Health & Life Insurance
also known as current-assumption whole life; this policy is characterized by premiums that vary to reflect the insurer's changing experience with regard to its mortality, investment, and expense factors
interest-sensitive whole life
develop an maintain a high level of knowledge and skill through concentrated study and dedicated work and acknowledge those cases or situations that are beyond the producer's skill level
ethical responsibility
standards of conduct and moral judgement
ethics
All risks are insurable
false
private insurers do not offer many lines of insurance
false
self-insurance is a method of transferring risk
false
speculative risks and pure risks are insurable
false
the shorter the premium paying period, the lower the premium
false
designed to insure all family members under one policy; coverage is sold in units
family plan policy
are organized under a special section of the Insurance Code
fraternal benefit societies
noted primarily for their social, charitable, and benevolent activities
fraternal societies
informing the prospect or client of all facts involving a specific policy or plan so that an informed decision can be made
full disclosure
an investment account that is composed of investments that are carefully selected to match the liabilities and guarantees of the contracts they back
general account
may operate strictly as managers or they may devote a portion of their time to sales
general agents
redistribute the premiums; premiums are lower than typical whole life rates during the first year issue and increase each year until leveling off after the preliminary period (usually five to ten years) at just above the typical straight whole life rate for an equivalent policy
graded premiums policies
written for employer-employee groups, associations, unions, and creditors to provide coverage for a number of individuals under one contract
group life insurance
non-traditional life insurance policies
interest-sensitive whole life, adjustable life, universal life, variable life, and variable universal life
one policy that covers two or more people; using some type of permanent insurance (as opposed to term) it pays the death benefit when one of the insureds dies; the survivors then have the option of purchasing a single individual policy without evidence of insurability
joint life policy
a special form of juvenile insurance; these policies are typically written on children ages 1 to 15 in units of $1,000 which automatically increase to $5,000 or five times the amount at age 21
jumping juvenile or junior estate builder
insurance written on the lives of children
juvenile insurance
allows the policyowner to renew the term policy before its termination date without having to provide evidence of insurability
guaranteed renewable policy
any factor that gives rise to a peril
hazard
evolved from scientific principles to provide funds for medical expenses due to sickness or injury and to cover loss of income during a disability
health insurance
another type of service provider that offer a wide range of health care services to member subscribers
health maintenance organization (HMO)
insurance is also sold through a special branch of the industry known as
home service or debit insurers
the value today of an individual's future earnings that are devoted to that individual's dependents
human life value
not all actions that are unethical (such as selling a prospect more life insurance than he can afford) are
illegal
with health insurance the risk is not when but if ______ or _______ will strike
illness or disability
with annuities the risk is living too long and outlasting one's
income
term insurance that provides a death benefit that increases at periodic intervals over the policy's term
increasing term insurance
works for himself or for other agents and sells the insurance products of many companies
independent agent
the premium rate can be adjusted based on the insurance company's anticipated future experience
indeterminate premium whole life policies
the face amount of ______________ automatically increases as the consumer price index increases
indexed whole life insurance
is characterized by relatively small face amounts (usually $1,000 to $2,000) with premiums collected weekly by the selling agent
industrial insurance
comparatively small issue amounts, such as $1,000, with premiums collected on a weekly or monthly basis by the agent at the policyowner's home
industrial life insurance
the producer has two main ethical responsibilities
inform the public about insurance with the highest level of professional integrity and display a high level of professionalism in all public contacts
is uniquely designed to replace the uncertainties of risk with guarantees
insurance
can also contract with PPOs to offer services to insureds
insurance companies
a device for accumulating funds to meet these uncertain losses
insurance policy
a device to accumulate funds to meet losses
insurance policy
legally binding contract
insurance policy
widely used today to compare policy costs; it is calculated in much the same way as the traditional net cost method, except that it adds the extra component of interest to the formula; the interest factor used is based on each company's projected intererst rate
interest adjusted net cost method
a variation of the joint life policy; also known as a second-to-die policy; this plan also covers two lives but the benefit is paid upon the death of the last surviving insured
last survivor policy
based on the science of probability and the experience of mortality (death) and morbidity (sickness) statistics
law of large numbers
the insurance producer who works the estate or business planning market works with other professionals such as
lawyers and accountants
the key to avoiding misrepresentation
learn the products and the iindustry and plan sales presentations carefully
time span representing the full premium-paying period with the amount of the premium spread equally over that period
level premium approach
provides a level amount of protection for a specified period after which the policy expires
level term insurance
different types of term life insurance
level term, decreasing term, and increasing term
based on actuarial or mathematical principles
life insurance
guarantees a specified sum of money upon the death of the person who is insured
life insurance
policies have level premiums that are limited to a certain period (less than life)
limited pay whole life
a ready source of funds that may be borrowed at reasonable rates of interest from the accumulation build-up of the whole life insurance policy
living benefits
a loan against one's own money
loan
a combination of both ethics and compliance referring to how insurance companies and producers conduct themselves in accordance with ethical standards and in compliance with rules and laws governing insurance policy sales, marketing and underwriting practices, as well as policy issuance, service, complaints, and terminations; synonymous with professional behavior
market conduct
each policyholder assumers a share of the risk brought to the company by others and they are managed by an attorney-in-fact
reciprocal insurers
lessen the possibility of loss by taking action to reduce the risk
reduction
an arrangement by which an insurance company transfers a portion of a risk it has assumed to another insurer
reinsurance
the company assuming the risk
reinsurer
are a specialized brand of the insurance industry because they insure insurers
reinsurers
as a rule, producers should avoid _____________ unless it is obviously so appropriate that they cannot in good conscience think it bes to leave an existing policy in force
replacement
varies from state to state but its broadest definition involves an action which eliminates the original policy or diminishes its benefits or values
replacement
a producer must sell the kind of policies that best fit the prospect's needs and in amounts that the prospect can afford
responsibilities to the policyowners
the principal must select honest, loyal, and hard-working producers to protect itself from potential liability
responsibilities to the principal
property loss such as the destruction of a home due to fire is an example of
risk
uncertainty regarding loss
risk
choosing not to drive or choosing not to fly so you never crash is
risk avoidance
the risk is transferred from an individual to a group with each member sharing the losses and has the promise of a future benefit
risk pooling
all forms of insurance (life, health, accident, property, and casualty) rely on
risk pooling and the law of large numbers
installing a smoking alarm in the home is
risk reduction
accepting the risk and confronting it if and when it occurs
risk retention
setting up a fund to offset the costs of a potential loss as a form of self-insurance is
risk retention
a mutual insurance company formed to insure people in the same business, occupation, or profession
risk retention group (RRG)
the loss is borne by another party
risk transfer
in a _____ agents represent the insurer and brokers represent the buyer
sales transaction
often used by large companies for funding pension plans and some health insurance plans
self-insurance
establishes its own reserves to cover potential losses
self-insurer
______ during and after the sale is just as important as selling to needs in meeting a producer's ethical responsibilities
service
a risk must involve the chance of loss that is fortuitous and outside the insured's control
the loss must be due to chance
must be one whose occurrence can be statistically predicted
the loss must be predictable
is to provide economic protection against losses that may be incurred due to a chance happening or event such as death, illness, or accident
the purpose of insurance
insurance is based on two fundamental principles
the spreading and pooling of risks
is a key ingedient of success in the insurance industry
ethical behavior
works for one insurance company and sells only that company's insurance policies
captive or career agent
agents are also classified as
captive or career agents and independent agents
branches of major stock and mutual insurance companies that are contracted to represent the particular insurer in a specific area
career agencies
insurance agents are recruited, trained, and supervised by either a manager-employee of the company or a general agent (GA) who has a vested right in any business written in this system
career agencies
this act revised the tax law definition of a "life insurance contract" primarily to discourage the sale and purchase of life insurance for investment purposes or as a tax shelter
1988 Terchnical and Miscellaneous Revenue Act (TAMRA)
this test states that if the total amount a policyowner pays into a life contract during its first years exceeds the sum of the net level premiums that would have been payable to provide paud-up future benefits in seven years, the policy is an MEC
7-pay test
mandates the proper identification of insurance professionals and companies, a system of control over its advertisments, a description of the type of policy advertised, the disclosure of graded or modified benefits over time, and so forth
Advertisements of Life Insurance and Annuities Model Regulation
this model regulation defines advertising and attempts to address those actions that have caused trouble in the industry
Advertisements of Life Insurance and Annuities Model Regulation
a loss that is definite as to cause, time, place, and amount
the loss must be definite and measurable
their function is to gather and disseminate underwriting information, help its associates settle claims and disputes and, through its member underwriters, provide coverages that might otherwise be unavailable in certain areas
Lloyd's of London
the three systems that support the sale of insurance through agents and brokers
career agency system, the personal producing general agency system, and the independent agency system
unlike commercial insurers ____ are distinct because they provide financing for health care plus the health care itself (they are known for stressing preventative health care and early treatment programs)
HMOs
offers an index feature that offers the potential for cash value accumulation and basic interest guarantees
Indexed universal life insurance (IUL)
is not an insurer but rather an entity that brings together individuals and companies that form syndicated for the purpose of underwriting insurance
Lloyd's of London
the amount of money the policyowner will receive if the policy is ever cancelled
cash surrender value
can be organized by employers or by the health care providers themselves
PPOs
established life insurance programs by the government to benefit active members of the armed services and veterans
Servicemembers' Group Life, Veterans' Group Life, and National Service Life
covers not only advertising but also such acts as coercion, unfair discrimination, and rebating
Unfair Trade Practices Act
accumulation element that builds over the life of the policy
cash value
other features of whole life insurance
cash values and maturity at age 100
the cause of the risk
a peril
the company transferring the risk
ceding company
determines the accounting and tax implications and procedures
accountant
distinguished by their flexibility that comes from combining term and permanent insurance into a single plan
adjustable life
for less favorable insurance risks (people in poor health) to seek or continue insurance to a greater extent than other risks
adverse selection
represent a particular company
agents
this type of policy represents the most basic form of life insurance; it provides coverage for one year and allows the policyowner to renew coverage each year without evidence of insurability
annually renewable term (ART) or yearly renewable term (YRT)
provide a stream of income by making a series of payments to the annuitant for a specific period of time or for his lifetime
annuities
service begins with the ______
application
the authority given by an insurer or employer to a licensee to transact insurance or adjust claims on behalf of an insurer or employer
appointment
insured's age at the time of the exchange is known as
attained age method
drafts the documents necessary to accomplish the client's objectives and advises the client of any legal consequences
attorney
the four options to treat risk
avoid the risk, reduce the risk, retain the risk or transfer the risk
avoiding as many risks as possible
avoidance
make sure the replacement is legal, conduct a self-check to ensure the replacement is ethical, submit a signed copy of the Notice to Applicant Regarding Repacement of Life Insurance to the replacing insurer, notify the existing carrier of the proposed replacement, make full and fair disclosure of all facts concerning the new coverage and the existing insurance, give a follow-up letter to the client that summarizes the meeting with the producer, and complete all other appropriate forms properly
before recommending a replacement
are in the form of services provided by the hospitals and physicians participating in the plan
benefits
are not tied to any particular company and can represent many companies' products
brokers
a practice in which the policy values in an insurance policy are used to purchase another policy with the same insurer for the sole purpose of earning additional premiums or commissions
churning
also referred to as internal replacement; involves replacing policies within the same company often by the same producer who sold the original policies
churning
stock and mutual companies are often referred to as
commercial insurers
vanishing premiums, flexible premiums, insurance presented as a savings or retirement plan, guaranteed versus potential cash value accumulations, dividend misrepresentation, insurance described as investments, premiums referred to as other than premiums, failure to distinguish between tax-free and tax-deferred accumulations, failure to divulge risks, and/or failure to explain product differences
common dangers of misrepresentation
other ways in which producers can help (or hinder) the public's perception of insurance and the insurance industry
communication, complete and honest representation, and selling to fit needs
conducting business in accordance with current rules and laws set by government regulatory agencies and the courts
compliance
is given when the applicant pays the initial premium at the time the application for a policy is signed
conditional receipt
designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid
credit life insurance
with life insurance the risk involved is when ______ will occur
death
any presentation that gives the prospect or client the wrong impression about any aspect of an insurance policy or plan, that does not provide complete disclosure, or that includes any misleading or inconclusive product comparisons
deceptive sales
benefit amounts that decrease gradually over the term of protection
decreasing term insurance
any false, maliciously critical, or derogatory communication, written or oral, that injures another's reputation, fame, or character
defamation
some mutuals are _____ by converting to stock companies
demutualizing
this type of term policy requires a premium payment in the first year that is much higher than the level premiums required in the second and subsequent years; at the end of the policy's term, the policyowner receives some of the premium back, the amount returned is typically a multiple of the difference between the higher first-year premium and the lower second-year premium
deposit term insurance
why the information is required, how it will be evaluated, the need for accuracy and honesty in answering all questions, and the meaning of such terms as waiver of premium, automatic premium loan, nonforfeiture options, policy loans, and conditional receipt
education about the application process
characterized by cash values that grow at a rapid pace so that the policy matures or endows at a specified date (that is, before age 100)
endowment policies
in some specialized areas such as the sale of _______ or ________ ___________ _____________ the ethical guidelines are clearly defined by professional organizations chartered to monitor the activities of their practitioners
estate or business planning insurance
producers have _______ duties to insurers, policyowners, clients, and the general public, as well as to the state
ethical
at age 100, the cash value of the policy has accumulated to equal the face amount of the policy; the policy is fully matured where no more premiums are owed and the policy is completed paid up; the company will issue a check for the full value of the policy to the insured
maturity at age 100
begins building cash values immediately upon payment of the first premium; from that point the policyowner systematically borrows from the cash value to pay some or all of the premium
minimum deposit insurance
can be a verbal statement, brochure or policy illustration that has been altered, or some other written communication with a prospect or client
misrepresentation
a new class of insurance
modified endowment contracts (MECs)
distinguished by premiums that are lower than typical whole life premiums during the first few years (usually five) and then higher than typical thereafter
modified whole life
alcoholism and drug addiction are considered
moral hazards
are tendencies that people may have that increase risk and the chance of loss
moral hazards
a habit of driving recklessly with no fear of death or injury is an example of
morale hazard
are also individual tendencies but they arise from an attitude or state of mind causing indifference to loss
morale hazard
companies that write more than one line of insurance
multi-line insurers
pays a benefit of double or triple the face amount if death occurs during a specified period; if death occurs after the period has expired only the policy face amount is paid
multiple protection policy
are organized and incorporated under state laws but they have no stockholders (instead the owners are the policyholders)
mutual insurance companies
occasionally a stock company may be converted into a mutual company through a process called
mutualization
a stock company is referred to as a _____ because policyholders do not participate in dividends resulting from stock ownership
nonparticipating company
the producer has two important commitments
obtain and maintain the knowledge and skills necessary to carry out those tasks and educate the prospect or client about the products and plans that the producer recommends
the policyowner may designate a specified amount of insurance; the death benefit equals the cash values plus the remaining pure insurance
option one
universal life insurance offers two death benefit options
option one and option two
gives the insured the right to convert or exchange the term policy for a whole life plan without evidence of insurability
option to convert
the death benefit equals the face amount (pure insurance) plus the cash values (level term plus increasing cash values)
option two
life insurers issue three basic kinds of coverage
ordinary insurance, industrial insurance, and group insurance
individual life insurance that includes many types of temporary (term) and permanent (whole life, endowment, universal life, variable universal life, and other interest-sensitive cash value plans) insurance protection plans written on individuals with premiums paid monthly, quarterly, semiannually, or annually
ordinary life insurance
the time when the original term policy was taken out
original age method
are organized on the basis of ownership by their policyholders (the policyholders themselves insure the risks of the other policyholders)
reciprocal insurers
the producer reviews and resestablished the relationship, the producer then reviews the client's needs and priorities, the producer introduces one or more specific product solutions and provides an overview of how the policies work, and if the producer uses a product illustration, he should review and explain the illustration in detail
overview of the presentation
mutual companies are sometimes referred to as ______ because the policyowners participate in policy dividends
participating companies
typically attached to juvenile policies; provides that in the event of death or disability of the adult premium-payor, the premiums will be waived until the insured child reached a specified age (such as 25) or until the maturity date of the contract whichever comes first
payor provision
the immediate specific event causing loss and giving rise to risk
peril
when a building burns fire is the
peril
are factors that cause or give rise to risk
perils and hazards
all policyowners should receive ________ reviews to ensure that their insurance programs are in step with their plans and objectives
periodic
some policies will be rated or rejected; when this happens, the producer has two responsibilities
personally review the rating or rejection and notify the applicant promptly
a person's physical condition, past medical history, or condition at birth are
physical hazards
blindness and deafness are
physical hazards
individual characteristics that increase the chance of peril
physical hazards
the three basic types of hazards are
physical, moral, and morale
can also include a share in the company's investment, mortality, and operating profits
policy dividends
represent a "refund" of the portion of premiums that remains after the company has set aside the necessary reserves and has made deductions for claims and expenses
policy dividends
based on certain expectations of what will or might happen
policy illustrations
must have a written explanation or policy summary, must show cash values and coverage, must be labeled life insurance illustration, must describe nonguaranteed elements in a straightforwad manner, must be complete, cannot imply that premium payments are not required unless that is the case, cannot contain the word vanish or vanishing premium, cannot represent anything other than life insurance, cannot show projections of elements that have not yet occured, and must follow a specific basic illustration format
policy illustrations
another type of service provider: a group desiring health care services will obtain price discounts or special services from certain select health care providers in exchange for referring its employees or members to them
preferred provider organization (PPO)
there are two classifications of organization that provide insurance
private and government
place the client's interest byond one's self-interest, be dedicated to the industry and supportive of all its member companies and representatives, and offer quality plans and represent quality companies
professionalism
contains information about the nature and purpose of the insurance plan, the seperate account, and the risk involved
prospectus
a contract that guarantees a specified sum payable only if the insured is living at the end of a stated time period; nothing is payable in the case of prior death
pure endowment
the chance of injury from an accident is an example of
pure risk
involve only the chance of loss; there is never a possibility of gain or profit
pure risks
occurs if the buyer of an insurance policy receives any part of the producer's commission or anything else of significant value as an inducement to purchase a policy
rebating
educating the client before, during, and after the sale, treating all information with confidentiality, disclosing all information, keeping the prospect or client informed, and showing loyalty to prospects and clients
service
offer benefits to subscribers in return for the payment of a premium
service providers
they sell medical and hospital care services not insurance
service providers
involves a large one-time-only premium payment at the beginning of the policy period
single-premium whole life
_____ and ______ are prerequisites to selling insurance
skill and competence
federal and state governments are also insurers providing
social insurance programs
social security, medicare, and medicaid are
social insurance programs
describing the benefits or terms of insurance coverage including premiums or rates of return, inviting prospective purchasers to enter a contract for an insurance product, making general or specific recommendations concerning insurance products, completing orders or applications for insurance products, or comparing insurance products advising on insurance matters or interpreting policies or coverages
solicitation of insurance
risks can be divided into two classes
speculative ricks and pure risks
betting at the race track or investing in the stock market are examples of
speculative risks
involve the chance of both loss and gain
speculative risks
insurance companies offer term insurance plans on a level-premium basis which are premiums that have been calculated and charged so that they remain level throughout the policy's term period; if the policy is renewed, the premium is adjusted upward reflecting a higher rate for the increased age and will remain level at that amount for the duration of the renewed term
step-rate method
a private organization organized and incorporated under state laws for the purpose of making a profit for its stock holders
stock insurance company
whole life insurance providing permanent level protection with level premiums from the time the policy is issued until the insured's death (or age 100)
straight whole life
three notable forms of whole life plans
straight whole life, limited pay whole life, and single-premium whole life
services are packaged into various plans and those who purchase these plans are known as
subscribers
the simplest type of life insurance plan; provides insurance protection for a specified period (or term) and pays a benefit only if the insured dies during that period
term life insurance
the various life insurance plans are
term, whole life (permanent), and endowment
the organized sales presentation proceeds according to six steps
the approach, establishing the general problem, establishing the specific problem, asessing the need, presenting the life insurance solution, and the close
learns very early the difference between right and wrong in the business and practices and acts accordingly, consistently adheres to his values and maintains this integrity throughout his sales career, and willingly assumes the obligation to perform his duties in a way that refects the highest degree of dignity on the industry and best services the interests of the client or prospect
the ethical producer
changes in health and age, new contestable period, new policy fees and expenses, possible loss of policy upgrades or automatic improvements that may meet the policyowner's objectives, and loss of grandfathered rights
the life insurance you already own is your best buy for the following reasons
will not insure risks that will expose them to catastrophic losses
the loss cannot be catastrophic
must be able to predict losses based on the law of large numbers
the loss exposures to be insured must be large
the group to be insured must be randomly selected
the loss exposures to be insured must be randomly selected
maintain close contact with clients, educate clients about how the policies they purchase suit their needs, and ask clients to call if they're ever asked to consider replacing their policies
to avoid inappropriate replacement
the organization must be nonprofit, have a lodge system that includes ritualistic work, and maintain a representative form of government with elected officials
to be characterized as a fraternal benefit society
projected premiums for a certain time period are totaled; projected policy dividends (if any) and the cash value at the end of that period are subtracted from the total; the resulting number divided by the number of years in the comparison yields the net cost per thousand per year
traditional net cost method
full and accurate disclosure is the cornerstone of the product presentation
true
government programs are funded with taxes and serve national and state social purposes
true
individuals have an economic value that can be measured in part by their future earning potential
true
insurance is the most common method of transferring risk
true
most consumers purchase insurance through licensed producers
true
most fraternals today issue insurance certificated and annuities with many of the same provisions found in policies issued by commercial insurers
true
most new life insurance policies are purchased by individuals from life insurance agents
true
only pure risks are insurable
true
stock and mutual companies can both write life, health, property, and casualty insurance
true
the majority of American households own some form of life insurance
true
the true significance of insurance is its promise to substitute future economic certainty for uncertainty and to replace the unknown with a sense of security
true
also referred to as external replacement; involves illegally inducing a person to drop existing insurance to buy similar coverage with another producer or company
twisting
the unethical act of persuading a policyowner to drop a policy solely for the purpose of selling another policy without regard to possible disadvantages to the policyowner
twisting
improper replacement is divided into two categories
twisting and churning
two principles that form the foundation for an effective sales presentation
uncover the needs of the prospect and help people solve financial problems
the insurer guarantees a certain minimum rate of return will be credited to the policies' cash values
under traditional whole life insurance policies
process the application will undergo
underwriting process
making a distinction in sales, underwriting, pricing, claims handling, or any other insurance applicant function, between two different individuals of substantially the same underwriting classification and expectation of life or health is
unfair discrimination
a variation of whole life insurance characterized by considerable flexibility; unlike whole life, universal life allows its policyowners to determine the amount and frequency of premium payments and to adjust the policy face amount up or down to reflect changes in needs
universal life
partial withdrawals can be made from the policy's cash value account
universal life
the opportunity for policyowners to achieve higher-than-usual investment returns on their policy cash values by accepting the risk of the policy's performance
variable insurance products
permanent life insurance with many of the same characteristics of traditional whole life insurance
variable life insurance
two types of variable insurance products
variable life insurance and variable universal life insurance
a product that blends many features of whole life, universal life, and variable life; premium flexibility, cash value investment control, and death benefit flexibility
variable universal life (VUL)
the client's health has improved, new available sex-based rates, a policy that was issued at a young age and features a small death benefit for an inappropriately large premium, or to undo a bad replacement
when a replacement may be appropriate
become knowledgeable, make only credible and realistic assumptions, illustrations are not predictions, make clear distinctions between guaranteed and nonguaranteed cash values, encourage applicants to ask questions, review the illustration with the applicant, point out that total cash value includes nonguaranteed values, be aware of the assumptions used in illusstrations, and ask questions
when using policy illustrations
provides permanent protection for the whole life from the date of issue to the date of the insured's death provided premiums are paid
whole life insurance
has generally the same impact on policy benefits but there is no presumption that it will be repaid
withdrawal