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91 Cards in this Set

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What is insurable interest?
To purchase insurance, the policyowner must face the possibility of losing money or something of value in the event of a loss. This must exist at the time of application.
Name 3 instances in which insurable interest exists?
* An applicant insuring his or her own life
* An applicant insuring the life of a family member (reative or spouse).
* An applicant insuring the life of a business partner, key employee, or someone who has a financial obligation to him.
What are the six personal uses of life insurance?
Cash Accumulation
Estate Creation
Viatical Settlements
Estate Conservation
Survival Protection
What is survivor protection?
When the death of the primary wage earner will usually stop the flow of income to a family. Equally financially devastating can be the death of a nonworking spouse who cares for minor children. Planning for his requires careful examination of current assets and liability as determining what survivor's needs may be.
What is estate creation?
When a person may make a living through, earnings, savings, and investments over a period of time, but all of these methods require disciplined action. If time is not available, they all will fail. The purchase of life insurance, in the event of death, makes an immediate estate. This type of insurance is important for young families that are getting started and have not yet had time to accumulate assets.
What is cash accumulation?
When life insurance may be used to make specific amount of monies for specific needs and guarantees that the amount of money will be available when needed.
What is liquidity?
The death benefit is liquid. Or a permanent life insurance policy that will have loan or surrender values that the policyowner may access.
What is estate conservation?
When life insurance proceeds is used to pay state inheritance taxes and federal estate taxes so that it is not necessary to sell off assets from the estate to pay the cost.
What is viatical settlements?
This a insurance that allow someone living with a life threating condition to sell their existing life insurance policy and use the proceeds when they are most needed, before their death. They usually receive a percentage of the policy's face value from the person who purchased the policy. The new owner continues to maintain the premium payments and will eventually collect the entire death benefit.
In a Viatical Settlement what does the owner receive when the policy is sold?
The new owner continues to maintain the premium payments and will eventually collect the entire death benefit.
What is human life value approach?
This replaces future income potential or probable future earnings. This method requires the calculation of the probable future earnings of the insured using wages, inflation, the number of years in retirement, and the time value of money. This method will give the insured an estimate of what would be lost to the family in the event of the premature death of the insured
What is the needs appoach?
Immediate!!! This approach in purchasing life insurance is based on the predicted needs of a family after the premature death of the insured. This method provides the proper amount of coverage immediately. When using this approach, "always assume that the insured's death will occur immediately.
What 4 categories does the types of information that need to be gatherered fall under?
When determining lump sum needs, what costs are associated with death (post mortem)?
These costs would take in account the final medical expenses of the insured, funeral expenses, and day to day expenses of maintaining the family including rent or mortgage payments, car payments, utilities, groceries, etc.
What is debt cancellation (versus Transfer to heirs)
Insurance may be used to create a fund to pay off debts of the insured such as home mortgage, auto loans.
What is emergency reserve funds?
These are insurance proceeds that 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.
What is the education funds?
These are insurance proceeds that may be used to pay for children's education expenses so they can remain in school, or sometimes a surviving spouse that has worked in the home caring for children will need to receive education or training in order to re-enter the job market.
What is the retirement fund?
This is cash value of a matured life insurance policy that may be a source of retirement income.
What is bequests?
This is when an insured may wish to leave funds to their church, school, or other organization at the time of their death.
What are 6 other lump sum needs?
Debt Cancellation
Eduation Funds
Emergency Reserve Funs
Retirement Fund
What are two ways to plan for income needs?
* Replacing salary or lost services of the deceased
* Social Security Income "Blackout period.
What does it mean to replace salary or lost services of the deceased?
Unless funded by insurance, the surviving spouse who was the caregiver of the children may have to train to enter the job market. If they do work outside the home, expenses for day care needs to be considered.
What is the social security income "Blackout" period?
Social Security may be a source of income if there are children in the home under the age of 16. The period of time after the youngest child reaches age 16 and prior to the surviving spouse reaching age 60 is the time which no social security benefits would be paid to the surviving spouse. A dependent child could be eligible again when they reaches age 18.
What are business uses for life insurance?
Their uses are similar to personal uses in the sense that it creates an immediate payment upon the death of the insured.
What is the purpose of a buy-sell agreement?
This is a legal contract that determines what will be done with a business in the event that the owner dies or becomes disabled. This agreement among partners of a business, or between the owner of a business and a key-employee, obligates a person withdrawing fromn the business (or their heirs) to sell their interest to a surviving partner(s)(or key person) at a predetermined price and the survivor or key person contractuall agrees to buy at that price.
What are two ways to fund a buy-sell agreement
Stock Redemption or Cross Purchase.
What is a stock redemption plan?
This is when a business owns the policies, pay the premiums, and is the beneficiary.
What is a cross purchase plan?
This is when the policies are owned, the premiums are paid, and the beneficiaries are the other business partners.
What is the purpose of a key person insurance?
A business can suffer a financial loss because of the premature death of a key employee that has specialized knowledge, skills, or business contacts. A business can lessen the risk of such a loss by using this insurance. The business would use the money for additional costs of running the business and replacing the employee. The business cannot take a tax reduction for the expense of the premium. But if the key employee dies, the benefit paid to the business are usuall received tax free. No special agreement are contracts are needed except that the employee(s) would need to give permission for this coverage.
What are executive bonuses?
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. The employee owns the policy and therefore has all control. Since the employer treated the premium payment as a pay increase, that amount is tax deductible to the employer and income taxable to the employee.
What three ways does businessed use life insurance?
Buy-Sell funding
Key Person
Executive Bonuses
How is life insurance policy given as an executive bonus taxed?
This 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 of the employee. The employee owns the policy and therefore has all control. Since the employer treated the premium payment as a pay increase, that amount is tax deductible to the employer and income taxable to the employee.
What are the 4 different classed of life insurance policies?
* Group vs Individual
* Permanent vs Term
* Participating vs Nonparticipation
What is an individual insurance policies?
This is a life insurance policy that is written on a single life. The rate and coverage is based upon the underwriting of that person.
What are group life insurance?
This is s life insurance policy that is written as a master policy, that is issued to the sponsoring organization, covering the lives of more than one individual member of that group.
What is permanent life insurance?
This is a genral term used to refer to various forms of whole life insurance policies that remain in effect to age 100, so long as the premium is paid.This type include a savings or investment element (called cash value) and lifetime protection against premature death.
What is term life insurance?
This is a type of insurance that is temporay and provided for a specific period of time. This type provides pure life insurance protection.
What is participating (mutual) life insurance?
This refers to any policy that distributes its dividends to policyowners, annually. Because of the long -term nature of life insurance contracts, insurers calculate premiums on a conservative basis. Once the premium rate on traditional policies is established, it must be guaranteed for the entire policy. It cannot be altered even if the basic factors used in the computation should change considerably. If the current premium rates are to be adequate for insurers to fulfill their obligations on contracts that may continue for many decades in the future, a safety margin must be used in calcuating the premium. The participating concept permits the insurer to establish a more generous margin in the form of an intentional overcharge, which will be returned to the policyholder if not needed.
What is the difference between participating vs non-participating?
Dividines in life insurance returns = returns or overpayment of premiums.
What is fixed life insurance or annuities?
These are contracts that offer guaranteed minimum or set benefits that are stated in the contract.
What is variable life insurance or annuities?
These are contracts in which the cash value accumulate based upon a specific portfolio of stocks without guarantees of performance.
Who must agents be registered with if they are peforming transactions involving any variable products?
What are the regulation of variable products (SEC,NASD,and Missouri)
Varible life insurance and variable annuities are dually regulated by the State of Federal Government. Due to the element of investment risk, the federal government had declared that variable contracts are securities and are thus regualted by the Securities and Exchange Commission, the National Association of Securities Dealers. Variable life insurance and variable annuities are also regulated by the Insurance Department as an insurance product. Agents selling variable life insurance products must be registered with the NASD and also be licccesned by the state to sell life insurance and variable products.
What are the 3 factors taht determine the premium for a particular policy?
Interest Earnings
Wh at is the equation for determining premiums?
Mortalality - Interest + Expense (loading) = Gross Premiums
What is the mortality table?
This indicates the number of individuals within a specified group of individuals (e.g. male, females, smokers, nonsmokers) starting at a certain age, who are expected to be alive at a succeeding age.
What is interest earnings?
Since premiums are paid before claims are incurred, insurance companies invest the money in effort to get this. This is a primary factor in lowering premium rates.
How does the premium mode affect the total premium paid for the year?
A life insurance policy's rate are based on the assumption that the premium will be paid annually at the beginning of the policy year and that the company will have the premium to invest for a full year before paying any claim. If the policyowner choosed to pay the premium more frequently than annually, there will be an additional charge (loading) because the company will not have the premiums to invest for a full year. Premiums may be paid annually, semi-annually, quarterly, or monthly.
What is a mode?
This refers to the frequency the policyowner pays the premium.
What is the companies duty regarding advertising?
It is an unfair or deceptive trade practice for an insurer or agent to make use of the protection provided by the Guaranty Association as a reason for the purchase of insurance. Advertising must be accurate and not misrepresent the facts.
Waht is illustration?
A presentation or depiction that includes nonguranteed elements of a policy of life insurance over a period of years. It must distinguish between guranteed and projected amounts.
What are the three types of illustration?
What is a policy summary?
A written statement describing the features and elements of a policy. It must include the name and address of the agent, the full name and home office or administrative office address of the insurer, and the generic name of the basic policy and each rider. This must be provided when the policy is delivered.
What is a buyer's guide?
It provides basic information about life insurance policies that contains, and is limited to, language approved by the Commissioner or Director. It must be provided when the policy is delivered.
What are something unfair financial planning that are unlawful for a agent to do?
* Hold himself or herself out as a financial planner or other financial specialist when in fact only engaged in the sale of policies, unless the person has passed the appropriate professional course of study for financial planning.
* Engage in financial planning business without disclosing that he or she is an insurance salesman and that a commission for sale if insurance will be received in addition to a financial planning fee.
* Charge fees, other than commissions, for financial planning unless such fees are based upon a written agreement.
What does replacement mean?
Any transaction in which new life insurance or a new annuity is to be purchased and it is known or should be known to the prosing producer taht by reason of the transaction, existing life insurance or annuities have been or will be: lapsed, forfeited, surrendered, or otherwise terminated.
When a agent initiates the application they must submit what as part of the application?
* A statement signed by the applicant as to whether replacement of existiong life insurance or annuity is involved in the transaction.
* A signed statement as to whether the agent knows replacement is or may be involved in the transaction.
When replacement is involved, what must the agent do?
* Present the applicant with a Notice Regarding Replacement that is signed by both the applicant and the agent, and a copy must be left with the application.
* Obtain a list of all existing life insurance and/ or annuity policies to be replaced including policy numbers and the names of all companies being replaced.
* Leave the applicant with the original or a copy of written or printed commmuications used for presentation to the applicant.
* Submit to the replacing insurance company, with the application, a copy of the replacement notice.
When replacement is involved, what must the insurance company do?
* Require the agent to get a list of the applicant's life insurance or annuity contracts to be replaced and a copy of the replacement notice provided to the applicant.
* Send each existing insurance company a written communication advising of the proposed replacement within five working days of the date that the application is received in the replacement insurance company's home or regional office. A policy summary or ledger statement containing policy data on the proposed life insurance or annuity must be included.
What is the use and disclosure of insurance information mean?
When the client signs the application it authorizes the company to obtain outside information.
What is underwriting?
The risk selection and classification process. It involves the careful analysis of many different factors to determine the acceptability of applicants for insurance. Its also the process in which insurance company determines whether or not particular applicants is insurable, and if so, what premium to charge.
What is a field underwriter?
The agent who is the company's front-line, because they usually solicites the potential insured.
What is the agent responsible for in the application process?
*Make certain the application is filled out completely, correctly, and to the best of his or knowledge.
* If the agent feels that there could be some misrepresentation, he/she must inform the insurance company.
What is the underwriters responsibility?
They take us through the risk selection process. The application after completed, is sent to the insurance company's home office where the underwriter's have the final say as to the acceptability of the applicant. The underwriter's responsibities include selecting only those risks that are considered insurable and meet the insurers underwriting standards. They are responsible for protectiong the insurer against adverse selection (risks which are more likely to suffer a loss.
What is the starting point and basic source of information used by the company in the risk selection process it is usually made up of three parts.
The application
What part of the application includes the general questions about the applicant, including name, age, address, birth date, gender, income, martial staus, and occupation.
Part I, general information
What part of the application contains information on the prospective insured's medical background, present health, any medical visits in recent years, medical status of living relatives, and cause of death of deceased relatives.
Part II, Medical Information
What part of the application contains the agent's (producer's) report. This section is used by the agent to discuss his or her personal observations concerning the proposed insured.
Part III, The agent report.
How is Part 2 of the application, different from part I.
Part 2, have medical history where as Part 1, gives general information.
In what part of the application is the agent/producer asked his/her opinion to asist in the underwriting process?
Part 3
Who is required to sign the application?
Agent, owner, and insured.
Both the agent and the applicant (proposed insured) must sign the application. If the proposed insured and the policyowner are not the same person, such as a business purcahsing insurance on an employee, then the policyowner must also sign the application.
What must a agent/producer do if there are changes in an application?
When an answer to a question on the application needs to be corrected, agents have the option, depending on which insurer they represent, of correcting the information and having the applicant initial the change, or completing a new application. An agent should never erase our use "white-out" on an application for insurance.
When does a life insurance policy go into force if there is premium with the application?
Most agents attempt to collect the initial premium and submit it along with the application to the insurer. Because the policy goes in effect on the day the policy is delivered.
When does a life insurance policy go into force if there is no premium with the application?
The policy will not go into effect until it has been delivered and the first premium has been paid.
What is a conditional receipt?
This is a receipt that says that coverage is effective either the date on the application or the date of the medical exam. whichever occurs last, unless coverage is declined. The applicant is covered by the insurance as of the date the application providing that the insurer subsequently determines the applicant to be insurable as applied for.
If a person wants a lower premium rate by backdating an applilcation, how far back can he/she go?
No more than 6 months, and all premiums must be paid from the effective date of the policy.
What is constructive delivery?
This when the insurer relinquishes control of the policy by mailing it to the polcy owner, legally the policy is considered delivered.
What is the purpose of having the insured sing a statement of good health?
This verifies that the insured has not suffered injury or illness since the application date.
When do insurers usuall require an HIV test?
It is common among insureres to require an HIV test when an applicant is applying for 50,000 or more in coverage.
When is a paramedical report required?
When smaller amounts of insurance are requested and their is no prior medical history or concern, the insurer may request a report to be completed by a paramedic or a registered nurse. Under certain circumstances the underwriter may require a full medical examination for additional information.
When is a investigative consumer (inspection) needed?
This is to supplement the information on the application, the underwriter may order an inspection report on the application from an independent ivestigating firm or credit agency, which covers financial and moral information.
Which risk classification typically qualifies for lower premiums?
What is the Medical Information Bureau (MIB)
This is a nonprofit trade organization which receives adverse medical information from insurance companies and maintains confidential medical impairment information on individuals. It is a systematic method for companies to compare the inforamtion they have collected on a potential insured with information other insurers may have discovered. A client cannot be refused simply because of some adverse information through this bureau.
What can and cannot insurance companies discriminate against?
The can discriminate in favor of good risks and not poor risks. They cannot unfairly discriminate by using race, or national origin.
What does underwriters look at to classify risks?
The applicant's past medical history, present physical condition, occupation, habits and morals.
What are the three risk classifications that are used to rate a propective insured?
Standard, Substandard, and Preferred.
What is preferred risk?
This is the longest life expectancy and lowest premium. These individuals meet certain requirements and qualify for lower premiums
What is standard risk?
Average joe. These individuals is entitled to insurance protection withou extra rating or special restrictions.
What is substandard risk?
Shortest life expectancy-highest premiums. These individuals ae not acceptable at standard rates because of their physical condition, personal or family history of disease, occupation, or dangerouls habits.
What are applicants called if they are rejected. These are applicants who are not insurable.
Declined risks
What are some examples of declined risks?
* Where there is no insurable interest
* Where the potential for loss is so great it does not meet the definition of insurance
* Where the insurance is prohibited by public policy or is illegal.