Life Insurance Basics

Personal Uses of Life Insurance

Survivor Protection, Estate Creation and Conservation, Cash Accumulation, Liquidity, Security,

Viatical Settlements

This allows someone with a life-threatening condition to sell their existing life insurance policy and use the proceeds of the life insurance policy

Important Concepts for Viaticals

- Insureds are referred to as viators
- Settlement provider means a person other than a viator, that enters into a viatical settlement
- Viatical producers represent the providers
- Viatical brokers represent the insureds

Human Value Life Approach

Gives the insured an estimate of what would be lost to the family if the the insured died prematurely. Takes into account the insured's wages, inflation, number of years to retirement, and the time value of money.

Needs Approach

Based on the family's needs after the premature death of the insured.

Lump-Sum needs for Life Insurance

- Costs associated with Death
- Debt Cancellation
- Emergency Reserve Funds
- Education Funds
- Retirement Fund
- Bequests

Planning for income needs

- Replacing insured's salary or Lost Service
- Social Security income "Blackout" Period
- Liquidation vs. Retention of Capital

Business Uses of Life Insurance

- Buy-sell Funding
- Key Person

Participating (Mutual) Policy

Distributes its non-taxable dividends to policyowners

Non-participating (Stock) Policy

Distributes its taxable dividends to stockholders.

Fixed Life Insurance or Annuities

Contracts that offer guaranteed minimum or fixed benefits that are stated in the contract

Variable Life Insurance or Annuities

Contracts in which the cash values accumulate based on the specific portfolio of stocks without guarantee of performance.

Factors in Premium Determination

- Mortality
- Interest
- Expense

Formula for Gross Premium

Mortality - Interest + Expense (loading)

Formula for Net Single Premium

Mortality - Interest

Formula for Gross Annual Premium

Cost of 1 year of mortality + (commissions + taxes + advertising + profit margin)

Premium Payment Mode

Policy rates are based on the assumption that the premium will be paid annually and that the company will be able to invest for a year before any claims are made. Costs are added to the premium the more frequently premiums are paid.

Life Insurance Policy Illustrations in Louisiana must Include:

- Name and business address of the insurer and the producer
- Name, age, and sex of the insured
- Underwriting or rating classification upon which the illustration is based
- Generic policy name, the insurer product name (if different), and form number
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A Life Insurance Illustration Must do the following:

- Distinguish between guaranteed and projected amounts
- Clearly state that an illustration is not part of the contract
- Identify those values that aren't guaranteed as such

Interest-adjusted Net Cost Method

Considers the time value of money by applying interest adjustment to yearly premiums and dividends