Insurance Flashcards
Reserve
A Reserve is funds held by the company to help fulfill future claims. Minimum reserves are usually set by the state Department of Insurance.
Multi-line insurer
A Multi-line insurer is an insurance company or independent agent that provides a one-stop shop for businesses or individuals seeking coverage for all their insurance needs. For example, many large insurers offer individual policies for automobile, homeowner, long-term care, life and health insurance needs.
Stock Companies
For the purpose of insurance, Stock Companies are insurance companies owned and controlled by a group of stockholders whose investment in the company provides the safety margin necessary in issuance of guaranteed, fixed premium, nonparticipating policies.
Nonparticipating plan
A Nonparticipating plan is Insurance under which the insured is not entitled to share in the divisible surplus of the company.
Mutual Companies
For the purpose of insurance, Mutual Companies are insurance companies characterized by having no capital stock; it is owned by its policy owners and usually issues participating insurance.
Participating Plan
A Participating Plan of insurance is a plan under which the policy owner receives shares (commonly called dividends) of the divisible surplus of the company.
reinsurer
A reinsurer is a company that provides financial protection to insurance companies. Reinsurers handle risks that are too large for insurance companies to handle on their own and make it possible for insurers to obtain more business than they would otherwise be able to.
Fraternal Benefit Societies
Fraternal Benefit Societiesare nonprofit benevolent organization that provide insurance to its members. Producers or agents who only sell within their society, do not receive commission, and stay under a specific premium threshold often have less stringent licensing requirements.
Fair Credit Reporting Act
The Fair Credit Reporting Act is a federal law requiring an individual to be informed if she is being investigated by an inspection company. The law also outlines the sharing and impact of such information and requires individuals to be notified prior to being investigated.
Buyer’s Guide
A Buyer’s Guide is an informational consumer guide books that explain insurance policies and insurance concepts; in many states, they are required to be given to applicants when certain types of coverages are being considered. Buyer’s Guides are often used with life insurance, long-term care insurance, and annuities.
Policy Summary
A Policy Summary is a summary of the terms of an insurance policy, including the conditions, coverage limitations, and premiums. Policy summaries are often used with life insurance, long-term care insurance, and annuities.
National Association of Insurance Commissioners (NAIC)
The National Association of Insurance Commissioners (NAIC) is an association of all of the state insurance commissioners active in insurance regulatory problems and in forming and recommending model legislation and requirements. The NAIC does not directly MAKE laws, as laws are made at the state level. They do work on suggesting standards for states to adopt with the goal of a standardizing the insurance industry throughout the United States of America.
State Guaranty Association
The State Guaranty Association is established by each state to support insurers and protect consumers in the case of insurer insolvency, guaranty associations are funded by insurersthrough assessments. All authorized insurers are legally required to participate in the State Guaranty Association for any state they are authorized to do business in regardless of where their corporate office is.
Life Insurance
Life Insurance is insurance against loss due to the death of a particular person (the insured) upon whose death the insurance company agrees to pay a stated sum or income to the beneficiary. In its purist form, life insurance states, “we will pay this amount when this person dies.”
Term Life Insurance
Term Life Insurance is protection for a set number of years; expiring without value if the insured survives the stated period, which may be one or more years. Term life is designed to provide temporary protection in case a person dies during a set period of time.
Whole Life
Whole Life is permanent level insurance protection for a person’s “whole of life,” from policy issue to the death of the insured. Characterized by level premiums, level benefits, and cash values.
Group Life
Group Life is a type of life insurance in which a single contract covers an entire group of people. Most often, the group is an employer-employee group. Those covered under a group life policy may or may not pay a portion of the premium and can usually choose their beneficiary. However, the insured typically does NOT own the policy, the group (employer) owns and controls the policy.
Consideration
Consideration is the part of an insurance contract setting forth the amount of initial and renewal premiums and frequency of future payments. Consideration is often said to include the initial premium and completed application for insurance. In other words, the applicant is saying, “please CONSIDER me for insurance, here is my initial premium, my completed application, and how much\how often I agree to pay in the future. Please CONSIDER me.”
The Insuring Agreement (Insuring Clause, Insurance Provision)
The Insuring Agreement (Insuring Clause, Insurance Provision) is the portion of the insurance policy in which the insurer promises to make payment to or on behalf of the insured. It states the scope and limits of coverage. The insuring agreement is usually contained in a coverage form from which a policy is constructed. In other words, it is the insurance company saying, “We ensure to INSURE you under these conditions for this amount.”
Health Insurance
Health Insurance is a general way of describing insurance against loss through sickness or accidental bodily injury. It is also called accident and health, accident and sickness, sickness and accident, or disability insurance. It is important to remember the general term “health insurance” applies to many different types of insurance, not just the medical insurance that pays for doctor and hospital visits.
Disability (income)
Disability (income) Insurance is a form of insurance that insures the beneficiary’s earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. Although disability insurance is designed to protect one’s income, there are typically rules and regulations in place limiting the benefits of a disability policy to one’s income level, and typically only allowing protection for a portion of their income.
Medical expense
Medical expense insurance pays benefits for nonsurgical doctors’ fees commonly rendered in a hospital; sometimes pays for home and office calls.
Entire Contract
Entire Contract is an insurance policy provision stating that the application and policy contain all provisions and constitute the entire contract.
Notice of Claim
Notice of Claim is a policy provision that describes the policy owner’s obligation to provide notification of loss to the insurer within a reasonable period of time. Notice of claim only requires the insurance company be NOTIFIED of a loss, it does not require that proof of the loss is provided.
Reinstatement
Reinstatement is the act of putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. Most states have reinstatement laws requiring an insurer to allow for a policy to be reinstated upon request of the policy owner within a specified period of time.
Property Insurance
Property Insurance is an insurance policy that provides financial reimbursement to the owner or renter of a structure and its contents, in the event of damage or theft. Simply put Property insurance protects the things you own and rent.
Casualty (Liability) Insurance
Casualty (Liability) Insurance is insurance which broadly encompasses insurance not directly concerned with life insurance, health insurance, or property insurance. Casualty insurance includes vehicle insurance, liability insurance, theft insurance, workers’ compensation insurance, and elevator insurance. Casualty insurance protects you financially in the event that someone sues you.
Property and Casualty Insurance
Property and Casualty Insurance are often referred to collectively as property and casualty insurance because the things you own have the potential to harm people in ways that could cause them to sue you. The main kinds of property and casualty insurance include auto insurance, home-owner’s insurance, renter’s insurance and umbrella insurance.
Proof of loss
Proof of loss is a mandatory health insurance provision stating that the insured must provide a completed claim form to the insurer within days of the date of loss. If the insured wants paid, they must PROVE the loss occurred.
A Deductible
A Deductible is the amount of expense or loss to be paid by the insured before an insurance policy starts paying benefits. Deductibles typically apply to property, casualty, and health insurance.
An insurance Declaration page
An insurance Declaration page is a piece of paper which provides basic information about an insurance policy. Typically, the first page (face) of an insurance policy is a declaration page. The declarations page normally specifies the named insured, address, policy period, location of property, policy limits, and other key information.
Aleatory
Aleatory is a feature of insurance contracts in that there is an element of chance for both parties and that the dollar given by the policyholder (premiums) and the insurer (benefits) may not be equal. The premiums paid by the applicant is small in relation to the amount that will be paid by the insurance company in the event of a loss.
- Consideration may be unequal
- The outcome depends on chance or uncertain event
- A legal bet is considered an aleatory contract
Apparent Authority
Apparent Authority deals with the relationship between the insurer, the agent, and the customer. It is the appearance of authority based on the agent-insurer relationship. Apparent authority is a situation in which the insurer gives the customer reasonable belief that an agent has the power and authority to bind the principal.
competent party
A competent party is one who is capable of understanding the contract being agreed to. All parties must be of legal competence, meaning they must be of legal age, mentally capable of understanding the terms, and not influenced by drugs or alcohol
Conditional Contract
A Conditional Contract means certain conditions must be met by all parties in the contract. This is needed when a loss occurs in order for the contract to be legally enforceable. All insurance contracts are conditional contracts
Concealment
Concealment is the failure of the insured to disclose to the company a fact material to the acceptance of the risk at the time application is made.
Consideration
Consideration is something of value that each interested party gives to each other. The insured provides consideration with payment of premium. The insurer provides consideration by promising to pay the insurance benefit.
contract of adhesion
In a contract of adhesion there is only one author - the insurance company. If there is an ambiguity in the contract, the courts always favor the insured over the insurer. Because an insurance contract has been prepared by an insurance company with no negotiation, it is considered a contract of adhesion.
Express authority
Express authority is the explicit authority granted to the agent by the insurer as written in the agency contract.
Fiduciary Responsibility
Fiduciary Responsibility describes the relationship between the agent or producer and client or company funds. Because the agent handles money of the insured and insurer, he/she has a fiduciary responsibility. A fiduciary is someone in a position of trust. With insurance, for example, it is illegal for agents to mix premiums collected from applicants with their own personal funds. This is called commingling.
Health insurance contracts
Health insurance contracts are indemnity contracts and will only reimburse the actual cost of the loss (pay medical bills, etc.) You cannot profit from an indemnity contract.
Implied authority
Implied authority is authority not specifically granted to the agent in the contract of agency, but which common sense dictates the agent has. It enables the agent to carry out routine responsibilities.
Insurable interest
Insurable interest requires that an individual have a valid concern for the continuation of the life or well-being of the person insured. Without insurable interest, an insurance contract is not legally enforceable and would be considered a wagering contract. NOTE: Insurable interest only needs to exist at the time of the application (the inception of the contract).
law of agency
The law of agency establishes a relationship in which one person is authorized to represent and act for another person or company. In applying the law of agency, the insurance company (insurer) is the principal. An agent or producer will always be deemed to represent the insurance company and not the applicant. In regard to the insurance contract, any knowledge of the agent is considered to be the knowledge of the insurance company (insurer). If the agent is working within the conditions of his/her contract, the insurance company is fully responsible.
Legal purpose
Legal purpose means an insurance contract must be legal and not in opposition of public policy. If an insurance contract has insurable interest and the insured has provided written consent, it has legal purpose. Without legal effect, the contract would be null and void.
Life insurance contracts
Life insurance contracts are valued contracts, which means it will pay a stated amount.
Offer and acceptance
Offer and acceptance is an offer that may be made by the applicant by signing the application, paying the first premium, and if necessary, submitting to a physical examination. Policy issuance, as applied for, constitutes acceptance by the company. Or, the offer may be made by the company when no premium payment is submitted with application. Premium payment on the offered policy then constitutes acceptance by the applicant.
Policy
Policy A “policy” is a written contract in which one party promises to indemnify another against loss that arises from an unknown event. The various elements which make up an insurance policy continue on pages 3-4.
Policy Rider
Policy Rider A legal attachment amending a policy. Additional benefits or a reduction in benefits are often incorporated in policies by the attachment of either a benefit or an exclusion rider.
Representations
Representations are statements made by applicants on their applications for insurance that they represent as being substantially true to the best of their knowledge and belief, but that are not warranted as exact in every detail.
Stranger-Originated Life Insurance (STOLl)
Stranger-Originated Life Insurance (STOLl) is life insurance arrangements where investors persuade consumers (usually seniors) to take out new life insurance policies, with the investors named as beneficiary. Investors loan money to the insured to pay the premiums for a defined period. The insured ultimately assigns ownership of the policy to the investors, who receive the death benefit when the insured dies. The insured receives additional financial benefits, such as an upfront payment or a loan.
Unilateral Contract
A Unilateral Contract is a one sided agreement, where only the insurer is legally bound. In an insurance contract only the insurance company is legally bound to do anything.
Utmost Good Faith
Utmost Good Faith implies that there will be no attempt by either party to misrepresent, conceal or commit fraud as it pertains to insurance policies.
Voidable contract
A Voidable contract is a contract that can be made void at the option of one or more parties to the agreement.
Void contract
A Void contract is an agreement without legal effect: an invalid contract. Fraud: In the event of fraud, insurance contracts are unique in that they run counter to a basic rule of contract law. Under most contracts, fraud can be a reason to void a contract. With life insurance contracts, an insurer has only a limited period of time (usually two years from date of issue) to challenge the validity of a contract. After that period, the insurer cannot contest the policy or deny benefits based on material misrepresentations, concealment, or fraud. Forms: The insurance carrier is responsible for assembling the policy forms for the insured person(s). Warranties are statements made on an application for insurance that are warranted to be true; that is, they are exact in every detail as opposed to representations. Statements on applications for insurance are rarely warranties, unless fraud is involved.
Industrial life insurance
issues very small face amounts, such as $1,000 or $2,000. Premiums are paid weekly and collected by debit agents. They were designed for burial coverage.
Ordinary Life Insurance
is life insurance of commercial companies not issued on the weekly premium basis. It is made up of several types of individual life insurance, such as temporary (term), permanent (whole).
Group Life Insurance
is insurance written for members of a group, such as a place of employment, association, or a union. Coverage is provided to the members of that group under one master contract. The group is underwritten as a whole, not on each individual member. One of the benefits of group life coverage is usually there is no evidence of insurability required.
Term life insurance
Term life insurance gives you the greatest amount of coverage for a limited period of time. Term insurance is only good for a limited period of time because it has a TERMination date. Term insurance is an inexpensive type of insurance, making it an attractive option for large policies. Term life is the CHEAPEST type of pure life insurance, and due to having a termination date and not having any cash value, it will ALWAYS be cheaper than a whole life policy with the same face value. It provides a pure death protection since it only pays a death benefit if the insured dies during the policy term.
Level term
Level term is also called level premium level term, has a level face amount and level premiums. Premiums tend to be higher than annual renewable term because they are level throughout the policy period. However, the premiums will increase at each renewal. Life insurance written to cover a need for a specified period of time at the lowest premium is called Level Term Insurance. Term insurance always expires at the end of the policy period. For example, if D needs life insurance that provides coverage for the remainder of her working years and wants to pay as little as possible, D would need Level term. Level term provides a fixed, low premium in exchange for coverage which lasts a specified time period.
Decreasing term
Decreasing term is term life insurance that provides an annually decreasing face amount over time with level premiums. These policies are usually used for mortgage protection. A decreasing term policy is a type of life policy which has a death benefit that adjusts periodically (according to a schedule) and is written for a specific period of time. Decreasing term policies are usually written for a mortgage or other debt that typically decreases over time until it is paid off. For example, a 15 year decreasing term policy could protect a 15-year mortgage. As the mortgage balance reduces each year, the face value of the insurance policy will adjust accordingly to match. After the mortgage is paid off, the insurance policy will expire.
Credit policies
Credit policies are typically purchased using a decreasing term life insurance policy, with the term matched to the length of the loan period and the decreasing insurance amount matched to the declining loan balance. Since Credit life insurance is designed to cover the life of a debtor and pay the amount due on a loan if the debtor dies before the loan is repaid, credit policies can only be purchased for up to the amount of the debt or loan outstanding. For example, if you wanted an insurance policy to protect a $20,000, 5-year auto loan, you would use a 5-year decreasing term life insurance policy with an initial face value of $20,000. You will pay the same level premium every month for the 5-year term of the policy. The face value will start out at $20,000 and change according to a schedule (the decreasing balance of the auto loan). After 5 years, the car will be paid for and the insurance policy will no longer be needed.
Increasing term
Increasing term is term life insurance that provides an increasing face amount over time based on specific amounts or a percentage of the original face amount.
Convertible term
Convertible term is a provision that allows policyowners to convert their term insurance into permanent policies without showing proof of insurability. Convertible Term provides temporary coverage that may be changed to permanent coverage without evidence of insurability. For example, if you take out a term insurance policy when you are young to take advantage of your good health and the policy’s lower premium, but want the option convert the policy to a permanent one for final expense benefits once your finances improve, you would want a convertible term life policy. The conversion privilege of a group term life policy allows an individual to leave the group term (temporary) plan and convert his or her insurance to an individual (permanent) policy without providing evidence of insurability. The most important factor to consider when determining whether to convert term insurance at the insured’s attained age or the insured’s original age is the premium cost. The number one factor which impacts life insurance premium cost is the insureds current or attained age. For example, a $25,000 policy on a healthy 7-year-old boy will cost substantially less than a $25,000 policy on a 57-year-old man. Whether converting an individual or group term insurance policy, although your insurability is guaranteed, your age is typically reevaluated to your current (attained) age, not left at the age you were when you applied for the original term policy. Convertible Term would allow you to take your temporary coverage and change it to permanent coverage without evidence of insurability or good health, but your premiums will increase due to using your attained age.
Renewable term
Renewable term is term insurance that guarantees the insured the right to continue term coverage after expiration of the initial policy period without having to prove insurability. For example, if you have a 10-year renewable and convertible term; After the 10 years are up, the policy terminates or you can renew it. If you renew it the premium price will go up, and you will have the policy for another 10 years. This cycle continues until you are too old to renew or it’s too expensive. All TERM insurance has a final TERMINATION date where you can no longer renew it.
Annual renewable term
Annual renewable term is term coverage that provides a level face amount that renews annually. This type of coverage is guaranteed renewable annually without proof of insurability.
Term Rider
A Term Rider is a type of life insurance product which covers children under their parent’s policy. Family plan policies usually cover the family head with permanent insurance, and the coverage on the spouse and children is term insurance in the form of a rider. A term rider is always level term. This is cheaper than every family member getting their own policy. For example, the main policy may be on Dad, then mom and the children are riding on (attached to) dad’s policy as term riders. Term riders allow for additional family members to be covered under one policy by attaching everyone to a main policy. Term riders can also allow an applicant to have excess coverage by adding an additional term rider for them to the main policy.
Whole life insurance
Whole life insurance provides death benefits for the entire life of the insured. It also provides living benefits in the form of cash values. It matures at age 100 and normally has a level premium. All whole life has the same type of benefits. The only difference in “types” of whole life is how the policy is paid. Some will be paid straight until death or age 100, some will be paid for after a few years or by a specific age, some may give you a little discount in the early years to help you get started, etc. All whole life lasts until death or age 100, has a fixed premium, and level benefit with cash value accumulation, regardless of how it is paid. Whole life is often compared to BUYING; like BUYING a house.
With Whole Life - Straight Life insurance,
With Whole Life - Straight Life insurance, premiums are payable throughout the insured’s lifetime, and coverage continues until the insured’s death. Said differently, premiums are payable as long as coverage is in force. Like all other whole life policies, straight whole life provides fixed premiums, a level death benefit, and cash value. Whole life also requires the face amount to be paid out to the insured at age 100 (when the policy matures), provided a death benefit has not already been paid. If G wants a policy with a fixed level premium and a benefit that pays out at death or age 100, G would want a whole life policy. Straight whole life allows you to maintain coverage throughout your entire lifetime and spread the cost out over your entire life.
With Whole Life - Limited Pay
With Whole Life - Limited Pay the coverage remains on a limited-pay life policy until age 100 or death, whichever happens first. Even though the premium payments are limited to a certain period, the insurance protection extends until the insured’s death, or to age 100. For example, if you were to purchase a 20-pay policy, premiums would need to be paid for 20 consecutive years. After that, you would not be required to make any additional premium payments, and your coverage would be guaranteed until death or age 100. A 40-year old applicant who would like to retire at age 70 and wants a policy with level premiums, permanent protection, and premiums paid up at retirement would also choose a paid-up-at age-70 limited pay policy. A limited pay life insurance policy covers an insured’s whole life with level premiums paid over a limited time
Whole Life - Modified
Whole Life - Modified is a policy where the premium stays fixed for the first 5 years, and then increases in year 6 and stays level for the remainder of the policy. Modified whole life has all of the same features of any other whole life except the insurance company cuts you a break on premium for the first few years. For example, K wants to buy life insurance because she knows it is cheaper when she is young. However, she is a college student and cannot afford the large premium associated with whole Life. The insurance company may offer her a Modified whole life to lock in her age and provide her all of the benefits of whole life, but give her a discount on premium while she is in college. After the first five years of the policy, she will be out of school and be able to afford the normal premium cost. Modified Whole Life describes a whole life policy with a premium that increases once after the first few years and then remains level for the remainder of the policy.
Whole Life - Modified Endowment Contract (MEC)
Whole Life - Modified Endowment Contract (MEC) is best described as a policy that exceeds the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract. A MEC does not meet the 7-pay test and is considered over-funded, according to the IRS. For that reason, the policy will lose favorable tax treatment. The test is designed to discourage premium schedules that would result in a paid-up policy before the end of a seven-year period. For example, if your annual premium for a policy was $1,000 and you paid $20,000 in the first five years, you will have failed the 7-pay test by exceeding $7,000 (7- years times one year of premium). Said differently, you have exceeded the maximum amount of premium that can be paid into a policy and still have it recognized as a life insurance contract.
Joint Life policy
A Joint Life policy covers the lives of 2 individuals and save on premium cost by averaging the ages of the two insureds. Joint Life policies pay the face amount after the first person covered on the policy dies. This is similar to a Joint Checking account. The policy is shared between two people, and when one person dies, the other receives the entire account. If B and M were insured under a joint life policy and B were to die, M would receive the entire benefit and would also no longer be insured. A policy that promises to pay the face amount on the death of the first of 2 lives covered by the policy is called a Joint Life Policy.
Joint Survivor or Last Survivor Life Policies
A Joint Survivor or Last Survivor Life Policies cover the lives of two individuals and saves on premium costs by averaging the ages of the two insureds. Joint Life Survivor or Last Survivor policies only pay the death benefit upon the death of the last insured person. For example, say B and M purchase a joint life survivor policy. If B were to die first and then M died 10 years later, no benefits would be paid out from the policy until M died. A Joint Life and Survivor policy covers two lives but only pays benefits after the death of the last insured.
Family Maintenance policy
A Family Maintenance policy pays a monthly income from the date of death of the insured to the end of the preselected period. The payment of the face amount of the policy is payable at the end of such preselected period. If P is looking to purchase a life insurance policy that will pay a stated monthly income to his beneficiaries for 20 years after he dies and a lump sum of $20,000 at the end of that 20- year period, he should purchase a Family Maintenance policy. Family maintenance policies provide an income for a specific period starting at the death of the insured.
Family Income policies
A Family Income policies pay an income beginning at the insured’s death and continues for a period specified from the date of policy issue. For example, G purchased a Family Income policy at age 40, with a 20-year rider period. If G were to die at age 50, G’s family would receive an income for 10 years.
Adjustable Life policy
An Adjustable Life policy owner is usually looking for a policy offering flexible premiums. As financial needs and objectives change, the policyowner can make adjustments to the premium and/or face amount of an Adjustable Life insurance policy. Adjustable life policies are able to provide these features by combining whole life and term life into a single plan. If a policyowner was looking for a policy in which they could control the amount and frequency of payments with a death benefit that can be adjusted as their life needs change, they would want an adjustable life policy. There typically are no dividends involved with adjustable life policies. Increasing the face amount may require a policyowner to provide proof of insurability. Usually, a customer with an Adjustable life policy has a special need for flexible premiums.
Universal life insurance policy
Universal life insurance policyincorporates flexible premiums and an adjustable death benefit. The investment gains from a Universal Life Policy usually go toward the cash value. The policyowner can use the cash value to manipulate the flexible aspects of a universal life insurance policy. A customer who wants a policy that gives them the most options and the most control would be looking for a Universal Life Policy. Universal policies use gains to fund the cash value and give the policyowner options for flexible premiums and adjustable death benefits.
Variable life insurance policies
Variable life insurance policies require a producer to have proper FINRA and National Association of Securities Dealers (NASD) securities registration prior to selling any variable policy contract, whether it be life insurance or an annuity, as they include regulated securities. These policies are also known as interest sensitive policies. The policies usually have a fixed level premium, but the cash value and death benefits of a Variable Life policy can fluctuate according to the performance of its underlying investment portfolio. A typical Variable Life Policy investment account grows through mutual funds, stocks, and bonds. This includes Variable Life, Universal Variable life, Variable Whole Life, and Variable Annuity. If a policyowner or applicant was looking for a policy to offset inflation, they would want to look into a variable policy. Since the policyowner is assuming all of the investment risk and the rate of return is not guaranteed, a person must have proper FINRA securities registration in addition to an insurance license to sell any variable contracts.
Variable Universal Whole Life, (VUL)
With Variable Universal Whole Life, (VUL) the policyowner controls the investment of cash values and selects the timing and amount of premium payments. Variable Universal Life policies give a policy owner the best of both Variable Life and Universal Life. If a policy owner was looking for a policy that allowed them to control how much and when premium was due, what investment accounts were used for funding, and where the returns from those investment accounts went, they would be looking for a Variable Universal Life Policy. The policy owner can control the timing and amount of premium payments, as well as the investment of cash values with a Variable Universal Life Policy.
Equity Index Universal Life Insurance
Equity Index Universal Life Insurance Equity Index Universal Life Insurance or Equity Indexed Life combines most of the features, benefits and security of traditional life insurance with the potential of earned interest based on the upward movement of an equity index. Unlike, a traditional whole life plan, this plan allows policyholders to link accumulation values to an outside equity index like S&P 500. 80% to 90% of the premium is invested in traditional fixed income securities and the remainder of the premium is invested in contracts tied to a stipulated stock index.
These policies are characterized by a guaranteed minimum interest rate, tax deferral of interest accumulations, and policy loan access. The equity index returns are designed to keep pace with or beat inflation which protects the policyholder against downside market risk. Equity indexed life insurance contracts combine term life insurance with an investment feature, similar to a universal life plan. Death benefit amounts are based upon the coverage amount selected by the contract owner plus the account value.
investor (or stranger) originated life insurance policy S(I)OLI
With an investor (or stranger) originated life insurance policy S(I)OLI, when the insured dies, the policyowner (investor) benefits. In normal circumstances, it is a beneficiary with insurable interest who benefits from the death of an insured. An investor originated life insurance policy is when an investor purchases a policy on the life of someone else to profit upon that person’s death. The investor is typically the policyowner, payor, and names themselves beneficiary. Usually, this is in exchange for a monetary living benefit for the insured. For example, L, the Investor, has taken out a $100,000 life insurance policy on E, the insured. L is the policyowner who will receive the $100,000 upon E’s death. E is the insured, and in exchange for allowing the policy on his life, receives $500 a month to help with bills. Investor or Stranger Originated Life Insurance Policies are illegal, as they are designed to circumvent the insurable interest requirements of an insurance contract and position the policyowner to benefit upon the death of the insured.
Cash Value
Cash Value is the equity amount or “savings” accumulation in a whole life policy.
Endowment Policy
The Endowment Policy is a contract providing for payment of the face amount at the end of a fixed period, at a specified age of the insured, or at the insured’s death before the end of the stated period.
face amount plus cash value policy
A face amount plus cash value policy is a contract that promises to pay at the insured’s death the face amount of the policy plus a sum equal to the policy’s cash value.
Juvenile Insurance
Juvenile Insurance is written on the lives of children who are within specified age limits and generally under parental control.
Non-Medical Life Insurance
Non-Medical Life Insurance typically does not require a medical exam and tends to be more expensive than medically underwritten policies. The insurer will average out everyone’s risk and charge accordingly. Although insurers typically will not require a medical exam, they will still inquire about the applicant’s medical history and lifestyle.
Entire Contract
The Entire Contract states the insurance policy itself, any riders and endorsements/amendments, and the application comprise the entire contract between all parties. Insurance producers cannot make changes to a policy. The entire contract provision is found at the beginning of every insurance policy issued. Only an authorized officer of the insurer is permitted to make changes to the contract. We can’t send you additional paperwork later. THE ENTIRE POLICY AND APPLICATION is sent to you and that makes up your ENTIRE CONTRACT.
Insuring Clause (or Insuring Agreement)
The Insuring Clause (or Insuring Agreement) is the insurer’s basic promise to pay specified benefits to a designated person in the event of a covered loss. States the scope and limits of coverage “We ensure to INSURE you for…”
Free Look
The Free Look state the policyowner is permitted a certain number of days once the policy is delivered to look over the policy and return it for a refund of all premiums paid.
Consideration Clause
The Consideration Clause states a policyowner must pay a premium in exchange for the insurer’s promise to pay benefits. A policyowner’s consideration consists of completing the application and paying the initial premium. The amount and frequency of premium payments are contained in the consideration clause. “Please CONSIDER me for insurance. Here is my COMPLETED APPLICATION, INITIAL PREMIUM, and how much, how often I agree to pay. Please consider me.”
Grace Period
The Grace Period is a period after the due date of a premium during which the policy remains in force without penalty. If an insured dies during the Grace Period of a life insurance policy before paying the required annual premium, the beneficiary will receive the face amount of the policy minus any required premiums. For life insurance the grace period is typically one month. For health insurance, remember Aunt Grace’s Birthday 7(makes payments more than once a month)-10(makes premium payments once a month)-31(makes Premium payments less than monthly (quarterly, semiannually, etc.).
Reinstatement
A Reinstatement is putting a lapsed policy back in force by producing satisfactory evidence of insurability and paying any past-due premiums required. It Permits the policyowner to reinstate a policy that has lapsed- as long as the policyowner can provide proof of insurability and pays all back premiums, outstanding loans, and interest. Most states allow reinstatement up to 3 years after a policy has lapsed. However, some states are 5- 7 years. To reinstate any policy, you need: A reinstatement application, statement of good health, all back premiums.
Policy Loan (cash withdrawal) Provisions
Policy Loan (cash withdrawal) Provisions apply to policies that have cash value also have policy loan and withdrawal provisions. These policies must begin to build cash value after a certain number of years. In most states, this is 3 years. These loans, with interest, cannot exceed the guaranteed cash value or the policy is no longer in force. The policyowner has the right to the policy’s cash value. Policy loans are not taxable. Any loans with interest due at the time of death will be deducted from the insured’s policy proceeds.
Automatic Premium Loan provision (or rider)
The Automatic Premium Loan provision (or rider): Allows the insurance company to deduct overdue premium from an insured’s cash value by the end of the grace period if a payment is missed on a life policy. The insurance company can AUTOMATICALLY take out a LOAN for you against your CASH VALUE to cover your PREMIUM in the event they don’t receive payment from you. This can continue for as long as they don’t receive a payment and you still have cash value. Once all of your cash value is gone, if you don’t start paying, your policy will lapse. This is just like any other cash value loan.
Other insureds
Other insureds is also known as, Dependent riders may be added to a primary policy to cover a spouse or “another insured”, children or adopted children.
Incontestability Period
The “Incontestability Period” provides that, for certain reasons such as misstatements on the application, the company may void a life insurance policy after it has been in force during the insured’s lifetime, usually one or two years after issue. After that period, the policy is considered incontestable.
assignment clause
The assignment clause allows the right to transfer policy rights to another person or entity.
Absolute Assignment
Absolute Assignment is a policy assignment under which the assignee (person to whom the policy is assigned) receives full control over the policy and also full rights to its benefits. Generally, when a policy is assigned to secure a debt, the owner retains all rights in the policy in excess of the debt, even though the assignment is absolute in form.
Collateral Assignment
Collateral Assignment is an assignment of a policy to a creditor as security for a debt. The creditor is entitled to be reimbursed out of policy proceeds for the amount owed. The beneficiary is entitled to any excess of policy proceeds over the amount due the creditor in the event of the insured’s death.
Accelerated Benefit Rider
The Accelerated Benefit Rider allows the insured to receive a portion of the death benefit prior to death if the insured has a terminal illness and expected to die within 1-2 years. Whatever amount is withdrawn in an accelerated death benefit will decrease the death benefit when death occurs. Accelerated Benefit Example: Your doctor said you are going to die, so you aren’t going to stop paying your insurance (since you know you’ll need it soon). Insurance company now knows you are going to die soon which means they are going to have to pay out the benefit. To make things a little easier and less stressful, they will give YOU some of the proceeds NOW and deduct from what would go to your beneficiary.
Exclusions are features of an insurance policy stating that the policy will not cover certain risks. There are 6 common exclusions in insurance.
Suicide Clause:
Suicide Clause: The policy will be voided and no benefit will be paid if the insured commits suicide within 2 years from policy issuance. The primary purpose of a suicide provision is to protect the insurer against the purchase of a policy in contemplation of suicide.
Aviation
Aviation: The insurer will not pay the claim if the insured dies or is injured due to involvement with aviation, such as a military pilot flying a jet aircraft.
War or Military Service
War or Military Service: The insurer will not pay the claim if the insured dies or is injured while in active military service or due to an act of war.
Commitment of a Felony\illegal occupation
Commitment of a Felony\illegal occupation: If the insured dies or is injured while committing a crime of participating in an illegal occupation, the insurer will not pay the claim.
Alcohol\Narcotics
Alcohol\Narcotics: If the insured dies or is injured as a result of alcohol or narcotics, the insurer will not pay the claim.
Hazardous Occupation or Hobby
Hazardous Occupation or Hobby: If the insured dies or is injured as a result of a hazardous occupation or hobby, the insurer will not pay the claim.
