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