Life Insurance Basis
Required Signatures
both the agent and the proposed insured must sign the application
Underwriting
it is the risk selection process.
Laws and Regulations for HIV test
* Disclose the use of testing to the applicant and written consent from the applicant * Established written policies and procedures for the internal dissemination.
Life Insurance Illustration Must Do
* Distinguish between guaranteed and projected amounts. * Clearly state that an illustrations not a part of the contract. * Identify those values that are not guaranteed as such.
Components of an Application
* General information * Medical Information
Illustration Must Contain
* Inf insurer, insured and policy * Underwriting or rating classification upon which the illustration is based. * Initial Death benefit. * Dividend option election or application of non guaranteed elements, if applicable. * Illustration date and label stating " Life insurance Illustration"
Unfair Underwriting for the Risk of HIV/AIDS
* Insurers may decline a insured for positive HIV * Test may be paid for by insurer * Insurers must obtain a written consent to test for HIV / AIDS
Sources of Informations
* MIB Medical Information Bureau * Department of Motor Vehicles * APS Attending physician Statement (Physician/Medical facility records) * Medical Testing/Current Physical (HIV, Use drugs, EKG electrocardiogram) * Financial Records * Personal interviews * Hazard Activities Questionnaire
Field Underwriting Responsibilities
* Proper solicitation of applicants. * Helping prevent adverse selection. * Completing the application. * Obtaining the required signatures. * Collecting the initial premium and issuing the receipt. * Delivering the policy.
Illustration May Not Do
* Represent the policy as anything other than a life insurance policy. * Describe non guaranteed elements in a manner that could be misleading. * Use an illustration that depicts policy's performance as being more favorable than it really is. * Provide an incomplete illustration. * Claim that premium payments will not be required for each year of the policy in order to maintain the illustrated death benefits, unless that is the fact. * Use the term "vanish" or " vanishing premium" or a similar term that implies the policy becomes paid up. * Use an illustration that is not self-supporting.
Insured Rated Classifications
- Standard - Preferred - Substandard - Decline
Buy-Sell Insurance
A buy-sell agreement is a legal contract that determines what will be done with a business in the event that an owner dies or become disabled. (named business continuation agreement)
Knowingly and Willfully
A person who knowingly and willfully obtains information on a consumer under false pretenses may also be fined and imprisoned for up 2 years
Unknowingly
A person who unknowingly violates the act, is liable in the amount equal to the loss to the consumer.
Willfully
A person who willfully violates the act, is subject to a penalty of up to $2,500.
Changes on the Application
An agent should never erase or white out any information on an application for insurance. They must complete a new application or the applicant have to initial the change with written consent.
Bequests
An insured may wish to leave funds to their church, school, or other organization at the time of their death.
Attending Physician's Statement (APS)
Completed by a medical practitioner who treated a prior medical problem
Category of Reports
Consumer Reports Investigative Consumer Reports
Personal Financial Planning (Inf. to be gathered falls)
Debt Cancellation Income Mortgage Expenses
The Income Periods
Family Dependency Period Preretirement Period Retirement Period
Prohibited Information
If life insurance policy or credit transaction is less than 150,000, consumer reports can not contain bankruptcies more than 10 years old, civil suits, record of arrest or convictions of crimes, or any negative information that is more than 7 years old.
Non-medical Application
If the amount of insurance is relative small, the agent and insured will complete all health questionnaire (medical information).
Nonmedical Application
If the amount of insurance is relatively small, the agent and the proposed insured will complete all the medical information.
Interest
Insurance companies invest the premiums in an effort to earn interest on these funds.
Debt Cacellation
Insurance may be used to create a fund to pay off debts of the insured such as home mortgage or auto loans
Retirement Fund
Insurance proceeds may be used as a source of retirement income.
Emergency Reserve Funds
Insurance proceeds may be used to assist in paying for sudden expenses following the death of the insured, such as travel expenses and lodging for family members coming from a distance.
Education Fund
Insurance proceeds may be used to pay for children's education expenses so they can remain in school, or sometimes a surviving spouse who has worked in the home caring for children will need to receive education or training in order to re-enter the job market.
Traditional Net cost Index
It compares the cash value available to buyers if they surrender the policy in 10 or 20 years.
Interest-Adjusted Net Cost Index
It compares the death benefits that are paid at death in 10 or 20 years, if the insured died at that time.
Fair Credit Reporting Act
It establishes procedures that consumer-reporting agencies must follow in order to ensure that records are confidential, accurate, relevant, and properly used.
Mortality Table
It helps the insurers predict the expectation of life and the probability of death for a given group
Negative Information
It includes consumer's delinquencies, late payments, insolvency or any other form of default
General Information
It includes general questions about the applicant and contains information concerning the beneficiary.
Consumer Reports
It includes information regarding a consumer's credit, character, reputation, or habits collected from employment records, credit reports, and other public sources
Executive Bonuses
It is an arrangement where the employer offers to give the employee a wage increase in the amount of the premium on a new life insurance policy on the employee
Needs Approach
It is based on the predicted needs of a family after the premature death of the insured. (Amount of debts, mortgage, investments, etc)
Application as a Source
It is one of the main sources of underwriting information
Temporary Term
It is the protection period offered by binding receipts. The insurance company is liable for the maximum amount guaranteed
Application
It is the starting point and basic source of information used by the company in the risk selection process.
Illustrations
It means a presentation or depiction that includes non guaranteed elements of a policy of individual or group life insurance over a period of years.
Disclosure Statement
It provides basic information about the cost and coverage of the insurance being solicited.
Agent's Report
It provides information about the applicant known by the agent
Conditional Receipt
It says that coverage will effective either on the date of the application or the date of the medical exam, whichever occurs last.
Business Uses of Life Insurance
Key person insurance Buy-sell agreements Other Uses
Negligently
Negligently disclosing confidential results or underwriting information to unauthorized third parties may result in a civil fine up to 1,000. It may go up to 5,000 for willful violations. If it causes economic, bodily or psychological harm, the penalty may include a misdemeanor charge, one year jail, and fine up to 10,000.
Factors of Premium Determination
Risk (Mortality) Interest Expense
Process of Issuing a Life Insurance Policy
Solicitation and Sales Presentations Underwriting: Field and Company Premium Determination Policy Issue and Delivery
Solicitation and Sales Representations
Solicitation of insurance means an attempt to persuade a person to buy an insurance policy.
Underwriter will Label the Client As
Standard Substandard Uninsurable
Field Underwriting
The agent is the company's front line.
Attachment of Application to Policy
The application must be attached to the policy. The policy and the application constitute the entire contratct between the parties.
Consequences of Incomplete Application
The insurer must return the incomplete application to the applicant for completion. The insurer will no have the right to deny coverage based on unanswered questions.
Retirement Period
The surviving spouse's working income ceases and his or her social security benefits begin.
Post-Selection
The underwriter begins an investigation of the client's complete risk profile.
Standard Risks
They are persons who are entitled to insurance protection without extra rating or special restrictions.
Substandard Risks
They are persons who are not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits. Their premium are higher.
Preferred Risks
They are persons who meet certain requirements and qualify for lower premiums (have a superior physical condition, lifestyle, and habits)
Binders
They are prohibited in life and disability policies
Approval Conditional Receipt
This coverage begins only when the pre-paid application is approved by the insurer but before the policy is delivered. There is no coverage during the initial underwriting process.
Preretirement Period
This is the period after the children are no longer dependent upon the surviving spouse for support, but before the surviving spouse qualifies for social security survivor benefits (Blackout Period) The income needs of the surviving spouse lessen during this period.
Use and Disclosure of Insurance Information
To get the information the insurers must first provide the insured with a written Disclosure Authorization Notice. It must be approved by head of the department of insurance.
Cost Indexes
To help consumers make educated decisions on purchasing life insurance.
Risk Classifiction
Underwriter must determine the risk or rate classification to be used in deciding whether or not the applicant should pay a higher or lower premium.
Stock Purchase
Used by privately owned corporations when each stockholders buys a policy on each of the others
Cross Purchase
Used in partnerships when each partner buys a policy in the other
Family Dependency Period
When the surviving spouse will have dependent children to support. The family's income need will be greatest during this period.
Guaranteed at initial level Vs initial and Maximum Premiums
Premiums can either remain the same for the entire policy period, or can increase and decreaseat different times.
Underwriter's Responsibilities
He selects risks that are insurable to protect the insurer against adverse selection.
Determining the Amount of Life Insurance
Human Life Value Approach Needs Approach
Disclosures of a Life Settlement Transaction A
* An Explanation of possible alternatives * The proceeds may be taxable * The contract may be subject to the claims of creditors * Receipt of the proceeds may adversely affect the recipient's eligibility for public assistance. * The proceeds will be sent to the owner within 3 business days after the policy has been transferred
Life Insurance has Value Like Other Property
* It can be valuable part of an individual' estate, providing immediate cash to pay debts and providing financial security to the insured's survivors. * The cash value of a life insurance policy can be used as collateral to secure a loan. * Life insurance may be paid for in manageable installments called premiums.
Advantages of Personal Delivery
* Opportunity to explain why and what they purchased. * It reinforces the personal relationship. * It gives the agent the opportunity to assess future needs of additional insurance or provide other needed products. * If paperwork was incomplete or contradictory, may require the agent to revisit the client to get signed confirmation.
Disclosures of a Life Settlement Transaction B
* The contract may cause other benefits under the policy, such as conversion or waiver of premium, to be forfeited by the owner.* The amount paid by the provider and the net amount to be paid by the owner. * The date by which the funds will be available. * The provider is required to furnish to the owner a consumer information booklet.
Disclosures of a Life Settlement Transaction C
* The insured may be contacted by either the provider or the broker to determine the insurer's health status or to verify the address. * The settlement provider's information. * The owner has a right to rescind contract within 30 days after the contract is executed by all parties, or within 15 days the receipt of the life settlement proceeds by the owner, whichever is sooner. Si el asegurado muere durante el periodo de rescission, se hara un reembolso by the owner.
Key Person Insurance
A business can suffer a financial loss because of the premature death of a key employee. In that event, the business would use the money for the additional costs of running the business and replacing the employee. The business is the applicant, Policyowner, Premium payer and Beneficiary.
Modified Pay
A lower premium is charge for the 3 to 5 years, then a higher level premium is paid for the remainder of the insured's life. (individuals with limited financial resources)
Delivery Receipt
Basic to all contract law, life and disability insurance policies must be signed and dated to remain valid and avoid conflict.
Paramedical Report
Completed by paramedic or registered nurse
Types of Temporary Insurance Agreement
Conditional Receipt 30-day Interim Term Receipt Acceptance Form Receipt
Types of Buy-Sell Agreements
Cross Purchase Entity Purchase Stock Purchase Stock Redemption Business Overhead Expense Executive Bonuses Business Continuation
Expense (Loading Charge)
Each premium must carry a proportionate share of these operating costs. (commissions to agents is the largest expense)
Methods of Delivery
Personal Delivery (date/signed written receipt) Registered or Certified Mail First Class Mail with (date/signed written receipt) Any other reasonable means (determined by commissioner)
Effective Date Coverage
If premium is not paid with the application, the agent will be required a premium and Statement of good health from the insured and the effective date coverage the date of delivery If a premium was submitted with the application and the policy was issued as request, the effective date coincide with the date of the application.
Policy Title Page
It contains a summary of the benefits and coverage the policy will provide
Premium Tables
It determines the cost of the insurance based on the insured's age and other underwriting factors.
Buyer's Guide
It explains how a buyer should go about choosing the amount and type of insurance to buy, and how a buyer can save money by comparing the costs of similar policies.
Human Life Value Approach
It gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured. It calculates an individual's life value by looking at the insured's wages, inflation, the number of years to retirement, and the time value of money.
Medical Information
It includes information prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and causes of death of deceased relatives.
HIPAA Health Insurance Portability and Accountability Act
It is a federal law that protects health information
Policy Summary
It is a written statement describing the features and elements of the policy being issued.
Business Continuation
It is an arrangement between business owners that provides for shares owned by any one of them who dies or becomes disabled to be sold to, and purchased by, the other co-owners or the business
Life Insurance Monetary Value index
It is similar to surrender Cost Index and it is for individuals 55 years of age or older. It assume that the insured would want to retain coverage for at least 10 years.
Limit of Liability
It is the face value/amount or death benefit of an individual life insurance policy. Face Amount- (outstanding policy loans +Loan Interest) = Limit of Liability
Mortality
It is the ratio of the number of deaths in a specific population versus the number of living people in that population.
STOLI Stranger-Originated Life insurance
It is when a stranger purchases a life policy on the insured's life with the intent of selling the policy to an investor. It violates the principle of insurable interest (interest in longevity rather than death).
Genetic Characteristics
It means any scientifically identifiable gene that is known to be cause of disease or disorder, and is associated with a statistically risk of a development of a disease or disorder. (tay-sachs, hemophilia, sickle cell)
Level
It means that the premium remains the same throughout the same duration of the contract. (permanece igual)
Agent's Report
It provides the agent's personal observation concerning the proposed insured. It is a part of the application process.
Life Settlement
It refers to any financial transaction in which the owner of a life insurance policy sells a life insurance policy to a third party for some form of compensation, usually cash. They are offer to senior citizens who has a short life expectancy. They should receive a greater amount than
Business Overhead Expense (BOE)
It reimburses the business owner for the actual overhead expenses that are incurred while the business owner is totally disabled (rent, employee salaries, leased,equipment, ect (but no salary or compensation).
Premium Rated-Up
It resulting in a higher premium
Statement of Good of Health
It verifies that the insured has no suffered injury or illness since the application date
Explaining the Policy
Make sure that the insured understands the new provisions or riders that may be different than anticipated, and explained the rating procedure if the policy is rated differently than applied.
Premium Payment Mode
Mode refers to the frequency. HIGHER FREQUENCY = HIGHER PREMIUM. It is because the company will have additional expenses in billing the premium. (pays could be Monthly, Quarterly, Semi-Annual, Annual). Insurer must refund any unearned premium.
Options for the Medical Examination
Paramedical Report Attending Physician's Statement (APS)
Privacy Rule
Patients have the right to view their own records over the previous 6 years. The Law can collect any health information without individual authorization.
Pre-Selection
The application will ask for all of the legally allowed information which an insurer may gather in order to do an effective post-selection underwriting. Agent can terminate the application if clients poses an untenable risk and war if they are out of the range
Limited Pay
The coverage are completely paid for the amount of years specified. (20 years-65 age)
Single Premium
The policy-owner makes one lump-sum payment to the insurance company to create a policy. (minimum premium require $5,000)
Flexible Premium
The policyowner is allowed to pay more or less than the planned premium
Fixed Premium
The same amount is paid periodically
Declined Risks
They are applicant who are rejected because: * There is no insurable interest. * The applicant is medically unacceptable. * The potential for loss is so great it does not meet the definition of insurance. * Insurance is prohibited by public policy or is illegal.
Investigative Consumer Report
They are similar to consumer report. The difference is that the information is obtained through an investigation and interviews with associates, friends and neighbors. Consumer must be advised (max 3 days), insurer has 5 days to provide the information.
Temporary Insurance Agreement
This agreement requires payment of the first premium at the time of application, but does not guarantee that a policy will be issued
Unconditional (Binding) Receipt
This coverage begins immediately and for specific length of time (or until insurer declines coverage), even if the applicant is later found to be uninsurable.
Information of the Policy Title Page
Type of policy Amount of Coverage Premium amount and modal to paid Information of the insured and the policy-owner The date the policy will be effective The date of termination Premium payment period Any provision and rider and amount to be paid for each
Investigative Consumer Report - Underwriter
Underwriter may order an inspection report from an independent investigating firm or credit agency
Stock Redemption
Used when the corporation buys one policy on each shareholder
Entity Purchase
Used when the partnership buys the policies on the partners
Life Insurance Create an Immediate State
When an insured purchases a life insurance policy, he will have an estate of at least that amount the moment the first premium is paid. Some life policies accumulate cash value that is available to the policyowner during the policy term. It provides liquidity to the policyowner. Cash values can be borrowed and used for immediate needs.
Premiums with the Applictions
Whenever the agent collects premiums, the agent must issue a premium receipt
