Life Insurance Basics: PA Life and Health Exam

Exceptions that allow insured's creditors rights to the proceeds or the cash value of an insurance contract

1. If the insured has filed a petition of bankruptcy within 2 years, the proceeds and cash value are only exempt under certain circumstances 2. The amount of premium paid with intent to defraud creditors is not exempt 3. A creditor possessing a valid assignment from the policy owner may recover the amount secured by the assignment with interest from either the cash surrender value or the proceeds of the life insurance policy

Valid Insurable Interest

1. Policy owner's own life 2. The life of a family member (a spouse or a close blood relative) 3. The life of a business partner, key employee, or someone who has a financial obligation to the policy owner (such a debtor to a creditor)

Participating vs Nonparticipating Life Insurance Policy

A participating (mutual) life insurance policy is any policy that distributes its dividends to policy owners by cash payments, reduced premiums, units of paid up insurance, a savings program, or by the purchase of term life insurance. A nonparticipating life insurance policy does not pay dividends to the policy owners.

Viatical settlement providers must obtain before entering into a contract

A witness document containing... viator consents to the contract, viator has a complete understanding of the contract and the benefits of the policy, viator entered into the contract freely insured is terminally or chronically ill and was diagnosed after the life insurance policy was issued viator is of sound mind and under no constraint or under influence A document giving the insured's consent to the release of medical records A document giving the insured's consent to the trolling of the running of the policy's contestable period until after the insurer completes its good faith investigation

Fixed vs Variable Life Insurance and Annuities

Fixed= contracts that offer guaranteed minimum or fixed benefits that are stated in the contract Variable= contracts where the cash values accumulate based upon a specific portfolio of stocks without guarantees of performance

Effective Date of Coverage

If initial premium is not paid with the application, the agent will be required to collect the premium at time of policy delivery, agent might have to acquire statement of good health too If the full premium was submitted the policy coverage will coincide with date of application

Group vs Individual Life Insurance

Individual is written on a single life Group is written as a master policy covering the lives of more than one person under the single policy

PA Rules for Insurance Adveritisng

Insurers must submit 3 copies of all advertisements to the department of insurance for approval Once a mail-order solicitation has been filed, it may be used for 2 years without additional filing Advertising material will remain filed for 4 years, or until the next regular examination of the company, whatever is longer If a testimonial refers to benefits received under contract, claim data should be retained by the insurer for 4 years or until the filing of the next examination of that insurer, whatever is longer

Beneficiary

Receives benefit upon insured's death

Permanent vs Term Life Insurance Policy

Term life is temporary life insurance provided for a specific period of time Permanent life refers to various forms of whole life insurance policies that remain in effect to age 100, as long as the premium is paid

Viatical Concepts

The insureds are referred to as viators Viatical settlement provider means a person, other than a viator, that enters into viatical settlement contract Viatical producers represent the providers Viatical brokers represent the insureds Viators usually receive a percentage of the policy's face value from the person who purchases the policy

Chronically ill

a condition in which a person is unable to perform at least 2 activities of daily living or that requires substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment

Terminally ill

a condition that can reasonably be expected to result in death within 24 months

Viatical Settlement Broker

a licensed person that, for a fee, negotiates viatical settlement contracts represent the viator

Illustrations

a presentation that includes non-guaranteed parts of an individual or group policy over a period of years Must... separate guaranteed and projected amounts state an illustration is not part of the contract identify values not guaranteed as such

Viatical Settlements

allow someone living with a life-threatening condition to sell their exisiting life insurance policy and use the proceeds when they are most needed, before their death

Fraudulent Viatical Settlement Act

an act or omission committed knowingly or with intent to defraud for the purpose of depriving another of property or for monetary gain by a person who commits or permits employees or agents to present or prepare false info in support of or concerning a fact material

Field Underwriter

an agent, the company's front line usually has solicited the potential insured

Executive Bonus

an arrangement where the employer offers to give the employees a wage increase in amount of premium on a new life insurance policy

Solicitation of Insurance

an attempt to persuade a person to buy an insurance policy orally or in writing

Licensing (renewing)

annually on the anniversary month fees due at time of initial application... $300 for licensure as a viatical settlement provider $100 for licensure as a viatical settlement broker

Backdating

antedating an application for insurance in order to lower the premium cannot be backdated for more than 6 months

Life Settlement

any financial transaction in which the owner of a life insurance policy sells a no longer need policy to a third part for some form of compensation

Unfair Trade Practice

any statement an insurer's policies are guaranteed by the existence of the Insurance Guaranty Association

Viatical Settlement Purchaser

anyone who gives a sum of money as consideration for a life insurance policy or interest in the death benefits of a life insurance policy does not include... a viatical settlement license an accredited investor a financing entity a special purpose entity a related provider trust

Substandard (High Exposure) Risk

applicants not accepted at standard rates because of physical condition, family history, occupation, or dangerous habits policies could be issued with the premium rated-up resulting in a higher premium

Declined Risk

applicants who are rejected risk may be declined for... no insurable interest applicant is medically unacceptable

Licensing (obtaining)

applications must include an audited financial statement- not more than 1 year and 120 days old an unaudited financial statement (as of the end of the most recent quarter)

Needs Approach

based on the predicted needs of a family after the premature death of the insured

Illustrations in PA

certification must be provided annually within 30 days of the anniversary of the original certification

Replacing Insurer

company that issues the new policy Duties... a list of applicant's life insurance contracts from the producer send a written communication to each existing insurance company advising of the proposed replacement

Existing Insurer

company whose policy is being replaced Duties... retain all replacement notifications for at least 5 years or until next examination (whichever is longer) send letter to policy owner of their right to receive info about existing policy values surrender or withdraw any policy values

Traditional Net cost Index

compares cash values available to buyers if they surrender policy in 10 or 20 years does not consider time value of money

Interest-Adjusted Net Cost Index

compares death benefits paid at death in 10 or 20 years account for time value of money

Contacts with the Insured

contacts cannot be made more often that every 3 months if the insured has a life expectancy of more than one year, and no more than once per month if the insured has a life expectancy of one year or less

Premiums

covers the cost and expenses to keep policy in force paid in advance

Delivery Receipt

document obtained after an agent delivers an individual policy or annuity to the policy owner

Costs Associated with Death (Post Mortem)

final medical expenses of the insured, funeral expenses, day-to-day family maintenance expenses

Mode

frequency the policy owner pays the premium Higher Frequency= High Premium Monthly> Quarterly> Semi-Annual> Annual

Human Life Value Approach

gives the insured an estimate of what would be lost to family in the event of the premature death of the insured calculates an individual's life value via the insured's wages, inflation, # of years to retirement and the time value of money

Disclosure Statement

help applicants make informed decisions about their choice of insurance

Net Single Premium

includes mortality and interest components needed to keep policy in force until maturity Mortality- Interest= Net Premium

Part 1- General Info

includes name, age, address, birth date, gender, income, marital status, and occupation

Advertisement

includes printed material, audio visual material or descriptive literature insurer is responsible for all of its advertisements

Preferred Risks

individuals who meet certain requirements and qualify for lower premiums than the standard risk have superior physical condition, lifestyle, and habits

Part 2- Medical Info

info on the prospective insured's medical background, present health, recent medical visits, medical status of living relatives and causes of death of decease relatives

Liquidity

insurance policy's cash values can be borrowed against at any time and used for immediate needs

Suitability

insurance producer may not recommend an insurance policy or annuity contract unless they believe it is the best interest of the insured

Mortality tables

insurers use to predict expectation of life and probability of death for a given group

Insurance Company

issues policy to policy owner pays benefit to beneficiary

Expense

largest is commission to agents, also includes payroll, rent and taxes

Bequests

leaving funds to the insured's church, school, or a charity

Buy-Sell Agreement

legal contract that determines what will be done with a business in the event that an owner dies or become disabled

Key person Insurance

lessen the risk of loss of an employee with specialized knowledge, skills or business contacts business is the applicant, policy owner, premium payer, and beneficiary

Survivor Protection

life insurance can provide the funds necessary for the survivors of the insured to be able to maintain their lifestyle in the event of the insured's death

Conditional Receipt

most common receipt, only used when applicant submit a prepaid application

Premium Receipt

must be issued when agent collects premiums

Outline of Coverage

no policy may be issued in PA unless this accompanies the contract or is delivered at the time of the application

Medical Information Bureau (MIB)

nonprofit trade organization that receives medical info from insurance companies and keeps confidential medical impairment info on individuals

Gross Annual Premium

one year cost for morality+ the cost of operating the company Net Premium + Expense (loading)= Gross Premium

Education Funds

paying for children's education expenses so they can remain in school or for a surviving spouse so they can re-enter the job market

Emergency Reserve Funds

paying for unexpected expenses following the death of the insured Example: travel expenses

Debt Cancellation (as an alternative to Estate Liquidation)

paying off debts of the insured such as home mortgage or auto loans

Policy Owner

pays premium to insurance company

Standard Risks

people entitled to insurance protection without extra rating or special restrictions similar to majority of people their age with similar lifestyles average risks

Viatical Settlement Provider

person (other than a viator) who enters into a viatical settlement contract does not include a bank, financing entity, or the issuer of a life insurance policy

Insurable Interest

policy owner must face the possibility of losing money or something of value

Replacement

practice of getting rid of an existing policy and obtaining a new one

Agent's report

provides agent personal observations concerning the proposed insured

Buyer's Guide

provides basic info about life insurance policies that contain language approved by the Department of Insurance

Surrender Comparison Index Disclosure

provides life insurance purchaser a cost comparison of similar types of policies with same premium payment period and pattern all applicants for life insurance policies must be given this in PA

Attending Physician Statement (APS)

provides underwriter specific medical details that could indicate greater risk

Estate Creation and Conservation

purchase of life insurance creates an immediate estate important for young families who have not had time to amass assets

Mortaility

ratio of the number of deaths in a specific population over a certain amount of time vs. the number of living people in that population

Policy Replacement in PA

replacing insurer must notify existing insurer of replacement within 5 business days of the policy being issued evidence should be maintained for at least 3 years

Fair Credit Reporting Act

rules and regulations that guide companies that use inspection reports

Retirement Fund

source of retirement income

Application

starting point and basic source of info used by company in risk selection process BOTH the agent and proposed insured (usually applicant) must sign

Viator

the owner of a life insurance policy who enters into or seeks to enter into a viatical settlement contract

Underwriting

the risk selection and classification process

Asset Protection

use of life insurance to guard one's wealth against creditor claims without engaging in illegal practices such as concealment or fraudulent transfer

Stock Purchase

used by privately owned corporations when each stockholder buys a policy on each of the others

Cross Purchase

used in partnerships when each partner buys a policy on the other

Unconditional (binding) receipt

used often with property and casualty insurance coverage begins immediately for a specific length of time

Stock Redemption

used when the corporation buys one policy on each shareholder

Entity Purchase

used when the partnership buys the policies on the partners

Disclosure to Consumers

viator has 15 calendar days to rescind a viatical settlement funds will be sent to the viator within 3 business days after the viatical settlement provider acknowledges the ownership of the policy or interest in the certificate has been transferred and the beneficiary has been designated

Policy Summary

written statement describing the features and elements of the policy being issued must be provided when policy is delivered