issued the policy to be replaced
Retirement Income (Annuity Personal Uses)
the funds accumulated inside an annuity can be used to fund all or part of a consumer's retirement income. The accumulated funds can be used to purchase a settlement option which can provide for a lifetime income stream or an income stream that can end prior to the annuitant's death - the income received will be tax-free as far as the portion of the payments is counted as a return of premium while the balance would be taxable as ordinary income - if premiums were deductible, then the entire income received would be subject to tax - Guaranteed Minimum Withdrawal Benefit (GMWB)
Individual Life Insurance
the greatest difference between this and group life insurance is the full latitude of ownership - unlike group policies, individual policies may be of any classification or type of insurance - they may also build or preserve an estate or provide a living benefit for the terminally ill - they leave the decision of keeping the policy to the policyowner
Annuitant Beneficiary
the individual or the person named in the contract to potentially receive benefits if the owner and/or annuitant die prior to annuitization or if the settlement option selected offers any residual benefit after the annuitant's death - as with life insurance, annuities may have beneficiaries named and designated by the owner prior to the annuitization or guaranteed payment period. The beneficiary may be named at receipt of the first purchase payment and may only be changed by the owner - During accumulation period, if contract owner and annuitant are the same person and the designated beneficiary is the annuitant's spouse, the IRS code allows the spouse to assume ownership of the annuity option upon death of the annuitant - all rights of ownership are assumed to include tax deferment
Annuity Owner
the individual who controls the contract and is responsible for making payments into the contract as well as having all of the contractual rights in the policy
Policyowner
the individual who has ownership rights in a policy. Any changes made to a policy must be approved by this person in writing with his/her signature
Annuitant
the individual whose life the contract is base upon. Upon a lifetime annuitization, payments will be made to this person based on their age, gender, settlement option selected, and dollar amount used to fund the income benefit payments
Notice of Information Practices and Disclosure (FCRA)
the insurance company must meet requirements under the FCRA when gathering info from a 3rd-party to use during underwriting - the applicant must be notified and give consent for information to received by the third party - this info is disclosed as part of the application - the signature on the application by the applicant serves as the notice of information practices and gives the insurance company the right to obtain various investigative, medical, and financial reports to complete the underwriting process - if insurer declines coverage, the applicant will have the right to obtain a copy of all reports from the reporting agency, this is referred to as post application consumer review
Adjustable Face Amount (Universal Whole Life Insurance Feature)
the insured can increase or decrease the face amount of the policy. An increase in the face amount will require evidence of insurability
Principle of Indemnity
the insured is intended to be restored to the same financial or economic condition that existed prior to the loss, depending on amount and type of insurance purchased - the insurer should not profit from an insurance transaction, but be made "whole again"
Interest Rate and Variable Annuity
the investment return varies according to the separate account selected based on the assumed interest rate (AIR) - if the actual return is lower than the AIR, the monthly annuity payment will be reduced - if the actual return is equal to the AIR, the monthly annuity payment will remain the same as the previous month - If the actual return is greater than the AIR, the monthly annuity payment will increase from the previous month
Risk Corridor (Universal Whole Life Insurance)
the minimum separation between the cash value and the death benefit - it is automatic and does not require insurability - it prevents the policy from maturing too early
Policy Reserves
the net premiums paid plus interest earned; reflect possible contract obligations - a reserve is an amount representing actual or potential liabilities kept by an insurer to cover debts to policyholders. A reserve is usually treated as a liability
Absolute Assignment
the original owner, the assignor, will name a few owner, the assignee of the policy. Since a new owner is named, this is considered a permanent assignment. The full amount of the policy is assigned, and this is referred to as a transfer of ownership
Surrenders
the owner of a cash value policy may surrender the entire policy. This will cancel insurance coverage - the policyowner is entitled to receive the cash surrender value in the policy - Universal Life and Variable Universal Life policies may have a surrender charge schedule which might last 10-20 years
Insurer
the party who indemnifies for losses
Accumulation (Pay-In) Period
the period of time from the first deposit to the selection of a settlement option, and taxes during this period are deferred - they are only found within deferred annuities, not immediate annuities
Endow (Mature)
the point at which the policy's cash value in a whole life policy accumulates to equal the face amount and the proceeds are paid to the policyowner
Fixed Life Insurance
the policy has a fixed amount of coverage, benefits and premium. Without riders, future inflationary trends will cause the purchasing power of the policy's benefits to be reduced
Exemption from Creditor Claims/Probate (Personal Life Insurance)
the policy's value are normally exempt from any creditor claims, unless the policy was assigned as collateral for a loan that still exists at the time of the insured's death
Revocable beneficiary
the policyowner may change this beneficiary at any time. They do not have a vested interest in the policy. - Most beneficiaries are this type and have no rights
Irrevocable beneficiary
the policyowner may not change an irrevocable beneficiary unless the beneficiary dies or provides written consent for the change - if one is named, the owner may not make changes to the policy without consent of the beneficiary - these changes include assigning the policy, canceling or surrendering the policy, or taking a policy loan - they have a vested interest in the policy benefits - a divorced spouse has a vested interest in the policy is an example
Policy Loan or Partial Withdrawal in VULs (Variable Universal Whole Life Insurance)
the policyowner may take a policy loan or partial withdrawal from the cash value without terminating the contract
Cash (Dividend Option)
the policyowner receives the declared dividends in the form of a check on or near each policy anniversary
Owner's Rights (Ownership Provision)
the policyowner retains all rights in the policy. The policyowner has the right to name or change revocable beneficiaries, borrow against the cash values or access living values, receive dividends and select among the dividend options available, and assign the policy on a collateral basis or an absolute basis, to name a few. It is also the policy owner's responsibility to make premium payments. The beneficiary does not have rights in the policy - unless the insured is the policyowner, the insured does not have rights
Fixed Premium (Variable Whole Life Insurance)
the premium is determined by the insurer and remains fixed and level throughout the contract
Straight Life or Continuous Premium (Ordinary Whole Life Payments)
the premium is level and payable to age 100 or death of the insured, whichever comes first - the face amount remains level throughout the life of the policy - this policy has the highest total premium outlay
Fixed Premium
the premiums are scheduled as to time and amount, such as $100 per month, and cannot fluctuate
Premium Payments and Variable Annuity
the premiums made during the accumulation period may be flexible in amount and frequency limited only to the contract's provisions - premiums purchase accumulation unit of the separate account - they are similar to shares of a mutual fund - upon annuitization, accumulation units are converted into annuity units - the number of annuity units liquidated remains level, but the unit value fluctuates, based upon the performance of the separate account
Medical Information Bureau (MIB)
the primary purpose is to collect adverse medical information about an applicant's health and act as an information exchange - it is a member-owned corporation that operates on a not-for-profit basis in the US and Canada - The Underwriting services are used exclusively by member life and health insurance companies to assess an individual's risk and eligibility - these services "alert" underwriters to fraud, errors, omissions or misrepresentations made on insurance applications and it may help lower the cost of life and health insurance for consumers
Underwriting
the process of selecting, classifying, and rating a risk for the purpose of issuing or not issuing insurance coverage
insurable interest
the relationship that must exist between the applicant and insured, at the time of application and policy issuance, in order for the contract to be valid
Convertible (Special Features of Term)
the right to convert the existing term policy to a permanent policy without evidence of insurability during the conversion period specified in the contract - the premium can be based upon attained age or issuer age - the premiums will be higher than the original policy since the permanent policy will provide a cash value and coverage can last to age 100 or beyond - if the conversion is based on the issuer or original age, back premiums plus interest will be required to be paid out at the time of conversion
Annually Renewable Term
the simplest form of term insurance is for one year - the death benefit remains level and the premiums increase yearly as the policy renews up to a specified age - while it is very inexpensive initially compared to other types of life insurance, over time it can become cost prohibitive - the death benefit is paid by the insurer if the insured dies while the policy is in force
Family Policies (Specialized Policies)
the special needs of families with young children can be addressed with "Family Income" or "Family Maintenance" policies - both policies being with a base policy of whole life insurance usually written on the parent with the largest income and greatest risk of death - this provides insurance protection to the insured's age 100 - to this base policy, a term insurance rider is attached that is designed to provide a monthly income to the survivor if the insured dies during the specified term which greatly increases the total insurance amount without affecting the cash accumulation feature of the base policy - each policy provides insurance protection on one parent - A third policy, the Family Protection Plan, provides insurance protection on the entire family
Grace Period
the time period provided after the premium due date before a policy lapses - if the insured dies during this period, the death benefit is payable minus any premiums or loans due - the typical time period is a month unless state law specifies otherwise - Coverage continues during the grace period, but if the premium is not paid, the policy lapses at the end of the grace period
Nonforfeiture Options (Guaranteed Values)
these options are found in policies that accumulate cash values and protect the policyowner against total loss of benefits if the policy should lapse due to nonpayment of premium or is intentionally cancelled - there are three different types: -- Cash Surrender --Reduced Paid-Up -- Extended Term
Policy Loans in VULs (Variable Universal Whole Life Insurance)
they are allowed in Variable Universal Whole Life policies and are available based on the amount in the separate account - typically 75-90% of the cash value can be borrowed
Premium Determination (Life Insurance)
they are based on expected mortality, interest, and expenses
Concept of an Annuity
they are used primarily to provide a steady stream of income to an individual typically upon retirement - in theory, an annuity is designed to protect against outliving an individual's retirement income by providing lifetime income - one of the primary functions of an annuity is to liquidate an estate, or to pay benefits until the death of an annuitant - in direct comparison to life insurance, an annuity could be referred to as the opposite of a life insurance policy - they are funded and sold through life insurance companies and require at least a life insurance to sell
Annuitant's Owner's Rights
they begin at the time of purchase. They may also be the annuitant and may change the annuity date, beneficiary, and payout option
Term Riders
they may be attached to any permanent policy, interest sensitive, or term policy to provide additional insurance protection for a fixed period of time - if the need for additional coverage is temporary, this rider is more cost effective than buying another policy
Immediate Annuity
this annuity does not have an accumulation period and is used to generate immediate income within a year of the issue date
Deferred Annuity
this annuity will pay periodic benefits starting at some specified time in the future; benefits being more than 1 year from the issue date
Needs Analysis
this approach determines a need for coverage upon the premature death of an individual - it always assumes the death of the individual to be immediate and factors different items to determine the amount of coverage needed
Human Life Value
this approach is a measure of the projected future earnings of a person at risk in the event of a premature death - the objective is to provide the proper amount of coverage as determined by the value of the individual to his/her dependents using certain factors - this method takes inflation into consideration when determining the amount of insurance coverage needed
Class or Classification
this designation is used in instances where each beneficiary is not directly identified by name - the wording must be specific and carefully worded to remove any doubt of the owner's intentions
Individual/Named
this designation is very specific. An individual is specified by name as the beneficiary, such as Mary Doe or John Doe. This prevents probate proceedings
Life Income Options (Life Settlement Option)
this option allows the insurer to use the death benefit to purchase an annuity on behalf of the beneficiary - as with other settlement options, any interest paid is taxed as ordinary income - There are several options w the Life Income Option
Jumping Juvenile Policy
this policy provides an automatic increase in the face amount at a given age (usually age 21 to 25) without evidence of insurability - the premium remains level for the life of the policy, and the usual increase in the face amount is 5 times the face amount
Return of Premium Term (Specialized Policies)
this policy provides for a full refund of premiums if the insured is still living at the end of the term - these policies charge a higher premium than level term insurance
Family Protection Plan (Family Policies) (Specialized Policies)
this policy provides protection on the entire family
Mode of Premium
this provision addresses the frequency of premium payments and to whom the premiums are payable - the more frequent the premium, the greater the cost - the policyowner has the right to change the premium mode
Change of Plan
this provision allows the policyowner to exchange a policy to another policy issued by the same company - as long as the benefits do not increase, most companies do not require evidence of insurability - term insurance may have a conversion option allowing the policyowner to exchange the policy for a cash value policy - permanent policies are typically exchanged for other types of permanent policies - if a plan switches from a higher premium, to a lower premium, the insurer will reimburse the difference in cost between the two plans
Entire Contract Clause
this provision describes the parts of the life insurance contract. It consists of the policy, riders (endorsements), amendments, and a copy of the application - all statements made in the application, in the absence of fraud, deemed to be representations and not warranties - all parts to a contract must be attache and in writing - nothing can be incorporated by reference
Automatic Premium Loans (APL)
this provision must be elected by the policyowner and can be cancelled at any time. It enables the insurer to automatically borrow against the cash value to cover a premium payment to prevent the contract from lapsing unintentionally - available on cash values only and does not require an additional premium - it becomes effective at the end of the grace period - is treated as all other loans - if used to pay premiums, interest on the loan accumulates on an annual basis
Accidental Death and Dismemberment Rider
this rider provides a benefit in addition to the base of the policy - it pays 100% of the amount of the rider, known as the principal sum, upon accidental death - if the insured suffers an accidental dismemberment loss, such as loss of a limb or eyesight, the rider pays 50% of the rider amount, known as the capital sum - Double dismemberment benefits (loss of 2 limbs or total eyesight) are provided at 100% of the rider - benefits of the rider are only payable if the loss is accidental and occurs within 90 days of the accident - typically expires at age 65
Spouse (Other Insured) Rider
this type of rider will provide level term coverage on the life of the insured's spouse - it will also provide a conversion provision permitting the spouse to convert to permanent coverage without evidence of insurability prior to the termination of the rider or upon the death of the insured under the basic policy
Income Objective
to analyze the insurance needs in, Human Life Value, and Needs Analysis, the producer must also take into consideration the income objective of the proposed insured - the producer can use two method of income objectives to arrive at the amount of insurance needed to fill the human life value or needs analysis requirement -- Capital Liquidation -- Capital Retention/Conservation
Tax Penalty (Annuity Nonforfeiture Provisions)
to discourage the use of annuities as short-term tax shelters, a 10% penalty tax is levied against any premature withdrawals prior to 59 1/2 years of age - this discourages withdrawals - the tax penalty does not apply if premature distributions occur due to the death or disability of the contract owner
Charities (Personal Life Insurance)
to help fund favorite charitable organizations upon the insured's death
Long-term Care Benefit (Annuity Personal Uses)
today's annuities may offer riders which will help offset some of the costs associated with providing long-term care. As with most riders there is an additional cost associated with it - a few companies offer a combination deferred annuity and long-term care policy that allows for the leverage of single premiums 3-to-1 or 2-to-1 - generally the annuity values must be used then if needed the long-term care benefit kicks in - the annuity funds used for long-term care costs are tax-free
Collateral Assignment
typically used when an insurance policy is used as collateral for a loan. this is a temporary assignment until the debt is paid in full - in this case, the assignor is the original owner and the assignee is the creditor - the assignment takes precedence over the beneficiary - it can reduce the dollar amount of the beneficiary's claim at the time of the insured's death because the assignee has a priority claim against the policy and must be paid first - no assignment will be binding on the insurer unless it is in writing and received at the insurer's home office - insurer is not responsible for determining the validity of the assignment - does not cause a change in ownership, but the rights of the owner will be subject to the assignment
Loans and Partial Withdrawals (Universal Whole Life Insurance)
unlike other cash value policies, Universal policies give the policyowner the option to take a policy loan, but also to take a partial withdrawal from the cash value without terminating the contract
Rating Applicants
upon receipt of the information, such as the application, medical exam, blood and urine test results, etc. underwriters analyze the information and determine if the applicant is an acceptable risk. - If acceptable, underwriters then determine the classification to be used in calculation of the premium
Cash Surrender (Nonforfeiture Option)
upon surrendering the policy back to the insurer, the policy owner will receive the cash surrender value stated in the policy less any outstanding loans and accrued interest - any amount that exceeds the premiums paid into the policy will be taxable as ordinary income - the insured no longer has insurance coverage if this option is selected
Attending Physician Statement (APS)
used in cases in which the individual application and/or medical reports reveal conditions of which more information is required. The applicant's treating physician will complete this as a part of the applicant's medical history. An applicant must sign a written release to enable a release of the APS. The insurer pays for this
Mortality Tables
used to give the company a basic estimate of how much money it will need to pay for death claims each year. - by using it, a life insurer can determine the average life expectancy for each age group, based on the year of birth - it shows the life expectancy and death rate per 1,000 people living in the US - it allows the insurer to rate policies using the law of large numbers so accurate mortality predictions are extremely important - the higher the age group, the higher the mortality rate, meaning a higher premium - it shows that males have a higher mortality rate than females, so males will pay a higher rate than females
Statement of Good Health
verifies that the insured has not suffered any injury or illness, had any surgeries, or been admitted to a hospital since the application date
Waiver
voluntary surrender of a known right, claim or privilege
Reasonable Expectations Doctrine
what a reasonable and prudent policy owner would expect; the reasonable expectations of policy owners are honored by the Courts although the strict terms of the policy may not support these expectations
Surrender Charges (Annuity Nonforfeiture Provisions)
when a contract is fully surrendered, these charges will lessen the contract payout - this is referred to as a back-end load - these charges diminish over a stated number of years, set by the insurer, until the disappear
Trust (Beneficiary Designation)
when a recipient is not to have direct access to the death benefits, such as in the case of minor children, and the proceeds are to be distributed as per the insured's directions set forth in a trust - a trust beneficiary may also be used in estate tax planning strategies when using an irrevocable life insurance trust
Policy Delivery
when an insurer determines that an applicant is an acceptable risk, the insurer will send the policy to the producer for delivery - it is the insured's responsibility to deliver the policy and collect any premiums - the producer should explain the policy to ensure the policyowner/insured understands the benefits, including any ratings, endorsements, exclusions, and riders
Assumptions and Calculations (Premium Determination for Life Insurance)
when calculating premium rates, life insurer's assume that all: - premiums paid in advance of the period of coverage - premiums will be invested and earn interest - claims will be paid by the end of the year
Naming Multiple Primary Beneficiaries
when doing this it is important to indicate each beneficiary's share of the proceeds in percentages rather in dollar amounts unless they are to share the proceeds equally
No Initial Premium (Policy Delivery)
when initial premium is not paid w the application, the producer must collect the premium before coverage can begin - they must also get a signed Statement of Good Health from the applicant/insured at the time of policy delivery - if applicant is not in good health, the policy should be returned to the insurer for further underwriting
Reclassifications
when reviewing an application, the underwriter may find it necessary to reclassify the risk. This could either increase or decrease the risk
No Beneficiaries Alive
when there is no beneficiary alive, the proceeds are payable to the policyowner if living or to the insured's estate
Changes in the Application
whenever an answer to a question needs to be corrected, the applicant or producer makes the correction and the applicant initials the change, or the producer can complete a new application
Suicide Exclusion
within the first 2 years, death due to suicide is excluded from coverage as stated in the suicide clause
Incontestability Clause
within the first 2 years, the insurer may contest a claim and void the contract upon proof of a material misstatement or fraud. Except for nonpayment of premiums, the policy will be incontestable after it has been in force for typically 2 years from the policy issue date, even in cases of fraud
