Life insurance

Conditional receipt

Usually makes coverage available on date of application if found to be insurable by company underwriting rules some make coverage effective on the date of the application or the date of a required med exam

suicide clause

death by suicide not covered for first 2 years if suicide does happen in initial 2 year period; premiums are refunded but no face amount is paid after 2 year period coverage is provided for suicide

mortgage redemption policy or rider

decreasing term insurance benefit amount of term element is intended to be sufficient to pay off the unpaid remainder of mortgage loan if insured dies before paying it off

family income policy

decreasing term insurance combined with whole life insurance income payments begin to beneficiary when insured dies and continues for specific time

withdrawals and partical surrenders

difference between them; loan is presumed to be repaid whereas a withdrawal is not only universal life and variable life permit withdrawals

industrial life insurance

fequent payments benefits are less than $2k premiums are collected by agent from insureds home sales made in premium units all family members ae covered from birth to age 65 or 70 medical exam not required 31 day grace period application is not required to be part of the policy med exam not required cash values do no accumulate sufficiently settlement options do not apply suicide provisions are not included in the poliocy nonforfeiture provisions do not allow the cash option until premiums have been paid for 5 years (3 ears for ordincary policys) dividends used to reduce premium pament or purchase paid up additions

fiduciary responsibility

fiduciary: a person in a position of financial trust (atttornys, accountants, trust officers, and insurance producers) producer has an obligation to act in the best interest of the insured as well as know and comply with the staes insurance laws

automatic premium loan (APL)

protects against lapsing of the contract if value is sufficient, a loan in the mount equal to the premium due is subtracted from cash value most caes this provision must be requested at time of application and cannot be added later

Term insurance

provide insurance for specific tier called policy term (1 year, 5 year, 30 year etc... or til certain age) pay death benefit if insured dies during time of coverage do not accumulate cash value

pure endowment

provided for payment of policy face amount only if the insured lived to the maturity date if insured died before benefits date, all benefits were forfeited rarely sold

how a personal delivery can enhance agent-client relationship

- can conduct a policy review of both new and old coverages -explain coverages and policy provisions and answer any questions -identify the effective date of coverage -explain the possible need for any additional coverage or amounts of insurance -ask client for referrals

duties of insurer

-make sure all replacements are in compliance with atate regulations -notify each insurer whose insurance is being replaced and upon request, furnishing a copy of any proposal -maintain copies of proposals and receipts

disadvantages of term insurance

-overtime renewable term ins becomes more and more expensive (starts at low premium but can get high. for ex low premium at 35 becomes expensive at 55 or 60 -since its only for a specific term an insured can be left with out protection when they need it most (old age) pure death protection, so no living benefits like guaranteed cash values even if term policy is renewable it usually isnt renewable beyond certain age like 65 or 70

summary of producer responsibilities

-represent and market the insurers products in an ethical and professional manner -be aware of insurance laws that pertain to the marketing of insurance products such as state required standards for advertising and sales literature -primary source of underwriting information which includes completing all applications for insruance, collect premiums, and submit premiums to thee company -responsible for providing the applicant with privacy notices and info such as the notice of insurance information practices and receipts for the initial premium collected -to help protect the insurer from adverse risks. if applicant is determined to be a substandard risk, the producer is responisible for delivering the substandard policy and explaining its limits and/or extra premium to the applicant

policy loan provision

PO has right to borrow from cash value with no legal obligation to repay the loan interest is added, varies in each state (usually 8%) partial surrenders are allowed with a universal life or a variable universal life policy if total indebtednedd equals or exceeds the cash value of the contract the policy will terminate (30 day notice) in whole life the PO can borrow up to 90% of cash value after it has been in force for 3 years min 75% must be made available

when the initial premium is not paid until the policy is delivered, the agent must also obtain a statement signed by the insured attesting to the insureds continued good health before leaving the policy with the insured called what?

Statement of Good health

handling a claim

a claim and its payment are the end result of the insurance process means the insured has died and the beneficiary stands ready to collect from the insurer what is due. unlike property or casualty insurance, life insurance claims are rarely negotiated, either paid or denied. when proof of death of insured arrives at the insurers claims department, records are checked to make sure the policy was in force at the time of death and that the right beneficiary is being paid

Buyers guide

a generic publication that explains life insurance in a way that average consumers can understand. doesnt address specific product or policy being considered agent is required to deliver to the applicant a life insurance buyers guide and a policy summary usually before the agent accepts the applicants initial premium

professional

a person in an occupation requiring an advanced level of training, knowledge, or skill

retirement income policy

accuulates sum of money for retirement while also providing a death benefit pas income such as $10 per $1000

specialized forms of policy

advantages -can be used to match specific need -cost may be lower than ordinary whole life disadvantage -may become obsolete if they need change over time -may incur negative tax consequences if not set up carefully

incontestability clause

after a specific period of time (2 years) the insurer may not dispute or contest the validity of the contract or statements the insurer may not claim that any misstatements in the application were made with the intent of the PO to defraud also beneficiary will not have t substantiate any statements that were made on the application

insuring clause

agreement that insurer will provide life insurance for named insured which will be paid to a designated beneficiary when death occurs policy face lists name of company, insrured, amount of insurance carried, mode and amount of premium and when coverage is effective

current assumption whole life policies

aka interest sensitive whole life flexible premium payments tied into current interest rare fluctuations (increase and decrease) during period of high interest rates premiums will be reduced and vice versa annual basis cash value is either guaranteed rate or current rate whichever is high

convertible term policy

allowed to convert or exchange temporary protection for some form of permanent protection dont have to show evidence of insurability' must be made prior to expiration of term based on age when converted

flexible policies

allows policyowner to change premiums, cash values, and face amounts in response to changing needs

variable life insurance

also developed in response to the low returned earned by traditional cash value policies guaranteed minimum death benefit cash values that are not guaranteed regulated as securities since variable contracts are equity products they are subject to regulation by securities and exchange commission, the financial industry regulatory authority (finra) and other fed bodies and state departments in order to sell variable ins the agent must be lisenced and must pass securities exam

increasing term policies

begin with little or no insurance face amount increases over time uncommon but can be sold as a rider to another type of policy in order to provide an additional death benefit equal to total premiums paid or some other value

misstatement of age or sex

benefit payable will be adjusted to an amount that the premium would have purchased at the correct age. any inaccuracy regarding applicants sex would be handled in the same manor

personal delivery

best way to ensure delivery if a conditional receipt has not been issued, the insurer may require the producer to obtain a statement of good health at the time of policy delivery regardless is personal delivery is required it is recommended because it gives the agent an opportunity to enhance the agent-client relationship

revocable beneficiary

can be changed by PO without beneficiary consent

beneficiaries

can be; individuals businesses trusts estates charities minors classes as beneficiaries ; rather than specifying one or more beneficiaries by name PO can designante a class or grouop for EX; 'my children'

irrevocable beneficiary

cannot be changed without consent and signiture of beneficiary PO needs signiture from irrevocable beneficiary in order to exercise ownership rights like borrowing cash values, assigning, or cancelling the policy

how life insurance policy proceeds can be paid

cash settlement option can be selected when policy is purchased or it may be left up to the beneficiary as to which option is selected. even if the insured had chosen an option the right to change it to another one bay be given to beneficiary

non forfeiture loan

cash value belongs to policy owner some or all of the cash value may be withdrawn from the policy but will reduce face value and cash value available

ownership rights

changing beneficiary receiving dividends if any are paid borrowing funds fro the cash value if the exist assigning of some or all the rights of the contract to another party

policy retention

clients needs change at times such as marriage, birth of child, and death producer acts as the representative of the company in changing beneficiaries, adding amounts of insurnce, and facilitating payment of claims effectiveness of producer at these times will lead to retention of the account for a lifetime of client and often over generations

family maintenance policy

combines life insurance and level term insurance affords payment of monthly income during stated period of 10, 15, or 20 years or up to age 65 level term designed to provide a period of monthly income following the death of insured if death occurs during specific period

endowment life insuraance

combo of pure endowment and term insurance for specified period provided living benefit and death benefit

multiple protection policies

combo of whole life and term amount of protection is higher in early years of policy and less in later years

reasons for delay in death claim payment

company has not been properly notified of death formal proof of death of some type and a death certificate completed by physician or coroner is required when isured dies, agent should complete any proof of death form the company requires, have it signed by necessary parties, and forward it to the company asap with a death certificate

producer responsobilities upon insureds death

first notify the company immediatly. than contact the beneficiary or beneficiary legal representative and help them complete proof of death form and send it to company with a death certificate important thing at this point is to render the best possible service to the beneficiary

interim term

for a person who wants immeditate protection and is thinking about starting a permanent insurance policy in the near future used to cover term before permanent insurance starts usually converts no longer than 11 months written on an automatically convertible basis premium based on age at application

medical examination and autopsy

gives insurer the right to examine an insured while a claim is pending and at the event of death to perform an autopsy

reentry term policy

gives oppurtunity for the insured to show evidence of insurability qualify for a policy with reduced premium rates better price than renewable term policy

graded premium whole life policies

gradual increase in premiums usually increases for 5 years than remains the same

minimum deposit or financed insured

high cash and loan value whole life policy first 2 premium payments must be paid by policy owner than loans may be used but only if during the first 7 years of the policy 4/7 annual premiums are paid from funds other than policy loans interest paid on policy loans used to finance premium payments still may be deductible administration is complex

deposite term ins

higher first premuim than all future premiums access front end premium (deposit) is then set aside to earn interest those dollars plus interest will be used to reduce fututre paments

policy summary

identifies the specific product being presented for sale as well as the insurer, the policy, and each rider. includes info about premiums,dividends,benefit amounts, cash surrender values, policy loan interest rates and life insurance cost indexes

effective date of coverage

identifys when coverage is effective and establishes the date by which future annual premiums must be paid date the receipt (conditionasl or binding) was issued in exchange for payment of initial premium will generally be the policy effective date if premium deposit is not given with the application, the policy effective date is usually the date the policy is issued by the insurance company. however, the policy wont truly be effective until it is delivered to the applicant , first premium is paid, and statement of good health is obtained

consideration clause

insurance coverage is granted in consideration of the application and payment of initial premium insurers consideration is the promise to pa face amount of the contract upon death of insured

amendments

insurer may amend policys terms depending on results of the underwriting process. For example, the insurer may amend the policy to exclude certain losses or conditions or may classify the applicant as a substandard risk for which it will charge a higher premium applicant is not obliged to accept the amended policy and may withdraw the application

level term policy

issued for fixed amount of time remains the same during the term of coverage issued for annual period, specific number of years, or until certain age level premium, level term

decreasing term policies

issued for initial face amount declines during the term period and reaches 0 when expires EX 20 year decreasing term policy issued for $100k may only provide a death benefit of $50k after 10 years ideal for insurance needs that decrease over time like protecting the unpaid balance of a mortgage

when replacement occurs existing life insurance or annuities will be;

lapsed, forfeited, surrendered, or terminated converted to reduced paid-up insurance, continued as extended term insurance, or reduced in value by the use of nonforfeiture benefits or other policy values amended to produce a reduction in the benefits or in the term for which coverage would otherwwise remain in force or for which benefits would be paid reissued with a reduction n cash value

mailing the policy

legally the policy is considered deliverd when it is mailed to or turned over to the policyowner or someone acting on the policy owners behalf

Binding receipt (unconditional receipt)

makes the company liable for the risk from the date of application, regarldess of their insurability. lasts for 30-60 days or until insurer issues the policy if app is rejected, coverage terminates at the end of the specified period rarely used in life insurance... more common for auto/ homeowners

reinstatement

many contracts permit reinstatement if effected within 3 years of policy lapse proof of insurability may be requested all owed premiums and outstanding loans must be paid reinstatement app must be completed. this means statement by the policy owner are contestable for 2 years advantage of reinstating a policy instead of purchasing a new one is the insured original issue age is used when reinstated; lower premium

issuing the policy

may be issued as applied for, modified, or even amended as long as the applicant meets the underwriting standards the insurer may issue a policy with a waiver attached stating death by a particular event (perhaps due to occupation or recreational exposure) will not be covered in other cases an insurer might issue a more limited form of coverage or a policy with lower limits than those applied for by applicant

continuous premium whole life insurance

most common whole life slowest cash value growth/lowest annual premium rate aka straight life stretch premium payments over entire life (til 100)

reasons a new policy might not be in the insureds best interest

new insurance requires prove of insurability premiums may be higher new policy provisions will have to be complied with, such as a new incontestable period existing policy provisions ma be more liberal than new provisions generally a new policy will not have current cash values

endowments

not really sold today because of tax consequenses retirement endowment; most common. issued to mature at age 65. face value is payable as death benefit at maturity the full face amount became payable in monthly installlments

duties of producer during replacement

obtaining application, a signed statement from applicant confirming replacement, and submitting statement to the insurer also; -list all existing life insurance policied to be replaced -give the applicant a Notice to Applicants Regarding Replacement of Life Insurance -give insurer a copy of any proposals made and the name of the insurer and the policy that is to be replaced

constructive delivery

occurs when the insurer mails a policy to its producer for actual delivery to the policyowner becuase the insurer has issued the policy and released it for delivery a legal delivery has not yet occured if the insurer requires personal delivery for verification of good health at the time of delivery or if the policy is being provided to the applicant merely to review and inspect at that time and not necessarily to buy

policy review

once policy is delivered the producer should thoroughly explain all coverage provisions, particularly the exclusions and any riders

single premium whole life

one premium lump sum payment that amount with interest it will earn will be able to cover all future premium payments paid for at time of purchase accumulate immediate cash value cost of one payment will be much less than cost of multiple payments over the years

modifications

only an executive officer of the insurer can change the contract, not the agent

adjustable life insurance

option to adjust face amount, premium, type of protection, and/or length of protection without having to complete a new application or exchange policies allows conversion from one form of insurance to another and makes appropriate premium adjustments

cash withdrawal

partial surrender not subject top interest so it isnt a loan will reduce the total cash value in the account rather than the face amount if withdrawal is later payed its teated as a premium payment

limited payment whole life insurance

pay entire contract over shorter period of time or younger age EX 20 payment life and life paid up at age 65 not matured , but will provide protection and cash value accumulation until age 100 higher payments than continuous because similar value paid in shorter cash value is higher than continious shorter the pay period higher the premium

universal life

pay higher interest rates (8-12%) during inflationary times also alows policyowners to adjust the death benefits and/or premiums death protection is a one year renewable term insurance and the cash account grows according to current interest rates developed in response to the low interest rates (3.5-5%) earned by traditional whole life insurance cash values premium payments are separated and paid toward insurance protection; the loading cost and remaining balance is used to build the cash value with interest PO csn increase or decrease the death benefit subjec to insurability requirements premium pa

free look provision

permits PO to take specified number of days to examine the contract. if PO decides not to go with it the entire pemium is refunded by insurer vary in each state and range from 10-20 day periods (longer for senior insurance products) beings when PO recieves policy

policy change provision

permits insured to exchange policy for another type of policy permitted by the company if exchanged to higher premium, insured pas the higher premium and no proof of insurability is required if exchange is to lower premium, proof of insurability may be required

beneficiaries assignment rights

policy beneficiary can assign portion of the proceeds. however unless he is named irrevocable there is little to assign

disadvantages of whole life insurance

premium payment period may last longer than the insureds incomeproducing years does not offer as much protection as term insurace

modified whole life

premiums are lower than whole life during first few years (3-5) and than higher thereafter

characteristics of all whole life polcies

premiums remain level face amount remains level and will not change while policy is in effect guaranteed cash values non forfeiture value

according to conditional rec. what could happen if the insured dies before policy is issued

proceeds will be paid to beneficiary if the company would have issued the policy to the proposed insured if he had been living proceeds will NOT be paid to the beneficiar if the company would not have issued the policy; instead the premium will be returned however, if applicant is found to be a substandard risk, the conditional receipt is null and void and no coverage would be effective until the substandard policy was delivered and the additional premium paid

payment of claims

producers responsibility to make sure the comapny is notified asap usually little to no delay in payment when company is given proper forms (usually a few days, required to pay within 60 days) policy is in force, beneficiary is available, no evidence of suicide within limitations of suicide clause and so on

temporary insurance agreement

provides applicant with the immediate life insurance coverage whether or not the individual is found insurable, while underwriting process is taking place insurer has right to cancel this coverage if the applicant fails to meet companys normal underwriting requirements however claims incurred during the underwriting period will be paid whether or not the app would have been approved

whole life insurance

provides insurance up to age 100 (althugh some mortality tables have been adjusted to 120) AKA permanent insurance consists of a type of savings element (advancing cash value) and a decreasing amount of net insurance when a whole life policy reaches its maturity date (100) or the insured dies the cash value would be the face amount

term insurance advantages

provides substantial coverage at minimum cost allows person with limited income to purchase more coverage that other wise affordable. (less expensive offers no cash value) EX husband has small whole life policy and becomes father of twins. now there is a need for large amounts of additional life insurance. term insurance would be helpful because lets sa he gets a 20 year limited term policy... when the term is up his kids will be old enough to start supporting themselves. often the additional insurance is added to the existing policy bu means of a rider

filing method

recording method; request to name beneficiary must be filed in writing and is made effective by the insurance company recording the change in its records

guaranteed cash values

savings element that is guaranteed specified intrest rate little to no cash value in first couple years accumulate in 3rd year cannot be forfeited after accumulating cash value policy loan: when insured borrows cash from his cash value. -paid back with interest in order to restore policy values -amount borrowed and any acummulated interest due become an indebtedness againt the policy if the insured dies before the loan has repaid, and indeptednedd will reduce the face amount

ethics

setting a standard of conduct or behavior based on established values

nonrenewable term policy

specific term cannot be renewed an insured may always apply for a new policy but there arent any guarantees the risk will be accepted based on current underwriting standards

renewable term policies

specific term (EX 1 year renewable term insurance) may be renewed without evidence of insurability renewables have a limited age or number of renewals where you cannot renew any further premium is based on insureds age at time of renewal so they will increase every term annual renewal term (ART) is a less expensive form of term insurance

entire contract clause

states that the policy and a copy of application constitutes the entire contract doesnt include premium payment

face value/face amount

term policies are defined by the way the face amount changes throughout policy term amount paid when insured dies listed on face page of policy characterized according to their renew-ability and convertability provisions

replacement

the purchase of one life insurance policy to replace another because of the cassh values that can build up in a policy and favorable loan interest rates in older policies, replacement can be disadvantageous to consumers however replacement can be good for a consumer if the current policy doesnt fit their needs

assignment

transfer of some or all the POs legal rights under the contract to another party does not usually grant owner/insured any rights to assign, but does set out procedures by which assignments may be made collateral, partial, conditional assignment; assigns some but not all policy right to an assignee. it transfers a portion of the ownership right temporarily. rights are returned when debt is paid. amount of assignment cannot excede amount of debt

advantages of whole life

used to satisfy permanent needs like cost of death, dying, and final burial expenses allows policyowner to know exactly what the cost of insurance will be and offer a form of forced savings builds living benefit through the guaranteed cash value which enables the policy owner to use some of this cash for emergencies , retirement income, and over living needs

inspection receipt

used when insured wants to examine the policy carefully before actually purchasing it policy owner does not pay full first premium at the time app is completed he signs an inspection receipt for policy, examines the policy, THAN pay first full premium

survivorship life policy

variation of joint life pays insured amount upon death of the last surviving insured can be sold as term life

voluntary assignment

when PO decides to gift or sell life insurance policy by assigning all rights to the assignee after assignment is made the PO has no means of recovering the surrendered rights

ownership clause/applicant control

when insured is a minor, the aplicant can be the minors parent or relative/legal guardian allows parent to maintain policy until insured is of age

3 exceptions for payment less than face amount

when there is an outstanding loan against the cash value of a policy. amount of loan plus interest outstanding is deducted from face amount when a premium payment is due. if insured dies during grace period the amount of premium due is deducted from the face amount of the policy before payment is made when there is an error made in determing the age or gender of the insured when policy was issued. insurance company will pay the face amount that the premium would have purchased if the accurate info was used

payment of premium

when where and how premiums are to be paid usually paid in advance monthly, quarterly, semiannually, and anually

economic policy

whole life policy with a term rider that uses dividends to purchase additional paid up insurance as policy dividends are declared they are used to purchase additional paid up insurance paid up insurance is added resulting in term insurance being removed from the polciy and maintaining full face amount at no additional cost

joint life policy

written with 2 or more persons as named insured insured amount payable on the death of the first insured