Assignment 2 - A Macro View Flashcards
premium rates that are set for each age when a policy is issued and cannot be increased in the future
relates to Term Life Ins.
Guaranteed Rate Structure
Risk Management Issue
consists of all the activities intended to prevent the occurrence of a loss and to minimize a loss should one occur
the installation of a smoke detector in a home is an example of this type of risk mgmt
loss control (loss prevention and reduction)
employer-sponsored life insurance program
type of ins. policy used where indiv. policies are issued to each person in a group with some indiv. UW
hybrid b/w indiv. and group life ins.
normally used for groups too small to qualify for group life ins. and also for assoc. group cases
wholesale life insurance
- type of term life ins.
- type of ins. w/ fixed premium for a stated period of coverage, such as 5, 10, 15 years, etc…
- after that time, the premium increases to that of an insured at that attained age
level term insurance
term for the period of time that must elapse after a cov’d disability commences before disability income benef. begin
elimination period
- fund used to reimburse insureds and claimants for certain losses they may suffer due to the insolvency of ins. companies in the state
- each state now has one
State Insurance Guaranty Fund
the princ. of placing primary emphasis on risks that could potentially wipe out or substantially deplete an indiv.’s or family’s net worth
large loss principle
personal risk mgmt techniques (TRAIL)
- T ransfer risk where possible
- R etain risk where reasonable
- A void risks where conceivable
- I nsure the risk where appropriate
- L oss prevention and reduction
avoidance of risk
if you can prudently avoid a fin. risk, you might as well
How to evaulate the FINANCIAL SOUNDNESS of an insurance broker
- strong ratings from top rating companies
- consistency of ratings over time
- does bus. in a state w/ a capable, effective ins. regulator such as NY State
- favorable assessments by general fin. news agencies
considerations when choosing an agent or broker
- experience in terms of yrs and extent of practice
- specialists in particular product
- do bus w/ indiv. mainly
- engage in any survey selling or estate analysis
- provide unified program of coverage
- represent sound insurers
- any prof. designations in ins?
conditions for SS death benefits
- spouse is age 60 or older or between 50 and 60 if disabled
- 100% of deceased worker’s PIA if spouse is full retirement age
- if divorced from fully insured decesased but was married to worker for 10 or more years
- if divorced but has elig. kids in his/her care
- mother’s or father’s benef. = 75% of deceased’s PIA as long as spouse is caring for an elig. child under 16 or 16+ if disable before 22
- dependent parent who is at least 62
- type of ins.
- provides protection for a specified period
- guaranteed/indeterminate-premium rate structures
- may have dividends
- if death, face amt of policy is paid
- no cash or loan value
- lowest cost / 1,000 benef. of all types of life ins.
- prices vary b/w insurers
term insurance
- type of term life ins.
- premium charged / $1,000 of ins. increases for each successive yr as the insured’s attained age increases
annual renewable term (ART)
- type of term life ins.
- after a certain period of cov., insured who passes a physical exam will be allowed to continue term cov. at a given set of increased term rates.
- if doesn’t submit to exam, premium rates will be increased substantially
- cheapest form of term
reentry term
- type of term life ins.
- provides a declining amt of ins. over the period of the contract.
- may be ideal for ensuring that an amortizing mortgage gets paid upon the death of the income earner
decreasing term
- type of term life ins.
- term policies are generally renewable for successive period at the policy owner’s option w/o having to submit evidence of insurability
renewable term
- type of term life ins.
- up to a limited age, policy owner may convert the term contract into a whole life policy for alike or lesser amt than in force
- ideal for insureds who become uninsurable
convertible term
- type of term life ins.
- combo of term and whole life ins. policies that may start off w/ lower premiums than whole life policies while still building up some CV for the policyholder
- intended to lower the initial premiums for the policy owner while still providing some CV in the policy
Term w/ whole life insurance
- type of insurance
- age, gender, and tobacco user status determine the fixed prem.
- participating (pay divs) vs. non-participating (do not pay divs)
- CV’s increase according to schedule
- bundled
- front loaded for expenses - high premiums in beginning, while low cash value in policy
traditional (fixed prem) CV Life Ins.
- type of trad. CV life ins.
- protection for entire life of insured.
- prem. may be paid throughout the lifetime, over limited period, or in lump sum
Whole Life Ins.
types of Whole Life Insurance
- oridinary life ins. - prem. paid through lifetime
- limited-pmt life - prem. paid over limited period of years
- single-prem whole life - lump sum prem pmt
- type of trad. CV life ins.
- offers protection for a specified time period
- doesn’t meet tax def. of lie ins - irrelevant in US today
- if insured lives to end of period, policy pays face amt
endowment life ins.
- type of trad. CV life ins.
- premiums is smaller for the first few years of the contract
modified life ins.
- type of trad. CV life ins.
- initial premiums are lower and then increase annually for a longer period until they level off
- low or no CV
graded - prem. whole life
- type of ins.
- contains an initial prem. which can be recal’d by the ins. comp. periodically based on new assumptions and level of the policy’s current accumulation acct
interest-sensitive WL ins.
- type of life ins.
- flexibility for policy owner and identifiable cost elements in the operation of the policy
- includes option for unbundled CV and death benef.
- flex. premium pmts determined by policy owner over the min required to keep policy inforced
- death benef. options of a single face amt or face amt plus CV
- int. is credited to CV of the policy
- allow cash w/drawals and loans
Universal Life Ins.
- type of life ins.
- allows policy owner to allocate prem. pmts to or among one or more inv. subaccts
- assets can be shifted among subaccts w/o incurring current income tax liability
- CV and death benef. depend on perf. of inv.
- death benef. risk is significantly retained by policy owner
Variable Policies
- type of life ins.
- contracts insure 2 lives in the same policy
- benef. are pd at 2nd death b/w the 2 insureds
- traditional or universal CV + ins. policies
- prem. are considerably less for these policies than for comparable ones for single lives given similar gender and amt
2nd-to-die or Survivorship Life Ins
- type of life ins.
- 2 or more insured lives in same policy
- policy proceeds are payable to the beneficiary at death of 1st to die
1st-to-die or Joint Life Ins.
Sources of health ins.
- group ins.
- indiv. ins.
- franchise or association group ins.
- social ins.
Types of health insurers
- BCBS plans
- HMOs plans
- PPOs plans
- POS plans
- Types of health insurers
- establised integration of hospital, phys. and civic groups
- achieves hospital services on a low-cost basis for members of plan through contractual arrangements w/ hospitals and possibly other institutions
BCBS Plans
- Types of health insurers
- managed care that reduces costs and possibly increases quality
- generally offer comp. benef. and have little or no deductibles
HMOs
- Types of health insurer
- contract w/ a network of HC providers to provide services to covered memebers according to negotiated fee schedules w/in the network
PPOs
- Types of health insurers
- blend of HMOs and PPOs
- the member has a HMO network plan but may “opt-out” of the network at the point of service, using out-of-network benefits w/ lower discounts, more personal expense, and more paperwork
POSs
elements of a disability contract
- max benef. period - how long benef. will be paid
- perils insured against - accident, sickness, or both (s/b both)
- waiting/elimination period - the time that must elapse after a covered disability occurs b4 benef. begin
- definition of disability - can be defined as inability to perform occupational duties, or in terms of lost income, or both
Gov’t sources of disability benefits
- Social Security
- Workers Comp
- Gov’t source of disability benefits
- type = in form of cash disability income
- type = freezing of a disabled workers wage position for the purpose of determining future retirement or survivorship benefits
- definition of disability - inability to perform any gainful work or employment
- 5-month waiting/elim. period
Social Security
- Gov’t source of disability benefits
- provide benefits only to work related injuries and diseases
- cannot be relied upon in health ins. planning
Worker’s compensation
type of ER provided disability plan
sched. of weekly benef. based on earnings categories but w/ relatively low max benef., short elim. periods and max benef. periods
short-term disability plans
- type of ER provided disability plan
- address more serious, long-term episodes
- benef. based on %age of earnings
- relatively high max monthly benef.
- longer elim period
- split definition of disabilty
- longer max benef. periods
Long-term disability plan
CV of the life ins. policy determined by using the insurer’s current experience
accumulation account
policies having increasing CVs and fixed premiums in which the mortality cost, expense charges and i/r credits by the ins. company are not itemized
bundled
broadly classifies life ins. policies that allow for a CV inside of the life ins. contract
periodic growth in CVs in these contracts = inside buildup
CV / Perm. Life Ins.
- $ amt which the insured must pay that is tiggered by an insurable event
- elim. small losses and the disproportionate admin expenses that go w/ them
- make policies less expenses
deductibles
a policy that pays out funds to the policy holder in the event that it’s book of bus. is running favorable enough to reward premium payers
div. eligible
rate of return based on some outside stock index such as the S&P 500
Equity Indexed Universal LIfe
- type of rider on ins. policy
- if insured dies during family income period, income pmts are paid to beneficiary until the end of the family income period at which time the face amt of the policy is paid
family income riders/policy
- type of rider on policy
- if insured dies during the fmaily income period, pmts are paid to beneficiary for a stated number of years after the insured’s death
family maintenance rider/policy
- “portfolio products”
- CV policies invest the cash in the ins. company’s portf.
- assets of ins. company and subject to the claims of creditors
guaranteed -dollar CV policy
these term policies have a lower current rate structure, which can be increased or decreased by the ins. company based on how their book of business is performing
cannot be increased beyound a guaranteed level or rates
indeterminate-premium policies
this interest is indexed on a L/T corporate bond rate
interest - indexed life ins.
type of care
control, over the nature and extent of HC provided for members along w/ the financing of that care
managed care
cost of ins. charge that is deducted each month from the CV based on the insured’s age and policy’s current net amt at risk
death benef - CV
mortality charges
identifying risk exposures and considering the alternative methods of dealing w/ them.
personal risk mgmt
a rate set by the insurer and based on the inv. perf. of the insurer’s whole inv. portf.
credited to CV life insurances
portfolio rate
suggested annual premiums that will keep a universal policy in force, given certain actuarial and int. assumptions
target premiums
how does ins. serve to eliminate or reduce the financial burden related to various risks
eliminates or reduces by dividing the losses, which would be substantial for 1 single individual, among many indiv. w/ each bearing a small portion of the cost
overhead expenses are also spread throughout the group
criteria for selecting an ins. company
- financial soundness
- extent and quality of the service it renders
- types of cov’g and policies the insurer offers
- price it charges for a particular cov’g
Risk Management Issues
- avoidance of risk
- loss prevention and reduction (loss control)
- retention (assumption) of risk
- transfer of risk
Risk Management Issue
act of eliminating risk by avoiding the casues of risk in general
avoidance of risk
Risk Management Issue
the consicous act of retaining a risk rather than transferring it
may be the only practical method of handling a risk - such as if risk is uninsurable and ins. cannot be purchased
it may be cheaper to retain the risk than to purchase expensive ins. to cover it.
retention (assumption) of risk
Risk Management Issue
risk of one party is transferred to another
can be on both a noninsured and insured basis
transfer of risk
(3) sources of life ins. for consumers
- individually purchased
- ER-sponsored
- gov’t-sponsored life ins. programs
(3) types of ER-sponsored Life Insurance Programs
- group life ins.
- wholesale life ins.
- group universal life in.
employer-sponsored life insurance program
available as an EE benef. w/ part or all of the cost being paid by the ER
issued w/o indiv. evidence of insurability
amt of ins. on indiv. EEs normally is determined by some type of benef. formula.
group life insurance
employer-sponsored life insurance program
group, EE-pay-all version of indiv. universal life (UL) or indiv. variable universal life (VUL) ins.
group universal life ins.
types of gov’t-sponsored life insurance programs
- Social Security
- programs for armed services (U.S. Gov’t Life Ins.; Nat’l Service Life Ins.; Servicemen’s Group Life Ins. (SGLI))
types of term life ins.
- annually renewable term (ART)
- level term
- reentry term
- decreasing term
- renewable and convertible term
- term premium structures
- term w/ whole life ins.
- type of variable policy
- has guaranteed min. death benef. that is set when the policy is written, though CV and death benefits vary w/ the inv. experience of the separate accts
Variable Life (VL)
- type of variable policies
- more popular form
- involves the greatest degree of flexibility combining universal life and variable life concepts
- death benef. depends on whether a set death benef. was chosen or a face amt + CV death benef. was chosen
- flexibility exists w/ regard to both inv. of CVs and pmt of premiums
Variable Universal Life (VUL)
