Life Policy Provisions, Life Insurance Lesson 4, Lesson 8: Types of Life Insurance Policies, AFLAC LESSON 7, General Group Insurance Concepts, federal and state regulation, contract law, underwriting an insurance policy, Lesson 2: Ethics and Professi...

Term Life Insurance

A basic type of life insurance that is lower in cost to a policyowner, is only in force for a specified period of time and does not accumulate cash value, nor does it provide the policyowner with any policy loan value. A term life policy's death benefit is payable only if the insured dies during the specified period of time stated in the policy. Term life coverage expires once the term has ended and can either be renewed for an additional term or be allowed to expire.

Viatical Broker

A licensed agent who solicits and sells viatical contracts between a life insurance policyowner and the viatical settlement provider.

Return of Premium (ROP) Term Life Policy

A more expensive type of term life insurance that provides an 'end benefit' to the policyowner at the expiration of his or her policy's term by returning 100% of the premiums paid into the policy when the insured survives the policy's term.

Whole Life Insurance

Also known as Ordinary, Permanent, or Straight-Lifeinsurance. Whole life insurance provides coverage for an individual's whole life, rather than a specified term (provided he or she continues to make premium payments). An important feature of whole life insurance that is not associated with term life insurance is that a whole life policy includes an investment component which accumulates Cash Value and increases over time based on earned interest.

Life Policy (Capital) Liquidation

Also referred to as capital 'utilization,' income is derived by both interest and principal. Funds eventually disappear and could be of concern if the surviving spouse outlives the policy's death benefit if no additional income is derived.

Marketing Illustration Requirements

An illustration used in the sale of a life insurance policy shall satisfy the applicable requirements of this regulation, be clearly labeled "life insurance illustration," and contain the following basic information: - Name of insurer - Name and business address of producer or insurer's authorized representative, if any - Name, age and sex of proposed insured, except where a composite illustration is permitted under this chapter - Underwriting or rating classification upon which the illustration is based - Generic name of the policy, the company product name, if different, and form number - Initial death benefit - Dividend option election or application of non-guaranteed elements, if applicable

Policy Loan Provision

Cash value life insurance policies include a provision allowing the policyowner to borrow against the policy's cash value in the form of a loan from the life insurer, or use it as collateral on a loan, after it has been in force for a period of time, typically 3-5 years after policy issuance. Loans made against a policy's cash value cannot exceed the amount accumulated and is not intended to be taken out in order to pay the policy's premiums.

Whole Life Policy Maturity at Age 100

Compared to term life insurance which provides coverage for a specified period of time, whole life insurance covers the whole life of the insured. However, whole life insurance matures at age 100, meaning that once the insured has reached age 100, his or her policy is considered to be paid in full and the insurer's obligation to provide coverage ends.

Per Capita Rule

Death proceeds from an insurance policy are divided equally among only the living primary beneficiaries

Per Stirpes Rule

Death proceeds from an insurance policy are divided equally among the named beneficiaries. If a named beneficiary is deceased, his or her share then goes to the living descendants of that individual.

Special Questionnaires

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. Race car drivers, high rise workers, miners, and extreme sport enthusiasts are naturally higher risk for an insurance company than an office worker or teacher. - Many high-risk occupations and hobbies are simply not insurable, or require special insurance, often provided through the occupation's respective industry. Some insurance companies also increase the rate of motorcyclists due to the increased risk versus driving a car.

Family Income Cycle

Family Dependency Period Pre-retirement Period (Blackout Period) Retirement Period

Reinstatement Provision

If a life insurance policy does lapse, either by accident or on purpose, the policyowner has, within a specified amount of time, the right to reinstate his or her contract as of the date that the policy lapsed. Under policy 'reinstatement,' once the policy is reinstated by the insurer, the original provisions of the life insurance contract continue to apply as if coverage never lapsed. Although the policyowner is responsible for fulfilling certain requirements in order to reinstate a lapsed policy, it is often wiser to reinstate a long-term policy than to purchase a new policy.

Collateral Assignment

In a collateral assignment, the policyowner assigns his or her policy to a creditor as collateral for a debt. This approach is often taken in the event that the policyowner or insured dies. The debt owed to the creditor can be paid from the policy's death benefit proceeds. Any death benefit proceeds remaining after the creditor's debt is paid are then paid out to the policy's beneficiary.

Absolute Assignment

In an absolute assignment, the assignee gains full control of the policy and acquires all rights of the policy upon transfer. This approach prohibits the assignor from any further control after such transfer.

Estate Conservation (Retention)

Income is derived only from interest gained on the principal. Income is indefinite and creates a legacy for next of kin or for charity.

General Exclusions in a Life Contract

Life insurance policies also included provisions and exclusions to protect the insurer in the event of likely death or illegal activity that might affect a life insurance policy's proceeds.

Policy Replacement

Life insurance replacement is 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

Adjustable Life

Life insurance that consists of both term and permanent insurance. The policyowner can, from time to time, change various aspects of the policy including increasing or decreasing the face amount, premium, or changing the period of coverage, to continue to be flexible for the policyowner's current needs.

Entire Contract Provision

Located at the beginning of an insurance contract, this provision details the policy's documents, including the policy application and any attached riders that may have been added to the policy. This provision also prohibits the insurer and the insured from making any changes to the contract, whether by outside documents or by oral statements (parol evidence rule)

Accelerated Benefits

Most life insurance policies include a standard provision that allows an insured individual who becomes terminally ill or injured to receive a percentage of the policy's face amount payable as single lump sum amount or in monthly installments. This early payment to the terminally ill or injured insured reduces the policy's death benefit and is usually only payable for a period of one year.

Inspection Report

Often required by the insurer when a life insurance applicant is applying for a large amount of insurance. Inspection reports often have the same types of questions as in the special questionnaire, but more extensive. Also, an insurance company might hire an investigator to interview family members, neighbors and/or associates to attain a general impression of an applicant's integrity. Again, this type of 'inspection' is only employed to help evaluate clientele needing larger amounts of coverage than the industry average.

Guaranteed V Non-Guaranteed Premium Levels

Once issued, a term policy's premium rate is either guaranteed to remain constant, or 'level' for the entirety of the term; or the policy's premium rate is non-guaranteed, which enables the insurer to increase the premium rate during the contract period. A guaranteed level premium policy is most commonly purchased.

Limited-Payment

Premium installments are paid for a limited period of time while guaranteeing coverage for the life of the policyowner. Since the premiums are paid over a shorter period of time, the premium payments will be higher than under an ordinary whole life policy. Cash values also build quicker than straight life policies. Limited-payment policies are based on a predetermined number of years such as a 20-payment (20-pay) or 30-payment (30-pay) policy

Current Assumption

Premium payments are flexible and can increase or decrease by the insurer (annually) based on current interest rate trends that result in higher or lower mortality rates or investment returns to the insurer.

Interim Term

Referred to as 'interim term' coverage, an individual who wishes to purchase a whole life policy in the near future, or who is waiting for his or her whole life policy to be underwritten by the insurer, may be temporarily covered under a term policy which is then automatically converted to a whole life policy within a short period of time. Used from 1 to 11 months

Inspection Receipt

Sometimes an applicant wishes to review, or 'inspect' a prospective policy before providing the initial premium to the insurer. When this occurs, an inspection receipt is provided to the applicant by the insurer. - An inspection receipt is proof that an application has been received by the insurer and in return, a policy has been delivered to the applicant for inspection purposes only. An inspection receipt states that the insurance company is not legally obligated to cover any loss by the applicant until it also receives the applied-for policy's premium. - After inspecting the policy and upon accepting the policy's terms, the applicant then pays the initial premium to the insurer and the underwriting process begins.

Free-Look Provision

Specifies a period of time in which a policyowner has the right to review and reject his or her insurance policy if not completely satisfied with its coverage. Although it varies based on each states' laws, this period extends 10-14 days from the date of receiving a new policy from the insurer.

Continuous Premium (Straight Life)

The most common type of whole life insurance sold. The policyholder stretches premium installments over the life of the policy (to age 100 or death, whichever comes first). Premium installments are both continuous and level throughout the policyholder's life.

Blackout Period

The period of time in the family income cycle when a family's children are no longer dependent on the surviving parent, thus ending social security survivor benefits for the surviving spouse until he or she reaches age 60, or 50 if he or she is disabled. Upon reaching age 60, social security survivor benefits resume and are again paid to the surviving spouse.

Tertiary (Contingent)

Third in succession to the primary, a tertiary beneficiary is a contingent to both the primary and secondary beneficiaries and will only receive a policy's death benefits if both the primary and secondary beneficiaries have died before the insured.

Suicide Clause

This clause is designed to deter potential suicide contemplation and usually extends for the first 2 years after policy issuance. If the insured commits suicide within the first 2 years, the insurer will refund the premium paid to the policyowner, or to the designated beneficiary if the insured and policyowner are the same individual. If the insured commits suicide after the first 2 years, the insurer is obligated to pay the death benefit to the designated beneficiary.

Common Disaster Clause

To further define who receives death benefits in the event of the simultaneous or nearly simultaneous death of both the insured and primary beneficiary, a policyowner can include a common disaster clause to the life policy.

Surrender Cost Index

is based on the assumption that a policyowner will surrender a whole life policy in the future. A lower 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 is on the surrender value of the policy for the policyowner, as opposed to the death benefit amount for the beneficiary.

External Replacement

meaning it is replaced with another policy by a different insurer.

Binding Receipt

A binding receipt guarantees Temporary Term coverage at the time of application for a specified benefit amount regardless of whether the insurer later approves or declines the applicant.

Decreasing Term

A decreasing term life policy's face amount decreases over the term of the policy. This type of coverage is often purchased to protect against home mortgages, student loan debt or any situation in which the need for insurance is greater at the beginning of the policy, as opposed to the end of the policy.

Insuring Clause

Written into all life insurance policies, the insuring clause states that an insurance company will honor its obligation to pay benefits in the event of an insured's death.

Submitting the Application and Initial Premium

- During sales process, an agent is required to supply both the policy summary and geeral buyers guide to an applicant before collecting the application and initial premium - after doing so, the agent submits the application and (almost always) the initial premium to the insurer - When an insurance company receives an application for insurance, it always provides the applicant with a receipt,

NAIC Regulation applies to all group and individual life insurance policies and certificates except:

- Variable life insurance; - Individual and group annuity contracts; - Credit life insurance; or - Life insurance policies with no illustrated death benefits on any individual exceeding $10,000

Buyer's Guide

- generic document which explains basic terms and definitions related to life insurance - type of whole life insurance being marketed in order to better educate the consumer

In order to reinstate a lapsed policy, the policyowner must satisfy the following requirements:

-Any missed premiums must be paid with interest -Any outstanding loan(s) must be paid back to the insurer -Evidence of insurability is often required to reinstate a life policy -A time limit is enforced when reinstating a policy of 3 to 7 years depending on the insurer -If the reinstated policy has already satisfied the original contract's incontestability period, it can only be contested on fraud or misrepresentation of material facts relative to the reinstated policy -The suicide provision associated with the original policy is maintained, but no additional exclusionary time is added when reinstating a life policy

common life policy exclusions

-False pretense or information provided on the application for life insurance with the intent to deceive and defraud the insurer -If the policyowner dies as a result of a felonious act, death benefits will not be given to a beneficiary -Private aviation (flying a private airplane) is often excluded due to the elevated risk level associated with such profession or hobby. This exclusion normally pertains to private aviation, and not if death occurs during commercial aviation, such as being a passenger on a commercial airline -Hazardous occupations or hobbies that are considered dangerous, such as structural metal workers, miners, heavy-equipment operators, stuntmen, race car drivers and other 'hazardous' occupations or hobbies are usually excluded from applying for coverage, though employers of these occupations often provide special protection for their employees -Death resulting from military service is typically excluded from coverage. Death benefits will not be paid if the policyowner's death is the result of participation in war. Military personnel receive governmental coverage under the rules and regulations of the U.S. military

Incontestable Clause Exceptions

-Impersonation - If an insurance plan is completed by one applicant but signed by another. -No insurable interest at time of application - In order for an insurance contract to be valid, insurable interest must be present at the time of application. -Intent to murder - The life contract would not have legal purpose; therefore it would be considered to be a void contract.

Level Term

A level term life policy's face amount remains constant, or 'level,' for the term of the policy. The only aspect that changes, if renewed, is the increase in premium due to the increased age of the policyowner.

Ownership Clause

A life insurance policy is a legal document that creates ownership for the policy's owner as long as insurable interest exists at the time of application between the policy's owner and the insured individual for which the policy is underwritten, whether it be the same person or two different people. A life insurance policy is not a 'personal contract' between the insurance company and the insured individual. Life insurance is considered legal property of the policyowner and the policyowner has the right to designate the policy's beneficiary and any contingents, as well as decide the revocable or irrevocable status of the beneficiary.

Assignment Provision

A life insurance policy is the property of the policyowner, and as such, he or she can 'assign,' or transfer, ownership to another individual in which the policyowner chooses. The process of transferring ownership of a life insurance policy from one policyowner to another is known as policy Assignment. The transferring policyowner is referred to as an 'assignor,' and the individual receiving the policy is known as the 'assignee.'

Primary

A primary beneficiary is first in line to receive a policy's death benefits upon an insured's death. Although commonly a single individual serves as the primary beneficiary, any number of individuals can be named as the primary beneficiaries in a life insurance policy.

Renewable

A renewable term life policy does not require evidence of insurability at the time of renewal; however, premium rates increase according to the age of the insured at the time of each renewal. This type of premium rate increase is often called Step-Rate Premiums.

Attending Physician's Statement

A report or statement form in which the proposed insured's own doctor details the specifics of previous accidents, diseases, treatments, or prognoses (that they treated the insured for)

Convertible

A term life policy can also be 'convertible,' meaning that a policyowner can convert his or her term policy to a whole life or other cash value policy in the future without being required to provide evidence of insurability. The 'option to convert' is provided to the policyowner who may or may not elect to convert to a long-term policy in the future.

Intermediate Level Periods

A term life policy can also include an 'adjustable premium' schedule which is indeterminate at the time of policy issuance and can fluctuate over the term of the policy. The policy's premium rate is determined by the insurer's current mortality rates, interest earned from premium investments, and company expenses.

Single-Premium

A type of limited-payment whole life policy with a single lump-sum premium payment which is payable at the time the policy is issued.

Universal Life

A type of permanent insurance that offers more flexibility than many other forms of insurance. It offers flexible premiums and a flexible death benefit allowing the holder to shift money between the insurance and savings components of the policy. This alternative allows a policyowner to build up savings to protect against inflation.

Model Life Insurance Replacement regulation

Adopted by the NAIC and many states in order to ensure the proper replacement of life insurance. -Essentially, the NAIC model applies to individual life insurance solicitation and requires a replacing insurer and agent to fully acknowledge and communicate this replacement with the insured and replaced insurer. The overall goal is to adopt a fair and safe replacement of individual life insurance with the focus on the insured's long-term interests.

Incontestable Clause

After a specific period of time (usually 2 years, but in some states only 1 year), as long as a policy remains in force, an insurance company cannot contest the validity of a policy and must pay its death benefit, even in the event that a policyowner intentionally concealed material facts or committed other forms of fraud

Revocable Beneficiary Designation

Allows the policyowner to change beneficiaries after the policy becomes in force, if he or she so chooses, without the consent of the beneficiary.

Economic Policy

Also known as Enhanced Ordinary Life or Extra Ordinary Life, this insurance option, offered by some mutual companies, allows a policyowner to maintain a higher insurance death benefit at a lower premium through the combination of a whole life and term life policy.

Investor-Owned Life Insurance (IOLI)

Also referred to as an Investor-Owned Life Insurance (IOLI) arrangement, a STOLI (or IOLI) arrangement is considered to be a scam because it involves inducing an elderly individual into agreeing to purchase a life insurance contract with the intention of naming the investor as the contract's beneficiary in exchange for 'free' insurance and future compensation. Under the arrangement, the investor provides money to the elderly insured to pay the policy's premiums during the contract's first two years, known as the policy's 'incontestability period.' Once this period ends, the elderly insured transfers his or her ownership of the life insurance contract to the investor in order to be compensated. The investor may promote paying a percentage of the policy's death benefit once transfer of ownership occurs to the insured as compensation for the arrangement. Once ownership is assigned to the investor or investment group, it continues to pay the policy's premiums until the death of the insured, at which point it receives the policy's death benefit proceeds. In addition to the unethical nature of the arrangement, a STOLI transaction is illegal because it undermines the insurable interest requirement when purchasing a life insurance policy. The intention to sell the contract to the stranger, who will ultimately collect the policy's death benefit, voids the contract.

Life Insurance Beneficiary

An individual who receives a life insurance policy's death benefit proceeds upon the death of the insured. A life insurance beneficiary is chosen by the policyowner when purchasing the life insurance contract. The amount of death benefit proceeds or distribution percentages, if multiple beneficiaries are listed, are also chosen by the policyowner and can or cannot be altered during the insured's lifetime, depending on the revocable designation status that the policyowner has chosen at the time of policy issuance. A life insurance beneficiary can be an individual, an institution, or a charity. Unlike the requirement of insurable interest between the policyowner and the insured individual, insurable interest is not required between the policyowner or insured and the life policy's beneficiary; however, family members of the insured are usually named as a policy's beneficiary. As a form of charity, an individual can purchase life insurance on him or herself and assign a church, school, or other charitable organization as the beneficiary upon the insured's death. Premium payments for charitable life policies are tax deductible.

Credit Report

An insurance company has the right to review an applicant's credit report in determining approval and offered rate of premium. Insurance companies want to know that company expenses spent on issuing a policy to the applicant will not be lost on a policyowner that cannot pay the policy's premiums. This report helps illustrate if the applicant could be a financial risk for the company.

Insurable Interest

An interest must exist between two parties where one party has the potential to suffer a loss in the event that a particular outcome occurs (which was covered by the insurance policy). Insurance cannot be purchased on strangers, friends, associates of no financial significance, or the like where the potential for gain, instead of loss, were to occur. When speaking of life insurance, insurable interest must exist at the time of application, but is not required to still exist at the time of an insured's death.

Re-Entry Option

An option that allows an individual to reapply for, or 'reissue' his or her term life policy every few years (usually 5 years) and receive a premium lower than their guaranteed renewal rate. However, in order to receive this lower rate, evidence of insurability must show that the policyowner is maintaining good health.

Estate Creation and Conservation

As a means of creating future wealth for one's descendants, life insurance policies are often used to create a family trust, naming one's estate as a designated beneficiary. Technically, a life insurance policy is the property of the policyowner and upon his or her death, ownership of the policy (property) is transferred to the policy's beneficiary. Viewed as property, life insurance has many advantages: It creates an immediate estate (an established fund for the insured's beneficiary). Even if the insured prematurely dies after just one premium installment, the policy will pay the beneficiary the policy's full death benefit. It also creates an emergency fund through which the policy's cash value can be withdrawn as a loan from the policy or the policy's cash value can be used as collateral to secure a loan outside of the policy.

Personal Uses of Life Insurance

Financial protection against the loss of a family's breadwinner Estate creation and conservation Living benefits through loans made against the policy's cash value Accelerated benefits payable to the policyowner in the event of terminal illness or other qualifying event Ability to sell one's life policy to a viatical company in exchange for immediate payment of a percentage of the policy's death benefit. The viatical settlement company typically pays between 60-80% of the policy's death benefit back to the insured and keeps the death benefit when the insured dies. This type of settlement allows a terminally ill individual the ability to receive living benefits before death, while at the same time earning a 20-40% profit for the viatical company

Grace Period Provision

If a policyowner fails to pay his or her life insurance policy's premium by the date stated in the contract, the policy's grace period will prevent the policy from lapsing. Typically, a life insurance policy's grace period extends for either 30 or 31 days after the date in which the premium is normally due.

Viatical (Life) Settlement

If a policyowner is considered terminally ill, an option exists to sell the insurance policy after its contestability period has ended to a viatical settlement company who, in return, will pay anywhere from 60% to 80% of the face amount based on NAIC's Viatical Settlement Model Regulation, though state laws and insurer policies may differ.Once the policy is sold, premiums are paid to the insurer by the viatical settlement company, and upon the death of the insured, the death benefit is paid to the viatical company. Essentially, it allows a terminally ill policyowner to relinquish a life policy in exchange for living benefits to fulfill some final comforts and expenses before death

Spendthrift Clause

If established by the policyowner, this life policy clause protects the proceeds of a life insurance policy from the beneficiary's spending habits or any redirection of proceeds to any of the beneficiary's creditors. Under this clause, the beneficiary cannot receive a lump sum benefit or assign proceeds directly to a creditor, nor can a beneficiary surrender benefits for a present value lump sum. Essentially, this clause ensures that the intentions of the policyowner are carried out when the policy's death benefit is distributed to the policy's beneficiary.

Increasing Term

In comparison, an increasing term life policy's face amount increases over the term of the policy. Although this type of policy is not often sold as a stand-alone insurance product, it is typically incorporated into a whole life policy as an added rider.

Misstatement of Age or Sex Provision

In the event that a misstatement of age or sex occurs on the application for life insurance, the insurer will adjust the amount of future premiums and request payment of the additional premium that the policyowner should have paid. If a misstatement of age or sex is found by the insurer upon the insured's death, the death benefit will be adjusted to reflect premiums paid corresponding with the correct age or sex of the insured

Automatic Premium Loan Provision

In the event that a premium is not paid after the policy's grace period has ended, this provision will automatically take the required premium amount from the policy's cash value in order to prevent the policy from lapsing

Conditional Receipt

Most often, an insurer provides a conditional receipt upon receiving both the application and initial premium. Under a conditional receipt, the 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. -If a standard risk application is declined, but the insurer counter-offers with a substandard risk offer, the applicant will not be covered for any loss incurred before the acceptance of the new offer and, if required, the submission of any increased premium associated with the substandard risk offer provided by the insurer.

Secondary (Contingent)

Next in succession to the primary, the secondary beneficiary is a contingent to the primary beneficiary and will only receive a policy's death benefits if the primary beneficiary has died before the insured.

Delivering and Servicing the Policy

Personal delivery is the best way to deliver the policy and obtain the statement of good health if necessary, though some insurers mail the policy directly to the insured. Legally, the policy is considered delivered and the sale completed when the policy is mailed to or personally handed to the insured. Policy review is an important final step the agent should take with the insured to ensure the policy is completely understood and all questions have been answered.

Policy Retention

Retention is defined as 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, so careful consideration should be given to the accumulated cash value of a policy in determining whether to replace or retain the life insurance plan.

Policy Summary

Reviews specific product being purchased in detail such as: - identifying the agent and insurer from which the policy is being marketed - policy's premium rate, - policy exclusions, - dividends, - policy riders, - cash values - benefit amounts. **A whole life insurance policy summary is also required to include cost comparison 'indexes,' or charts which compare similar whole life policies based on the cost of each policy to the policyowner. These indexes are important in order to make a more informed choice when purchasing whole life insurance; however, cost indexes are not included in term life insurance since cash value does not exist.

Consideration Clause

Specifies the premium amount and date on which payments must be received to maintain the life policy. A policyowner can pay on a monthly, quarterly, semi-annual, or annual basis.

Irrevocable Beneficiary Designation

The policyowner gives up the right to control the policy. Once a policy becomes in force as an irrevocable policy, it cannot be changed in the future without the consent of the beneficiary. All policy ownership rights including future policy loans or policy collateral on a loan are controlled by the beneficiary, not the policyowner, though the beneficiary can give these rights back to the policyowner if the beneficiary so chooses.

The Uniform Simultaneous Death Act

This Act, established under the U.S. Uniform Probate Code and adopted by most states, defines the outcome of a life policy's proceed distribution in the event that both the policy's insured and primary beneficiary die in the same accident and no proof exists of who lived longer. As defined by the Act, in the event that it is unclear who out lived the other, the courts will decide that the insured has outlived the primary beneficiary, and if a contingent beneficiary is named, he or she will receive the death benefit proceeds. If no contingent beneficiary is named in the policy, the death benefit proceeds will be paid to the policyowner's estate.

Net Payment Cost Index

Used if, instead, the policyowner intends to keep the whole life policy in force until the death of the insured - compares similar policies based on the death benefit provided to the beneficiary. The focus is on the amount of death benefits payable to the policy's beneficiary, as opposed to the surrender value of the policy for the policyowner.

Medical Report

When applying for life insurance, a medical report is often required by an underwriter to approve an applicant. In addition to this report, applicants are sometimes required to obtain an Attending Physician's Statement (APS) to provide additional support for proof of insurability.

Handling a Claim

When death occurs, proof of the death is sent to the insurer and prompt payment is sent to the designated beneficiary. Often, the agent will help contact the insurer regarding the loss if the family needs help during their grieving. 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.

Living Benefits

Whole life insurance policies generate a 'cash value,' which is a portion of the premium payment that accumulates over the life of the policy, and can be borrowed or used as collateral by the policyowner during his or her lifetime. Though a policy's cash value can be borrowed against or used as collateral, the policyowner is responsible for paying back the loan with interest. If the policyowner dies during the loan, the policy's death benefit would reflect any borrowed cash value and accumulated interest, and subtract it from the proceeds paid out to the policy's beneficiary.

In force illustration

a chart that shows the cash value status of the policy and projections for the future given the current rate of return at the time of the illustration. - the policy must have been in force for at least 1 year

Basic Illustration

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

Illustration

a presentation or depiction that includes non-guaranteed elements of a life insurance policy over a period of years. - an agent often incorporates 'illustrations' to help explain the benefits and costs of a life insurance policy

Traditional Cost Comparison Method

accounts for the various cost factors of a whole life policy (except for interest earned over time, also known as the 'time value of money,' making the comparison less accurate.) The *'net payment cost index'* is calculated using the traditional cost comparison method.

Supplemental Illustration

an illustration furnished in addition to a basic illustration that may be presented in a format differing from the basic illustration, but may only depict a scale of non-guaranteed elements that is permitted in a basic illustration.

NAIC Life Insurance Solicitation Model Regulation

cost comparison methods to provide a standard from which to follow in comparing whole life insurance developed by the NAIC *requires new disclosures such as that a prospective buyer is to be provided with a general 'buyer's guide' and a 'policy summary' specific to the product being marketed. *As stated by the NAIC, its model regulation provides illustration formats, prescribes standards to be followed when illustrations are used and specifies the disclosures that are required in connection with illustrations. The goals of this regulation are to ensure that illustrations do not mislead purchasers of life insurance and to make illustrations more understandable.

Policy Amendments

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

Temporary Insurance Agreement (Temporary Term)

even if the insurer later declines the applicant, any claims made during the temporary term must be paid by the insurer. Although it has been utilized in the past, most life insurers typically issue a conditional receipt, while binding receipts are more common with property and auto insurance contracts.

Internal Replacement

meaning that it is replaced with another policy by the same insurer

Interest-Adjusted Cost Comparison Method

merged over time as more accurately comparing the true cost of similar life insurance policies because it takes into account the 'time value of money,' based on the insurer's projected rate of return in interest for the policy. The *'surrender cost index'* is calculated using the interest-adjusted cost comparison method.

Stranger-Originated Life Insurance (STOLI)

ndividual investors and investor groups such as hedge funds, STOLI schemes are often advertised as 'zero premium' or 'no cost' life insurance, promoting premium-paid life insurance for two years, as well as a lump sum of cash after the two years, in exchange for future ownership in a life insurance arrangement. Essentially, a STOLI arrangement creates a contract between an individual and a stranger who persuades the individual to purchase a life insurance policy on him or herself with the intent to sell the policy to the stranger at some point in the future.

Non-Guaranteed Elements (of an illustration)

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

Guaranteed Elements (of an illustration)

premiums, benefits, values, credits or charges under a life insurance policy that are guaranteed and determined at policy issue.

USA PATRIOT Act

requires financial institutions, including life insurance companies, to establish anti-money laundering and suspicious activity reporting programs in an attempt to prevent criminal money laundering. this federal law provides for enhanced security and surveillance of both domestic and international financial activities linked to terrorism. It mandates a more in-depth monitoring of suspicious financial transactions and the disclosure of such activity to government anti-terrorism agencies that monitor the funding of terrorism. As mandated by this Act, each financial institution must maintain anti-money laundering and suspicious activity reporting programs, provide company training for such programs, and comply with a self-assigned audit of company records using a non-company auditing agency.

Time Value of Money

states that receiving a dollar today is more valuable than in the future because, if invested today, it can earn interest and increase in value over time, as opposed to receiving a dollar in the future. Essentially, time adds value in that interest builds over time, thus providing a larger return for money invested now. Using compounding interest, time increases the value of money exponentially, thus the more time money has to grow the larger its value will be in the future.

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. In providing this comparison it is important to compare policies based on the age of the applicant as well as the amount of insurance being purchased. Non-guaranteed factors, such as dividend projections, are typically not accounted for in a cost index and should be considered in addition to the index number of the policy. **As an industry standard, cost index charts, provided in the policy summary, compare each $1,000 increment of a policy's face amount for 10-year and 20-year time periods using an average annual rate of return in interest of 5%. In choosing a lower cost policy, the lower the index number the less costly it is to the policyowner.

Effective Date

the date that the application is submitted along with the initial premium and a conditional receipt is given to the applicant. In a circumstance where an inspection receipt is requested by the applicant to review the coverage before premium is submitted, the effective date is then the date the policy is issued by the insurer and appears on the face page of the policy.