Life insurance basics Flashcards
———————- are presentations or depictions of non guaranteed elements of a life insurance policy.
Illustrations
Selling of assess in order to raise capitol
Liquidation
Solvency is …
The ability to meet financial obligations.
In what ways does insurance present value to the insured?
Providing immediate cash to pay debt and financial security to survivors.
Can be used as collateral to secure a loan
May be paid for in manageable installments called premiums.
What are the three income periods?
Family dependency period.
Pre retirement period
Retirement period
During this income period should the insured die prematurely, the surviving spouse will have dependent children to support. A family’s income needs are the greatest during this time period.
Family Dependency period
During this income period the children are no longer dependent upon the surviving spouse for support but this is before the surviving spouse qualifies for social security benefits.
Preretirement period
At what age do social security benefits kick in?
60
During this period the surviving spouses working income ceases and his or her social security benefits begin.
Retirement period
What are the objectives to asses when determining a insurance plan?
Debt
Income
Mortgage
Expenses
Final medical expenses, funeral expenses, day to day expenses. Rent mortgage, car payments, utilities, groceries, day care, insurance premiums.
Type of information that needs to be gathered to develop and implement an insurance plan.
——————- is a way Insurance May be used to create a fund to pay off debts of the insured such as mortgage or auto loans.
Debt cancellation.
————————- can be used to assist in paying for sudden expense following the death of the insured, such as travel expenses or lodging for family members coming from a distance.
Emergency Reserve Funds
———————- are insurance funds that can be used to pay for children’s education expenses. So they can remain in school, or provide education or training for a spouse who need to re enter the job market.
Education funds
Insurance proceeds may be used as a source of retirement income with this—————-
Retirement Funds
And insured may wish to leave funds to the church school or other organizations at the time of her death with this.
Bequests
Under the ———-approach enough insurance is purchased so that when added other liquid assets there was enough to pay income benefits without invading the principal asset.
Retention of capital
How does a life insurance policy create an immediate estate?
It typically takes time to accumulate earnings savings and investments but all of these methods are immediately acquired after purchasing a life insurance policy. So it gives the insured a way to accumulate an estate of at least, the amount that’s needed in that moment at the time the first premium is paid there is no other way to accumulate an immediate estate as a small cost legally.
As a result of the cash accumulation feature some life insurance policies provide ————is available to the policy owner which means the policies cash values can be borrowed against at any time and used for immediate needs.
Liquidity
What are the two approaches used to determine life insurance amounts?
Human life value approach HLVA and needs approach
The—————-gives the insured an estimate of what would be lost to the family in the event of the premature death of the insured it calculates the individual’s life value by looking at the insured’s wages inflation the number of years to retirement and the time value of money.
Human life value approach
The blank approach is based on the predicted needs a family after the premature death of the insured some factors considered by the needs approach our income amount of debt investments and other ongoing expenses expenses.
Needs approach
What are the two kinds of business funding uses for life insurance?
Key person insurance and buy and sell agreements
The most common use of life insurance by businesses is…
As an employee benefit which serves as protection for employees and their beneficiaries
Aside from employee benefit what are some other ways that life insurance conserve business owners and their survivors?
Business continuation agreements, compensating executives and protecting the business against financial loss resulting from death disability a key employees.
A key employee is defined as
Someone who has specialized knowledge skills or business contacts within the business
With key employee insurance the business is all of the following…
Applicant policy owner premium payer and beneficiary
—————Is a legal contract that determines what will be done with the business in the event that the owner dies or become disabled this is also referred to as a business continuation agreement.
Buy sell insurance
———- is a buy sell agreement used in partnerships with each partner by the policy on the others
Cross Purchase
——— is a buy and sell agreement used when the partnership by the policies on the partners
Entity Purchase
———- is a buy and sell agreement used by privately owned corporations when each stockholder by the policy on each of the others
Stock Purchase
————- is a buy and sell agreement used when the corporation buys one policy on each shareholder.
Stock Redemption
What is BOE
Business overhead Expense
This is a unique type of policy but it’s sold a small business owners who must continue to meet overhead expenses such as rent utilities employee salaries installment purchases least equipment etc. following a disability
Business overhead expense or BOE Insurance
———-is an arrangement where the employer offers to get the employee a wage increase in the amount of the premium on a new life insurance policy on the employee
Executive Bonus
True or false. The premium payments on an executive bonus arrangement is tax deductible to the employer and income taxable to the employee?
True
A————-is an arrangement between business owners that provides for shares owned by one of them who dies or becomes is able to be sold to an purchase by the other co-owners or the business
Business continuation plan
What is the limit of liability?
The face value/amount or death benefit of an individual life insurance policy subject to any exclusions or riders as applicable minus any outstanding policy loans and interest payments due to the insurer.
What are the four steps of issuing a life insurance policy?
1.Solicitation and sales presentations
- underwriting, both field and company 3.premium determination
- policy issue and delivery
Every applicant for a life insurance policy must be given a———-that provides basic information about the cost in coverage of the insurance plan being solicited.
Disclosure statement
This is a presentation or depiction but include non-guaranteed elements of a policy of individual or group life insurance over period of years.
Illustration
An illustration must do the following three things
Distinguish between guaranteed and projected amounts
clearly state that an illustration is not part of the contract and
identify those values that are not guaranteed a such
A buyers guide…
Provides basic generic information about life insurance policies that contain it is limited to language approved by the department of insurance
A policy summary is…
A written statement describing the features and elements of the policy being issued it will also include premium cash value dividends surrender value and death benefit for specific policy years must be provided with the policy is delivered.
What are the methods that help consumers make educated decisions on purchasing life insurance through comparison.
Cost index
The traditional net cost index compares
Cash values available to buyers if they surrender the policy and 10 or 20 years it does not take into consideration the time value of money
The interest adjusted net cost index compares.
The death benefits that are paid at 10:10 or 20 years if the insured died at that time and accounts for time value of money.
———— is the risk selection process.
Underwriting
The purpose of underwriting is to
Protect the insurer against adverse selection.
What are the primary criteria underwriters use in assessing the desirability of a particular candidate for life insurance?
Health current and past conditions
Occupation
Lifestyle
Hobbies
Habits
During the underwriting process the agent is referred to as…
The field underwriter
A life insurance producer is the
Field underwriter
The ————— is the staring point and basic source of information used by the company in the risk selection process.
Application
What are the basic components of the application?
Part 1 general information
Part 2 medical information
If the amount of insurance is relatively small the agent and the proposed insured will complete all of the medical information this is considered a
Non medical application
