Basics Flashcards
What are the basic types of life insurance ?
- Permanent and Term
- Participating and Nonparticipating
- Individual and Group life ins.
- Fixed and Variable life ins.
Personal uses of Life Insurance
- Survivor Protection
- Estate Creation
- Cash Accumulation
- Liquidity
- Estate Conservation
What are the 2 basic approaches that aid producers and buyers to determine the needed amount of protection ?
- Human life value approach
- Needs aproach
What is the Human Life Value Approach?
- Gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured.
- Its used to calculate an individuals life value by looking at wages, inflation, the number of years to retirement, and the time value of money.
What is the Needs Approach ?
- It is based on the predicted needs of a family.
- Factors that are looked at may be amount of debt one may have, investments and other ongoing expenses.
How are lump-sum needs determined ? (Needs approach)
- Costs associated with death: Final medical expenses, funeral expenses ect.
- Debt cancellation
- Emergency reserve funds: Paying for unexpected expenses folowing the death of the insured.
- Education funds
- Retirement fund: used as a source of retirement income
- Bequests: leaving funds to the insureds church, school, or a charity
How is planning for future income needs of the insureds family looked at ?
The family may need to plan for an income source long term, so the needs approach to life insurance will factor the following concerns:
- Replacing insureds salary or lost services
- Social security income “blackout” period
- Liquidation vs Retention of Capital
What do businesses use life insurance for ?
- Buy-sell Funding: legal contract that determines what will be done with a business in the even that an owner dies or becomes disabled. May also be referred to as a Business Continuation Agreement.
There are several types of buy-sell agreements:
- Cross Purchase: used in partnerships when each partner buys a policy on the other
- Entity Purchase: used when the partnership buys the policies on the partners
- Stock Purchase: used by privately owned corporations when each stockholder buys a policy on each of the others
- Stock Redemption: used when the corporation buys one policy on each shareholder.
- Key Person: should a key person die, the benefit is treated as a reimbursement to the businesss for loss of services from that key person.
key employee is the insured ;business is the
- applicant
- policyowner
- premium payer
- beneficiary
- Executive bonuses: 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 on the employee.
Since the employer treated the premium payment as a bonus, that amount is tax deductible to the employer and income taxable to the employee.
What is a buy-sell agreement?
it is simply a contract that establishes what will be done with a business in the event that an owner dies. Buy-Sell agreements are normally funded with al ife insurance policy.
Insurable Interest
is the possibility of losing money or something of value in the event of loss. in life insurance, insurable interest must exist between the policyowner and the insured at the time of application.
Producers Responsibilities
1.Solicitation and sales presentations. Solicitations of Insurance means an attempt in persuading a person into buying an insurance policy. This can be done orally or in writing. Includes providing information about available products, describing the policy benefits, making recommendations about a specific type of policy and aiming to secure a contract between the applicant and the insurance company.
2. Advertising: All advertising must be accurate and nor misrepresent the facts. The insurer whose policies are advertised is responsible for all its advertisements, regardless of who wrote, created, presented, or distributed them.
3. Illustrations: A presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years.
What is a buyer’s Guide?
Provides basic, generic information about life insurance. It is a document that explains how a buyer should go about choosing the amount and type of insurance to buy and how one can save money by comparing the costs of similar policies.
What is a written statement that describes the features and elemnts of the policy being issued?
Policy Summary
What protects policyowners against insurer insolvency?
Life and Health Guaranty Association
All licensed insurers are members of what?
Guaranty Association
Traditional methods that measure and compare actual policy costs?
- Interes-adjusted net cost method
- comparative interest rate method
What is the rate of return that must be earned on a “side fund” in a buy term invest the difference plan?
Comparitive interest rate (CIR)
What type of plan earns an amount equal to the surrender value of the higher premium policy at a designated point in time?
buy term invest the difference plan
