Lesson 9

In force illustration

An illustration furnished at any time after the policy that it depicts has been in force for one year or more.

Supplemental Illustration

An illustration furnished in addition to a basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration..

Guaranteed Elements

Include premiums, benefits, values, credits or charges under a life insurance policy that are not guaranteed or determined at policy issue.

Non-Guaranteed Elements

Includes premiums, benefits, values, credits or charges under a life insurance policy that are not guaranteed or determined at policy issue.

Handling a Claim

When death occurs, proof of the death is sent to the insurer and prompt payment is sent to the designated beneficiary. By law, the insurer is required to provide the death benefit within 60 days of proof of death; however, most insurers will finalize the insurance process within a few days and promptly pay the claim to the beneficiary.

Basic Illustration

A ledger or proposal used in the sale of a life insurance policy that shows both guaranteed and non-guaranteed elements.

Buyer's Guide

A life insurance buyer's guide is a generic document that explains basic terms and definitions related to life insurance to better educate consumers when purchasing life insurance.

Traditional Cost Comparison Method

A life insurance cost comparison method that accounts for various cost factors of a whole life policy, except for interest earned over time, also known as time value of money. The net payment cost index is calculated using the traditional cost comparison method.

Interest-Adjusted Cost Comparison Method

A life insurance cost comparison method that has emerged over time to more accurately compare the true cost of similar life insurance policies because it take into account the time value of money based on a projected rate of return in interest. The surrender cost index is calculated using the interest-adjusted cost comparison method.

Illustration

A presentation or depiction that includes non-guaranteed elements of a life insurance policy over a period of years.

Time Value of Money

A financial concept that states that receiving a dollar today is more valuable than receiving the same one dollar in the future. If invested today, the dollar would earn interest and increase in value over time.

Surrender Cost Index

Based on the assumption that a policyowner will surrender a whole life policy in the future. The lower the surrender cost index number equates to a less expensive policy in comparison to other policies, thus providing a higher cash value once surrendered, assuming the policyowner does not keep the policy in force until death. The focus would be on the surrender value of the policy.

Policy Amendments

Benefit limits, exclusions of certain risk or additional premium that the insurer adds to a policy for any applicant underwritten as substandard risk.

Replacement

Defined as replacing a life insurance policy using its cash value to purchase a larger face amount or to obtain a new policy, either from the same insurer or through a new insurer. Considered to be either Internal ( replaced with another policy by the same insurer), or External ( replaced with another policy by a different insurer).

Special Questionnaires/ Inspection Reports

Due to the nature of risk, insurance companies evaluate applicants according to their lifestyle which often includes questions about an applicant's hobbies, finances and occupation. When underwriting life insurance, an insurance company might also require an inspection report which are often the same types of questions, but more extensive, required when larger amounts of life insurance are being requested.

Credit Report

Insurances companies have the right to review an applicant's credit report in determining approval and offered rate of premium. An insurance company wants to make sure an applicant will be able to maintain premium payments for life of the policy.

Net Payment Cost Index

Is used to compare similar policies based on the death benefit provided to the beneficiaries assuming the policy is kept until death of the insured. A lower net payment cost index number equates to a less expensive policy in comparison to other policies, thus providing a higher death benefit to the policy's beneficiary upon the death of the insured.

Delivering and Servicing the Policy

Legally, the policy is considered delivered and the sale completed when the policy is mailed to or personally handed to the insured.

Retention

Maintaining an insured's current life policy as the policy matures over time. Often, the retention of an insured's policy is preferred over its replacement due to the cash value accumulation over the life of the policy. Replacing a policy often reduces or forfeits the current policy's cash value.

Medical Report

Often required by an underwriter to approve an applicant for life insurance. In addition applicants are sometimes required to obtain an Attending Physician's Statement (APS) to provide additional support for proof of insurability.

Inspection Receipt

Provided to an applicant that wishes to review or "inspect" a prospective policy before providing the initial premium to the insurer. the Inspection receipt is proof that an application has been received by the insurance company and in return, a policy has been delivered to the applicant for inspection only. It does not mean the applicant is covered by the insurer until the insurer receives both the application and initial premium.

Conditional Receipt

Provided upon receiving both the application and initial premium. Applicant is covered against loss, should it occur, before the policy becomes effective, on the condition that the applicant is found to be insurable as applied for by the insurer's underwriting department upon completion of its underwriting process.

USA PATRIOT ACT/ Anti-money Laundering Compliance 2001

Requires life insurance agencies to establish anti-money laundering and suspicious activity reporting programs in an attempt to prevent criminal money laundering. As well as comply with a self-assigned audit of company records using a non-company auditing agency.

Policy Summary

Reviews specific product being purchased in detail along with identifying the agent, insurer, any riders and specifics about premiums, exclusions, dividends, cash values, and benefit amounts. Policy summary is also required to include cost index charts which compare similar whole life policies based on the overall cost of each policy to the policyowner.

Cost Index

Takes into account the various cost factors of a life insurance policy and computes an index number to more easily compare similar whole life insurance policies. Based on each $1,000 increment of the policy's face amount for 10-year 20-year time periods using an average annual rate of return in interest of 5%.

Effective Date

The date that the application is submitted along with the initial premium and a conditional receipt is given to the applicant. In the event an inspection receipt has been issued, the effective date is then the date the policy is issued by the insurer and appears on the face page of the policy.

Binding Receipt

or Binder is a receipt guaranteeing temporary coverage at the time of application for a specified benefit amount regardless of whether the insurer later approves or declines the applicant. Binding receipt is a type of temporary Insurance Agreement, even if the insurer later declines the applicant, any claims made during the temporary term must be paid by the insurer.