Products, Marketing, And Distribution Flashcards
What are the 5 customer needs regarding LI?
- protect/replace economic value
- pay off last expenses
- provide meaningful executive benefits
- transfer assets efficiently
- accumulate a tax-favoured investment account.
Cash value account?
As the policyholders pay their premiums, the excess money not reqd to cover mortality or expenses accumulate at interest amd is held in reserve as a cash value account.
Tax-deferred.
Loans can be made against it at low rates.
Can tax-free withdrawals, up to 2x the amount of the premiums paid into the policy, be made systematically w/ a cash value account to provide a stream of income?
Withdrawals are only allowed up to the 1x the amount of premiums paid into the policy.
What 4 factors are considered when an insurance company develops a new product?
1) pricing
2) u/w
3) administration
4) marketing
What sustains the company? (income wise)
Premiums - they need to cover risk assumed not only at time of u/w but for the duration of the contract
The 4 major components determining premiums are:
1) Mortality
2) Expense - cost to operate company (building overhead, equipment & maintenance, employee salaries & benefits, agent commissions, marketing and advertisement)
3) Return on investment
4) Profit - expected earnings after all expenses are met. Can be in the form of saved money via efficient operating, increased investment returns or mortality improvement (fewer deaths than expected)
Explain the difference of risk analysis between an actuary and an u/w
Actuaries assess mortality risk on an aggregate basis using large numbers/big data.
U/w assess mortality risk on an individual basis.
5 u/w concerns when a new product is being developed?
1) does the application ask the right questions?
2) if a new product requires additional information, have those questions been added to application?
3) is the product designed and priced to allow substandard risks the opportunity to purchase the product at a higher premium.
4) does the product require a new u/w class and what u/w information is necessary to assign the premium classification
5) what are the u/w age and death benefits amount limits?
What is a level term product?
Term product w/ constant death benefit during in-force period.
Decreasing term product?
The face amount decreases on a specified schedule over the duration of the policy but the premiums remain level.
Usually sold for large amount of debt like mortgage, however, decreases are always lined up w/ amortization pattern creating possible coverage protection gap where less insurance in-force that debt
Increasing term product?
Face amount increases over the coverage period (set % to reflect inflation) premiums increase also.
Useful for those who expect both their income and insurance needs to increase over time, but uncomfortable with paying permanent premiums.
2 Features which make term insurance valuable
1) renewability - allows people to renew before period end, for more terms without evidence of insurability
2) convertibility - allows to convert term insurance to permanent within a certain time period by a certain age without evidence
Term to 100?
Term insurance product that’s really a perm. Death-benefit remains level. No cash value. It’s not super popular since the premiums have increased significantly
How are whole life policy [permanent] premiums calculated?
Excess contributions above the anticipated cost of mortality are paid in the policy’s early years in order to cover the cost of mortality charges in the later yrs, when mortality assumptions are higher than the premiums collected.
How are whole life plans marketed?
Based on the duration of premium payments.
Normally whole life policies have continuous premium payments over the lifetime of the insured, which allows for cheaper premiums than the whole life plans w/ shorter premium payment durations.
