Products, Marketing, and Distribution Flashcards
what makes insurance a desirable asset in terms of taxes?
In Canada and US its afforded special income tax treatment
What are the five general customer needs, when getting life insurance?
- to protect and/or replace economic value
- to pay off inevitable last expenses
- to provide meaningful executive benefits
- to transfer assets efficiently
- to accumulate a tax-favored investment account
how do businesses often retain extraordinary employees who contribute to the profitable existence of a business and keep them satisfied?
owners offer life insurance designed to provide protection on a pre and post-retirement basis, and or to build tax-favor supplementary retirement income.
what is a cash-value account in terms of investment?
it represents a policyholders equity interest. The cash-value grow tax-deferred or without current income taxes.
can loans be made against policy cash values?
yes, at low net rates - except for contracts classified as MEC
Can tax-free withdrawls up to 2x the amount of the premiums paid into the policy be made systematically to provide a stream of income?
No, 1x the premiums.
what factors are considered when an insurance company develops a new product?
pricing, u/w, administration and marketing.
what sustains the company? (income wise)
premiums, they cover each risk assumed, for the length of the contract.
what are the four major components to determine the premiums?
- mortality
- expenses
- investments
- profit
who determine the probability of death, and how?
actuaries, by analyzing data in standardized industry and government expectation of life tables.
explain the difference of risk analysis between an actuary and an u/w
actuary analysis of large numbers to determine mortality risk, and u/w assess mortality risk by factoring on individual basis.
what is included in the expenses report for an insurance company
building overhead, equipment, maintanance, employees, benefits, agens, commisions, marketing, and advertisement.
how is profit measured by actuaries?
measured as a return on investment (ROI) or return on equity (ROE), which the company requires to grow to meet all promises made to the policyholders, and to meet the needs of other stakeholders.
what are the 5 questions that are posed by u.w when a new product is being developed?
- does the application ask the right questions?
- if a new product requires additional information, have those questions been added?
- is the product designed and priced to allow substanndard risks the opportunity to purchase the product at a higher premium.
- does the product require a new u/w class and what u/w information is necessary to assign the premium classification
- what are the u/w age and death benefits amount limits?
who in terms of administration, will be involved when a new policy is created?
- information technology department
- policy holder
- claims department
- legal and compliance areas
- filing and propsectuses
Is it in Canada or US that they require filing of products or forms federally or provincially/state?
U.S.
what are the two main traditional products sold as insurance?
whole life
term insurance
what is term insurance?
provides coverage for a defined period of time. The time period is terminated by the age of the client, or by the length of term of the product.
Do term plans have cash savings or cash value?
no
is term insurance premiums expensive?
no they are typically cheaper than whole life.
what is a level term product?
this maintains a constant death benefit during the in force period.
how do the premiums work with a level term product
can remain the same or increase if the product has multiple payment periods that change. Usually upon increase the rates renew at the insured’s age.
What is a decreasing term?
where the face amount decreases on a specific schedule over the duration of the policy but the premiums remain the same.
when would someone seek a decreasing term product?
to protect or repay a large amount of debt that decreases over time. (sometimes the decrease rate of the debt and the insurance package are not linear and their can be gaps)
what is an increasing term product?
face amount increases over the coverage period (set % to reflect inflation) premiums increase also.
when would an increasing term product be purchased?
for those who expect both their income and insurance needs to increase over time, but uncomfortable with paying permanent premiums.
what makes term insurance valuable?
renewability (allows people to renew before period end, for more addition terms without evidence of insurability) and convertibitliy (allows to convert term insurance to permanent within a certain time period by a certain age without evidence)
what is a term to 100?
term insurance product, but in reality it is permanent, level premium, non-par whole life insurance. death-benefit remains level, no cash value. (term thats really a perm) > its not super popular since the premiums had increased significantly
how are whole life policy [permanent] premiums calculated?
they premiums are payable for the lifetime, but many policies stop collecting premiums at the maturing age. they are calculated so that excess contributions above
what is a reserve in terms of permanent policy premiums?
excess money not required to cover mortality, this can sometimes go to the beneficiary and be used as cash value
how can a living person utilize their permanent policy for other than insurance?
The cash value can be borrowed at a low net interrest rate or used in a load as source of collaterol, or the policy can be surrenders for its cash value.
