Uses of Life Insurance Vocab & Notes Chap 10

Question 1

An individual’s economic worth, measured by the sum of the individual’s future earnings that is devoted to the individual’s family.

Answer 1

The Human Life Value Approach

Question 2

A method for determining how much insurance protection a person should have by analyzing a family’s or business’s needs and objectives should the insured die, become disabled, or retire.

Answer 2

The Human Needs Approach

Question 3

A way of selling that describes the ethical duty of a producer to sell a product that fits the needs of the prospect rather than the needs of the producer. An example of a ______________ violation is a prospect being sold insurance with the highest premium (and the greatest commission) instead of the proper coverage. By committing themselves to professionalism and the needs of the client, insurance producers can act both responsibly and ethically. There are two principles involved in needs-based selling:
1. Fact-Finding
2. Education

Answer 3

Needs-Based Selling

Question 4

The first step of Needs-Based selling. An agent should understand what his client’s goals are (long term, short term, retirement, etc.) and be able to create a map that will lead to the fulfillment of those goals. Treat all information with utmost confidentiality.

Answer 4

Fact-finding

Question 5

The second step of Needs-Based selling. Show clients how insurance can be used as an effective financial tool to help them reach their individual goals. Make certain the client understands the application and underwriting processes, the policy purchased and any attached riders.

Answer 5

Education

Question 6

Agreements that provide that upon a business owner’s death, surviving owners will purchase the deceased’s interest, often with funds from life insurance policies owned by each principal on the lives of all other principals.

Answer 6

Cross-purchase plans

Question 7

Agreements in which a business assumes the obligation of purchasing a deceased owner’s interest in the business, thereby proportionately increasing the interests of surviving owners.

Answer 7

Entity plans

Question 8

The protection of a business against financial loss caused by the death or disablement of a vital member of the company, usually individuals possessing special managerial or technical skill or expertise.

Answer 8

Key Person Insurance

Question 9

Split-dollar plans are arrangements between two parties where life insurance is written on the life of one party who names the beneficiary of the net death benefits (death benefits less cash value), and the other party is assigned the cash value, with both sharing premium payments.