Term
| Sources of Insurability Information |
|
Definition
* Application
* Agent/Producer's Reports
* Medical Information and Exams (APR/APS)
* MIB
* Credit Reports
* Inspection reports |
|
|
Term
| AIDS, HIV, & Underwriting |
|
Definition
| insurer may perform AIDS test at company expense for underwriting purposes. Applicant has the right to know and approve any test given. Insurer may not underwrite or ask questions concerning sexual orientation or anything discriminatory in nature. Any prior testing done by the applicant may not trigger the need for an AIDS test to obtain a current policy. The result must be confidential. Companies may only report abnormal blood tests to the MIB. Companies may deny coverage when AIDS is uncovered in underwriting. If it develops after policy is issued, it is covered like any other sickness. |
|
|
Term
| Medical Information Bureau (MIB) |
|
Definition
| a source subscribing companies use to share application information. These companies do not share underwriting results, but they do share basic information from the application which allows them to check and verify information gathered. |
|
|
Term
| Attending Physician's Report (APR)/ Attending Physician's Statement (APS) |
|
Definition
| the company can gather the past notes and observations of the applicant's attending physician. If more info is needed, a physical may be required. |
|
|
Term
| Selection and Classification Factors |
|
Definition
* Age
* Gender
* Tobacco Usage
* Occupation
* Avocation or Hobby |
|
|
Term
| Classification of Risks and Effects on Premium Charged |
|
Definition
* Preferred (better than average risk. lower rate)
* Standard (average risk with normal rate)
* Substandard (higher risk; higher premium) |
|
|
Term
|
Definition
* immediate needs (debts)
* final expenses (funeral, medical bills)
* future needs (needs of survivors) |
|
|
Term
| life insurance is defined as... |
|
Definition
| the creation of an immediate estate. It provides funds needed by survivors. The owner knows the beneficiaries will receive the funds for the immediate, final, and future needs premature death creates. |
|
|
Term
| Ways to create and estate: |
|
Definition
* life insurance (immediate)
* saving or investing (done over time and involve risk) |
|
|
Term
|
Definition
| any benefit the insured can use while alive. Most living benefits are generated by the cash value whole life policies. |
|
|
Term
| Life Insurance as Property |
|
Definition
| because life insurance can owned and controlled, it is considered property. After cash value in a policy is built it can be used as equity to secure a loan. A policy can be sold to another person, given away, or transferred to another person. |
|
|
Term
| How much life insurance is appropriate? |
|
Definition
| Needs Approach vs. the human life approach |
|
|
Term
| Needs Approach for Determining Death Benefit |
|
Definition
| this approach asks the question "How much death benefit would it take to meet the needs of the beneficiaries if the insured died today?" |
|
|
Term
| Three Areas of Need for Determining Death Benefit: |
|
Definition
* Immediate needs (funds to pay off debt ex. mortgage, car payments, student loans)
* Final Expenses (expenses resulting from premature death ex. funeral, medical etc.)
* Future Needs (income needs of survivors and college expenses for surviving children) |
|
|
Term
| human life value approach |
|
Definition
| method asks the question "if the insured died today, what potential value would the family lose?" This considers years of potential income and earnings expectations to establish a value in order to determine amount of protection to purchase. |
|
|
Term
|
Definition
* temporary coverage for a temporary need (debt protection, raising children, etc.)
* protection (death benefit) only; no cash value or living benefits available
* low cost due to lack of cash value accumulation |
|
|
Term
|
Definition
* permanent coverage designed to cover a need that one cannot out live (estate planning, business continuation, wealth transfer, etc.)
* protection (death benefit) only with internal cash accumulation (living benefits or cash value)
* higher cost due to build up of equity within the product |
|
|
Term
|
Definition
| term insurance where death benefit stays the same throughout the term |
|
|
Term
| decreasing term insurance |
|
Definition
| term insurance where death benefit decreases throughout the term of the policy. its usually used to protect debts |
|
|
Term
| increasing term insurance |
|
Definition
| term insurance where death benefit increases each year throughout the term |
|
|
Term
|
Definition
| term insurance that can be renewed after a certain amount of time while insurability does not have to established. rates will increase upon renewal based on attained age. |
|
|
Term
|
Definition
| the premium of the term is always level throughout the term and will increase based upon attained age if a term is renewed. term products vary based upon the company that sells them. |
|
|
Term
| convertible term insurance |
|
Definition
| product that can be converted from term to permanent without proof of insurability. There will be a higher premium due to the product change and age of the insured. |
|
|
Term
|
Definition
| the age of the insured at a specific time period throughout the policy |
|
|
Term
|
Definition
| the age of the insured when the policy is initially purchased. |
|
|
Term
| Convertible at Original Age Rates |
|
Definition
| if the insured is allowed to convert to a permanent insurance policy using the age that he originally bought the term insurance. In order to qualify for the lower rates, the insured would need to make up the difference between the new premium rate and the rate they had been paying since the original purchase date |
|
|
Term
|
Definition
| policy matures when it pays out its death benefit. When it does pay out, the benefit is not considered to be income to the beneficiary. Therefore, the death benefit is income tax free. |
|
|
Term
|
Definition
| life insurance product that provides protection throughout one's whole life or until age 100. risk is greatest at onset of policy and reduces at the individual ages. Cash Value accumulation is greatest at the end and is designed to equal the death benefit. If insured lives to maturity and policy pays out it is still considered death benefit and is not income taxed. |
|
|
Term
| loans from a whole life policy |
|
Definition
| an insured is able to borrow money against the equity in their policy. The amount borrowable is based on the cash value amount. Insured must leave enough to cover the loan interest. If the loan + interest on loan reaches the full cash value accumulation, the policy will end and is considered a full withdrawal which is income taxable. If the loan is paid back, it is not income taxed. |
|
|
Term
| How an insurer makes up the loss of funds on loan: |
|
Definition
* insured must pay back loan at once in payments over time with interest
* the insured could allow the loan to grow over time and have the balance deducted from the death benefit at the time of maturity. If no payments are made before maturity, her beneficiaries would receive a reduced death benefit.
* insured could end the policy by taking the cash value minus the loan and it's interest. |
|
|
Term
| whole life policy premium |
|
Definition
| premium is fixed and must be paid yearly or policy could end. Ways to pay premium include: continuous, limited pay, or single premium |
|
|
Term
| continuous premium / straight life premium |
|
Definition
| premiums paid yearly until insured reaches age 100; this premium option offers the lowest premium to the insured |
|
|
Term
|
Definition
| limits the premium payment to a designated period of years. This premium option offers a higher premium than the straight life premium option, the the advantage is the premiums do not have to be paid for the rest of the insured's lifetime |
|
|
Term
| single premium whole life |
|
Definition
| one payment is made into the policy and pays up the protection for life. This product has the highest premium , but accumulates the quickest cash value growth. |
|
|
Term
|
Definition
| policy matures either at death or age 100 and the policy pays out its death benefit tax free |
|
|
Term
|
Definition
| as long as cash value is accumulating within the policy, taxes are not required. Loans are not taxable income since the intent of a loan is to repay the funds. Withdrawals are taken out without the intent to be repaid. |
|
|
Term
| adjustable whole life insurance |
|
Definition
| allows the insured to make changes in the contract without purchasing an additional policy (ie- increasing or decreasing coverage or alter period of protection). Changes that increase the risk and exposure of the company will require proof of insurability. |
|
|
Term
| variable whole life insurance |
|
Definition
| product that takes the cash value in the policy and invests it in a separate account chosen by the insured. the insured assumes the financial risk. agent must be dually licensed through dept of ins and FINRA |
|
|
Term
|
Definition
| Financial Industry Regulatory Authority |
|
|
Term
|
Definition
| form of whole life insurance in which the owner has both a flexible premium and death benefit amount |
|
|
Term
|
Definition
| level death benefit option up to age 95; risk decreases as cash value increases. |
|
|
Term
|
Definition
| increasing death benefit option; risk stays constant |
|
|
Term
|
Definition
| a rider founding universal Life policies that maintains the policy in the event that waives the cost protection being deducted each month from the cash value account in the event that the insured becomes disabled. |
|
|
Term
|
Definition
| waives the premium on a policy in the event of the insured becoming disabled |
|
|
Term
| universal life premium payment (definition and equation) |
|
Definition
| as premium payments are made into the cash value account, two postings will be made on a monthly basis: debit for cost of protection and a credit of an interest payment at current interest rate. calculation is current interest = guaranteed rate + excess |
|
|
Term
| universal life management fee |
|
Definition
| companies charge insured's for management of the account in form of load/fee each year. there is a backend cancellation fee for early withdrawal |
|
|
Term
| withdrawal of universal life |
|
Definition
| withdrawal doesn't have to be paid back and no interest charged and amount withdrawn will not reduce death benefit or non forfeiture value. there may be taxes if he is above cost basis |
|
|
Term
| variable universal life insurance |
|
Definition
| a rpoduct that takes the cash value in the product and invests it in a separate account chosen by the insured who assumes the investment risk with the potential for gain/loss on the investment. Agent must be dually licensed in securities and insurance (DOI and FINRA licensed) |
|
|
Term
| interest sensitive whole life insurance |
|
Definition
| permanent policy with cash value growth and a fixed premium, but the cash value account is credited with an interest rate based on the company's investment experience along with the company's guaranteed minimum |
|
|
Term
| interim insuring agreement |
|
Definition
| an agreement for the insurance company to provide coverage for the client while still completing the underwriting process |
|
|
Term
|
Definition
| beneficiary designation that may only be changed if the beneficiary agrees to give up the irrevocable designation |
|
|
Term
| joint and survivor (last to die) |
|
Definition
| a single policy intended to insure multiple lives, but only pays one death benefit (after the last (survivor) insured's death) |
|
|
Term
| joint life (first to die) |
|
Definition
| a single policy intended to insure multiple loves, but only pays one death benefit (after the first insured's death) |
|
|
Term
| jumping juvenile life policy |
|
Definition
| a policy written on a child up to age 21. At 21, the benefit jumps (increases) to 5 times its value without increasing the premium |
|
|
Term
|
Definition
| a life insurance product designed to provide coverage on the life of a child. benefits include low premiums due to age, guaranteed insurance with the possibility to purchase additional amounts without proving insurability, and protection for child in event parent/guardian is disabled. after age 21 jumping juvenile benefit jumps five times its value |
|
|
Term
| last to die (joint and survivor) |
|
Definition
| a single policy intended to insure multiple lives, but only pays one death benefit after the last survivor insured's death |
|
|
Term
| Modified endowment contract (MEC) |
|
Definition
| a permanent policy paid up (overfunded) in less than 7 years. 7-pay test used to determine if too much was dropped in too early. penalties for a MEC are based upon the usage of the cash value. Any fundsdistributed from an MEC contract are on a LIFO (last in first out) basis. Anything above the cost base will be considered taxable income. If the owner is 59 1/2 and withdraws funds from the cash value account, the distributed proceeds will be penalized 10% as an early withdrawal. Upon the insured's death, a policy classified as an MEC will have no adverse tax consequences when the death benefit is paid to the beneficiary. |
|
|
Term
|
Definition
| life product that modifies the premium structure. It begins with a low premium and after a period of time, increases and then levels off |
|
|
Term
|
Definition
| does not get full tax benefit as the principal is previously taxed, but the growth still qualifies for tax deferral |
|
|
Term
|
Definition
| designed by the IRS to insure the cash value in a policy does not exceed the death benefit |
|
|
Term
| secondary beneficiary (contingent) |
|
Definition
| the party or parties listed to receive the death benefit if the primary beneficiary does not receive the funds |
|
|
Term
|
Definition
| a single policy that provides multiple death benefits for multiple insureds (covers each member of the family). breadwinner receives permanent protection and each dependent covered with convertible term. newborns and adopted children automatically covered with 14 waiting day period for coverage to take effect |
|
|
Term
| first to die (joint life) |
|
Definition
| single policy intended to insure multiple lives but only pays one death benefit after the insured's death |
|
|
Term
|
Definition
| the minimum interest rate guaranteed by the insurance company |
|
|
Term
|
Definition
| life product that modifies the premium by gradually increasing each year until it levels off after 5 years |
|
|
Term
| equity indexed life insurance |
|
Definition
| a permanent policy that pays interest based upon the change in a particular equity index such as the Dow Jones or S&P 500 |
|
|
Term
| guaranteed insurability rider |
|
Definition
| rider that allows the insured to purchase additional amounts of insurance at predetermined times without proving insurability. commonly associated with juvenile policies |
|
|
Term
| insurance guaranty association |
|
Definition
| protects policy owners, insureds, and beneficiaries of life, health, or annuity contracts when the insurers fail to perform their contractual obligations due to financial impairment |
|
|
Term
|
Definition
| insurance used to pay off a debt in even tof insured's death. its usually written as decreasing term (ex. mortgage insurance with bank/creditor as beneficiary and debtor is insured and pays premium). creditor can only collect up to balance of the loan. |
|
|
Term
|
Definition
| test to determine if too much premium was dropped in too early on life insurance product. if the accumulated amount paid under the contract at any time during the first seven years exceeds the total net level premiums that would've been paid on or before such a time if the contract provided for paid up future benefits after the payment of seven level annual premiums. |
|
|
Term
| Grace period to pay for a life policy |
|
Definition
| 30 day grace period to pay |
|
|
Term
| Required Provisions for Life Insurance Contract According to State Law: |
|
Definition
- entire contract / change clause
- insuring clause
- incontestable clause
- misstatement of age and sex clause
- grace period
- reinstatement clause
- ownership clause
- assignment clause
- loan values & automatic premium loan provision (APL)
- time limit on lawsuits
- the practice on backdating
- free look provision |
|
|
Term
| entire contract / changes clause |
|
Definition
| provision that states the policy and any attachments (including app.) comprise the entire contract. Only executive officer of the company can make changes to the contract--agent doesnt have authority. This is a contract of adhesion and insurer is responsible for wording. changes to the contract can only be made with the consent of the policy holder. |
|
|
Term
|
Definition
| the "heart" of the policy that states the promise that the parties have agreed to. a general statement that lists the parties to the contract and states the promise made by the insurer, to pay in the event of certain covered perils (accident or sickness) |
|
|
Term
|
Definition
| premiums are calculated on an annual basis; gross premium is reduced by interest earned. if payments are made more often it will be higher over the course of the year due to two reasons: loss of interest and extra expenses |
|
|
Term
|
Definition
| the period of time the company has to challenge the information on the application (typically 2 years) |
|
|
Term
| misstatement of age and sex clause |
|
Definition
| insured is protected by this clause because it allows the company to correct a misstatement of age or sex on an application rather than void the policy. Misstatement of age or sex is not considered material information. This allows insurer to adjust death benefit to reflect actual age the contract shouldve been based upon |
|
|
Term
|
Definition
| the period of time the owner has to pay the premium payment after the policy comes due. In life insurance, the policyholder has 30days after the premium is due and if the insured dies during grace period, the coverage applies. The company has the right to deduct the premium from the death benefit if it wasnt paid. |
|
|
Term
|
Definition
| 3 reinstatement rules: within 3 years, back premiums plus interest paid, proof of insurability established. If the insured discovered a new health condition, the company would not be required to reinstate the policy |
|
|
Term
|
Definition
| the contract is between the owner and the company. The owner has the rights and rights include the naming beneficiary, settlement options, dividend options, or any other policy choices available to the owner. The owner is the one who owns the policy and in many cases the owner=insured, but its not always the case. |
|
|
Term
|
Definition
| to assign a right is to give that right to another party. the owner has the rights in the policy so they can assign rights to others. There are 2 types of assignment: permanent/total and partial/temporary |
|
|
Term
| permanent assignment (total) |
|
Definition
| when the owner gives all of his/her rights of ownership over to another person or party. This is a total relinquishment of rights and ownership and once done its permanent. |
|
|
Term
| partial assignment (temporary) |
|
Definition
| assignment where the owner gives up some of the ownership rights for a temporary period of time. ex. owner gives up the right to the cash value as collateral until the loan is paid off (after which the ownership rights will be reinstated to the owner) |
|
|
Term
|
Definition
| amount available for borrowing on a permanent policy is based on it's cash value. The maximum loan value is "cash value- first year's interest". If at any time, the total loan value equals the total cash value of the policy the coverage will end. There must be an amount of money left in the cash value in order for coverage to remain in force. |
|
|
Term
| automatic premium loan provision |
|
Definition
| This provision is a rider provided by companies at no extra cost and states that when the policy comes due, if the owner fails to pay the premium it allows the insurer to deduct the premium payment obligation from the cash value. This payment will be considered a loan which will draw interest. |
|
|
Term
|
Definition
| if the customer has an issue with the insurer and chooses to sue the insurer, this provision allows the insurer an adequate amount of time to make payment and requires the insured to act within a stated period of time (60 days) to pay the claim. The insured has 3 years (2 in some states) to sue. |
|
|
Term
| the practice of backdating |
|
Definition
| the application can be backdated up to 6 months in order to save age. backdating doesnt change the incontestability clause |
|
|
Term
|
Definition
| 10 day time period that begins when the policy is delivered that allows the insured to review the contract. if the owner chooses to return the policy, a full refund must be provided. |
|
|
Term
| Discretionary Provisions (exclusions) |
|
Definition
| provisions added at the discretion of the insurance company: suicide clause, hazardous occupation (or hobby/avocation) clause |
|
|
Term
|
Definition
| states that if suicide occurs during the first two years of the policy it will not be covered. in this event, the company will refund all premiums collected. if it occurs after 2 years, the company will be required to pay the full claim. |
|
|
Term
| hazardous occupation (or hobby/avocation)clause |
|
Definition
| during underwriting. the company will ask questions to determine the risk and certain occupations or hobbies may be determined to be higher risk. As such, these may be excluded or insurer may charge extra premium to cover risk. Activities include: kayaking, rock climbing, skydiving, and other extreme sports. Sometimes flying is excluded if related to occupation. |
|
|
Term
|
Definition
| the owner of the policy, who purchased the benefit, will have all the rights of the policy. The policy owner has the right to name or change a beneficiary designation and choose how the benefit will be paid out to said beneficiary (i.e. - settlement option) |
|
|
Term
|
Definition
| how a death benefit is paid out for a life insurance policy. it is determined by the owner (if they decide to mandate that). when the benefit is claimed the insureer is required to pay the full amount of the benefit in a reasonable amount of time. sometimes less than the face amount of the policy is paid for the following reasons: current premium unpaid, loan outstanding, misstatement of age or sex. |
|
|
Term
|
Definition
| first person designated to receive the death benefit |
|
|
Term
|
Definition
| any beneficiary listed after the primary is a contingent beneficiary. They may receive the death benefit if the primary beneficiary dies prior to the insured's death. The policy owner may also determine the percentage each beneficiary may receive. |
|
|
Term
|
Definition
| beneficiary designation which may be changed by the owner if they desire |
|
|
Term
|
Definition
| the owner limits their right to alter the beneficiary. The designation can only be changed if the beneficiary chooses to give up the irrevocable designation. It is still the owner that makes the change even thought the designation right is tied up |
|
|
Term
| the estate as beneficiary |
|
Definition
three scenarios in which the estate would receive the proceeds:
- the estate would be listed as the beneficiary
- all listed beneficiaries predeceased the insured
- no designation listed on the application
- if who the benefit is owed is not clear |
|
|
Term
| a trust as the beneficiary |
|
Definition
| a trust could be used to distribute the estate in a pre-arranged manner by the owner. this avoids the probate process and effectively manages the probate process for beneficiaries who are minors as they cannot assume legal ownership of a death benefit. |
|
|
Term
|
Definition
| children cannot legally release the company from their payment responsibility. A trust can be established before or after death by the legal system. Or the company can be requested to hold the funds for the beneficiary until they are old enough to receive the proceeds. |
|
|
Term
|
Definition
| Multiple Employer Welfare Arrangement - a group of small employers from a common industry that is formed to self insure instead of purchase insurance |
|
|
Term
|
Definition
| Multiple Employer Trust - a group of small employers from a common industry coming together for the purpose of purchasing insurance (but the purchase must be incidental to the formation) |
|
|
