chapter 6

Question 1

• illustration
• methods that helps to measure and compare actual policy costs —- interest-adjusted net cost & comparative interest rate method

Answer 1

illustration means a presentation or depiction that includes nonguaranteed elements of a policy of individual or group life insurance over a period of years. A life insurance illustration must do the following:
Distinguish between guaranteed and projected amounts;
Clearly state that an illustration is not a part of the contract; and
Identify those values that are not guaranteed as such.
_________________
Interest-Adjusted Net Cost method considers the time value of money by applying an interest adjustment to yearly premiums and dividends.
The comparative interest rate (CIR) is the rate of return that must be earned on a hypothetical “side fund” in a buy-term-invest-the-difference plan, so that the value of the side fund will equal the illustrated cash surrender value of the higher-premium policy at a designated point in time. The higher the CIR, the less expensive the higher-premium policy (e.g., whole life) relative to the alternative plan (e.g., term plus side fund).

Question 2

Texas-specific policies :
- how long do insurers have to pay death claim?
- how long is the free look period for an insurance policy and when does it begin?
- how long is the freelook period for fixed annuities?
- how many employees must group life cover?

Answer 2

• how long do insurers have to pay death claim? 2 months
• how long is the free look period for an insurance policy and when does it begin? 15 days
• how long is the freelook period for fixed annuities? 20 days
• how many employees must group life cover? A group policy issued in this state must cover at least 2 employees or labor union members on the date of its issue. If the insured employees do not pay any part of the premium, the policy must insure all eligible employees.

Question 3

describe about credit life insurance :
- what is it and what kind of policy (start date)
- who is the policy owner, the beneficiary, who pays premiums, and what is the death benefit

Answer 3

Credit life insurance insures the life of the debtor and pays off the balance of the loan in the event of the debtor’s death. The term of credit life insurance policies begins on the date the debtor becomes obligated to the creditor. If evidence of insurability is required and provided after 30 days from the time the debtor becomes obligated to the creditor, coverage may begin upon the approval of the insurer.

policyowner = creditor
beneficiary = creditor
premiums = debtor
death benefit = nothing more that the balance of the debt