insurable interest
the policy owner must face the possibility of losing money or something of value in event of loss.
personal uses of life insurance
1. survivor protection 2. estate creation and conservation 3. cash accumulation 4. liquidity
human- life value approach
gives the insured an estimate of what would be lost to the family in the event of a premature death of the insured. factors: wages, inflation, the number of years to retirement, and the time value of money
needs- approach
based on the predicted needs of a family after the premature death of the insured. factors: INCOME, the amount of DEBT, INVESTMENTS, other ongoing expenses
lump- sum needs
1. cost associated with death(post mortem) 2. debt cancellation 3. emergency reserve funds 4. education funds5. retirement funds 6. bequests
planning for income needs
1. replacing insured's salary or lost services 2. social security income "blackout" period 3. liquidation vs. retention of capital
replacing insured's salary or lost services
the surviving spouse who was the caregiver of the children may have to train to enter the job market. if the spouse works outside of the home, a new expense for daycare may be considered
social security income "blackout" period
time in which the surviving spouse and/ or children do not receive any social security survivor benefits, begins when the youngest child reaches the age 16 and ends when the surviving spouse qualifies for retirement benefits as early as 60
liquidation and retention of capital
enough insurance is purchased so that when added to other liquid assets there is enough to pay income benefits without jeopardizing the insured's principle assets(such as home)
buy- sell funding
a legal contract that determines what will be done with a business in the event that the owner dies or becomes disabled. also known as business continuation agreement
types of buy- sell agreements
1. cross purchase2. entity purchase 3. stock purchase4. stock redemption
cross purchase
used in partnerships when each partner buys a policy on the other
entity purchase
used when the partnership buys the policies on the partners
stock purchase
used by privately owned corporations when each stockholder buys a policy on each of the others
stock redemption
used when the corporation buys one policy on each shareholder
key person insurance
a business can lessen the loss of financial loss because of premature death of a key employee
key employee insurance the business is
1. applicant 2. policy owner 3. premium payer 4. beneficiary
what would they use the money for in key person?
1. additional costs of running the business2. replacing the employee
tax rules
- can not take a tax deduction for premium paid - benefits paid to the business are usually tax free
executive bonus
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. tax deductible to the employer and income taxable to the employee
process of issuing a life insurance policy
1. solicitation and sales presentations2. field underwriting
the insurer whose policies are advertised is responsible for _____ of its advertisements
ALL
illustration
a presentation or depiction that includes nonguranteed elements of a policy of individual or group life insurance over a period of years
a illustration must do the following:
1. distinguish between guaranteed and projected amounts 2. clearly state that an illustration is not part of a contract 3. identify those values that are not guaranteed as such -> must be approved can not change in any way
buyer's guide
provides basic GENERIC information about life insurance policies
policy summary
written statement describing the features and elements of the policy being issued
what must the policy summary include:
1. name and address of the agent 2. full name, home office or administrative office of the insurer, generic name of the basic policy and each rider. 3. premium 4. cash value 5. dividend6. surrender value 7. death benefit -must be provided when policy is delivered
suitability
an insurance producer may not recommend the purchase, sale, or exchange of an insurance policy or annuity contract without the reasonable belief that the transaction is in the best interest of the insured
who is referred to as the field underwriter
agent
underwriting
the risk selection process protect the insurer against ADVERSE SELECTION
primary criteria for underwriting
1. applicant's health 2. occupation 3. lifestyle 4. hobbies or habits
two parts of application
1. general info 2. medical information
part 1
name, adress, birth date, gender, income, marital status, and occupation. also inquires about previous policies and if they want this to replace it, identifies the type of policy applied for, the amount of coverage, and the info concerning the beneficiary
agent's report
provides the agent's personal observations concerning the proposed insured.
signatures required
both the agent and the proposed insured
changes
never white out or erase
whenever an agent collects a premium he must issue a ______
premium receipt
conditional receipt
used only when the applicant submits a prepaid application, effective either the date of the application or the date of the medical exam
approval conditional receipt
begins only when the pre-paid application is approved by the insurer(but before the policy is delivered) no type of coverage during initial underwriting RARELY USED
unconditional (binding) receipt
used mostly with property and casualty insurance, coverage begins immediately for a specified period until the policy is issued. 30-60 days
company underwriting
- application - producer report- the agent's report allows the agent to communicate with the underwriter and provide information about the applicant known by the agent that may assist in the underwriting process. -attending physician statement- if more risky ---- paramedical exam---- full medical exam -investigative consumer (inspection)- applicant's finances, character, work, hobbies, habits subject to Fair Credit Reporting Act -Medical Information Bureau (MIB) - a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals. Disclosure Authorization Notice must be provided when looking into individuals must be approved by the Department of Insurance
unfair discrimination between individuals of the same class:
- age or gender - physical or mental impairment - blindness or partial blindness- genetic characteristics or genetic testing - proposed insured's sexual orientation
classification of risks
standard, substandard, preferred
preferred risks
individuals who meet certain requirements and qualify for lower premiums than standard risks. These applicants have superior physical condition, lifestyle, and habits
standard risks
entitled to insurance protection without extra rating or special restrictions. average risks
substandard risks
high exposure, not acceptable at standard rates because of physical condition, personal or family history of disease, occupation, or dangerous habits HIGHER PREMIUM
declined risks
applicants who are rejected
factors in premium determination
- mortality-interest -expense
gross premium
mortality- interest + expense(loading)
mode
the frequency the policy owner pays on a premium
higher frequency =________ premium
higher
review chart of coverage starting
...