Life Insurance Basics Flashcards
Cash value
Equity amount accumulated in permanent life insurance
Estate
A person’s net worth
Illustrations
Presentations or depictions of nonguaranteed elements of a life insurance policy
Solvency
Ability to meet financial obligations
Insurable interest
Where the policyowner must face the possibility of losing money or something of value in the case of loss. Aka the policyowner would experience financial hardship upon the passing of the insured
Who can be insured?
“Blood and business”
Personal uses of life insurance
Survivor protection Estate creation Cash accumulation Liquidity Estate conservation
Cash accumulation
Life insurance may be used to accumulate specific amounts of monies for specific needs, available during the policy term
Liquidity
With some life insurance, cash values can be borrowed against at any time and be used for immediate needs
Viator
Someone with a life-threatening condition who sells their life insurance for use before their death
Viatical settlement broker
Negotiates viatical settlement contract, on behalf of viator
Viatical settlement provider
Enters into (effectuates) a viatical settlement with a viator
STOLI (Stranger-originated-life-insurance)
Where policyowner has no relationship with insured (companies try to prevent)
Human life value approach (HLVA)
What would be lost to the family in the event of the premature death of the insured
Calculates wages, inflation, number of years to retirement, and time of money
Needs approach
Predicted needs after the premature death of the insured. Lump-sum for immediate and incoming needs. More thorough than human life approach
Lump-sum needs:
Costs associated with death, debt cancellation, emergency reserve funds, education funds, retirement fund, and bequests
Income needs:
Replacing insured’s salary or lost services, social security income “blackout” period, liquidation vs. retention of capital
Buy-sell agreement
Legal agreement that will determine what will be done with a business upone the death or disablement of the owner
Also referred to as a business continuation agreement
Cross purchase agreement
Used in partnerships where the partners buy policies on one another
Entity
Used when the partnership buys policies on the partners
Stock purchase
Used when the stockholders buy polcies on one another
Stock redemption
Used when the coporation buys one policy on each of the shareholders
Permanent life insurance
Remains in effect until 100
Includes a cash value savings element
Industrial (home service) life insurance
Provides insurance to industrial workers or people who are unable to afford insurance for bigger amounts. Can be payable on weekly or monthly basis
Disclosure Authorization Notice
States the insurer’s practice regarding collection and use of personal information
Guaranty associations
Protect policy owners, insured, beneficiaries, and anyone entitled to payment under an insurance policy from the incompetence and insolvency of insurers
Life insurance policy cost comparison methods
- Internet-adjusted net cost method
Time value of money — investment return on insurance premium had it been invested elsewhere - Comparative interest rate method (CIR)
Buy-term-invest-the-difference plan — the rate of return that must be returned on a hypothetical “side fund” to equal the illustrated cash surrende value of the higher-premium policy at a designated point in timef
Conditional receipt
Used when the applicant submits a prepaid application. Coverage will be effective on the day of the application or the day of the medical exam, whichever is last
Approval conditional receipt
Coverage begins only when the prepaid application is approved by the insurer
Unconditional (binding) receipt
Coverage begins immediately for a specific length of time, like 30 or 60 days, often with property or causality insurance
Investigative report
General report of applicant’s finances, character, work, hobbies, and habits
Medical Information Bureau (MIB)
A nonprofit trade organization that receives and maintains confidential adverse medical information for insurance companies.
Helps uncover concealment and misrepresentation
Mortality tables
Help predict the expectation of life and probability of death of a given group
Net single premium
Mortality - interest = net premium
Gross annual premium
One year cost for mortality + the cost of running the company
Statement of good health
Verifies that the insured has not suffered injury or illness since the application date
Exposure
A unit of measure used to determine rates charged for insurance coverage. Considers the following: The age of the insured Medical history Occupation Sex
Executive bonus
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. The employee owns the policy and has the rights to the policy. Since the employer treats the premium as a bonus, the amount is taxed or up to go to the employer and income taxable to the employee
Agent responsibilities
Solicitations and sales presentation
Underwriting: field and company
Premium determination
Policy issue and delivery
