Ch 12 Uses of Life Insurance Flashcards
Human Life Value Approach
The Human Life Value Approach is an individual’s economic worth, measured by the sum of the individual’s future earnings that is devoted to the individual’s family.
Human Needs Approach
The Human Needs Approach is a method for determining how much insurance protection a person should have by analyzing a family’s or business’s needs and objectives should the insured die, become
disabled, or retire.
Needs-Based Selling
Needs-Based Selling describes the ethical duty of a producer to sell a product that fits the needs of the prospect rather than the needs of the producer. An example of a needs-based violation is a
prospect being sold insurance with the highest premium (and the greatest commission) instead of the proper coverage. By committing themselves to professionalism and the needs of the client, insurance
producers can act both responsibly and ethically. There are two principles involved in needs-based selling:
*Fact-finding
*Education
*Cross-purchase plans
Fact-finding
Fact-finding is the first step. An agent should understand what his client’s goals are (long term, short term, retirement, etc.) and be able to create a map that will lead to the fulfillment of those goals. Treat all information with utmost confidentiality.
Education
Education is the second step. Show clients how insurance can be used as an effective financial tool to help them reach their individual goals. Make certain the client understands the application and underwriting processes, the policy purchased and any attached riders.
Cross-purchase plans
Cross-purchase plans are agreements that provide that upon a business owner’s death, surviving owners will purchase the deceased’s interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.
Entity plans
Entity plans are agreements in which a business assumes the obligation of purchasing a deceased owner’s interest in the business, thereby proportionately increasing the interests of surviving owners.
Key Person Insurance
Key Person Insurance is the protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or
technical skill or expertise.
Split-dollar plans
Split-dollar plans are arrangements between two parties where life insurance is written on the life of one party who names the beneficiary of the net death benefits (death benefits less cash value), and the other party is assigned the cash value, with both sharing premium payments.
