Life Insurance Key concepts

Insurance

Transfer of risks

Insurable Interest

Blood or business

Adhesion

Take it or Leave it (think bandaid)

Aleatory

Unequal (think illegal aliens- they are unequal)

Unilateral

One-sided (uni means one)

Conditional

Must meet certain conditions

Warranty

Absolutely true

Representation

Believed to be true

Buyers Guide

Basic info: clients compare cost of policies, provided at time of application

Policy Summary

Specific info - premiums and surrender values, given prior to or at the time of delivery

Conditional Receipt

Covered before delivery: effect time of application

Medical Information Bureau (MIB)

Nonprofit, classifying risks, physicians

Patriot Act

Anti money laundering; terrorist

Gramm Leach Bliley Act

Protects non public personal information

Fair Credit Reporting Act

Regulates consumer credit reporting

Investigative Consumer Report

Think of police investigation, family, friends, neighbors

Consumer Reports

Credit, character, habits

Preferred

Cheapest premium, superior health condition

Standard

Average client

Substandard

Highest premium, considered rated

Declined

Unable to be covered

Underwriting

Risk selection and risk classification

Stranger-Originated Life Insurance (STOLI)

No insurable interest

Beneficiaries

Primary - the one to receive the death benefits; Contingent - if primary predeceases the insured

Term

Temporary

Level Term

Level premium and death benefit - most common

Annually Renewable Term

Premium and Death Benefit renew - without proof insurability - Staircase - cheapest to start

Decreasing Term

Death Benefit decreases, Premium stays level - used to cover a mortgage and debt

Increasing Term

Death Benefit increases, Premium stays level - Reacts to Inflation

Return of Premium

Increasing term - additional db paid to beneficiary equal to premiums paid

Renewable

Renew coverage at expiration date w/o evidence of Insurability

Convertible

Convert from term to whole life

Whole Life

Permanent

Ordinary Whole Life (Straight Life)

Premium and Death Benefit are level

Cash Value

Increases - the lowest premium

Limited Pay

Premium is level for a certain period, Death Benefit stays level, Cash Value increases

Single-Premium

Premium is paid one time, Death Benefit remains level, Cash Value increases - Immediate Cash Value

Adjustable Life

Increase or decrease Premium, Death Benefit, or change period of protection - Can't change the Cash Value - Proof of Insurability is required

Universal Life

Flexible premium, adjustable life, 2 Premium Goals = Target and Minimum

Death Benefit A

IRS corridor: insurance is barely above cash value, level db

Death Benefit B

Regular: grows at the same pace, increasing db

Variable Whole Life

Investments and securities - 2 licenses = state and federal governments, register with FINRA

Variable Universal

Death Benefit increases, need a securities license, regulated by state and federal governments - based on investments and the stock market

Interest Sensitive

Sensitive to interest, get more than guaranteed rate

Indexed Life

S&P 500 and equity - inflation

Joint Life

Based on 2 lives, Death Benefit received after the first death, cheaper than 2 individual policies

Survivorship

Based on 2 lives, Death Benefit received after the second death - Cheaper than Joint Life

Owner (Annuities)

Who buys the annuity

Annuity

Accumulation of money; account

Annuitant

Who receives the money; must be a natural person

Accumulation

Pay in - the account accumulates

Annuitization/annuity period

Payout date to the annuitant

Variable Annuities

Investments - securities, payments invested in a separate account, no guaranteed minimum interest rates, registered by FINRA

Indexed Annuities

S&P 500, guaranteed minimum interest rates, less risky but higher interest rates

Fixed Annuities

Guaranteed minimum rate of interest, affected by inflation

Payments (Annuities)

Immediate (within a year) and Deferred (after one year)

Freelook

10 days after the policy is delivered, refund if premium is returned

Consideration

Pay the premium, exchange of value between 2 parties

Assignment

Transfer of rights

Absolute Assignment

Transfer of all rights, permanent

Collateral Assignment

Transfer of partial rights, used for a loan, temporary

Grace Period

30/31 days, unintentional lapse

Reinstatement

Lapsed and put back into effect with 3 years

Incontestability

Insurance company can deny death claim inside 2 yrs, can't deny death claim after 2 years

Exclusions

Risks not covered - think WASH

Common Disaster Clause

If the insured and primary beneficiary died together it is determined the primary beneficiary died first; paid to insured's estate

Riders

Added to the policy

Waiver of Premium

Insured becomes total disabled for more than 6 months - return premiums paid

Payor Benefit

Juvenile policies, parent or guardian becomes disabled for 6 months or dies, the premium is waved until minor reaches age of 21

Commissioner of Insurance

Appointed by the Governor for 2yr term, requires 5 yrs experience in administration of business or government or as practicing attorney.

Hearing Requirement

The hearing must be held in 30 days, unless both parties agree to a later date.

Cease and Desist Order

Issued if the believed agent is engaged in unfair methods of practice.

Emergency Cease and Desist

Agent/company has 60 days to request a hearing.

License Suspension

Request not within 60 days results in automatic suspension on day 61.

Licensing Requirements

Must be 18, pass the exam within 12 months, provide fingerprints, and pay required fees.

Agent/Producer License

Life insurance license in home state.

Non-resident License

Located in Texas but transacts business in another state.

Counselor License

Requires a fee or commission, examines the policy, and gives recommendations.

Temporary License

Effective for 180 days, can't be renewed, issued once in a 6 month period, must complete 40 hrs of training.

License Renewal

Every 2 years; no more than 90 days for renewal application.

License Revocation

If revoked, cannot obtain a new license for 5 years.

Continuing Education

Requires 24 hrs, including 3 hrs in ethics; 50% must be in a classroom-like setting.

Controlled Business

Selling insurance to family members.

Misrepresentation

Lying to make something sound better than it is.

False Advertising

Misleading statements in advertisements.

Defamation

Malicious statements intended to injure another person.

Rebating

An inducement to buy that is not specified in the policy, must be $25 or less.

Coercion

Requiring the applicant to purchase insurance from a specific insurer.

Discrimination

Charging higher premium rates due to insignificant reasons such as race or sexuality.

Fraud

Intentional misrepresentation.

Advertisements Responsibility

The responsibility of the insurance company.

Incontestability Period

2 years.

Free Look Period

15 days.

Nonforfeiture Laws

Cash value must be available no later than the 3rd year.

Replacement Transaction

A new policy or annuity is purchased, and the existing policy is lapsed or surrendered.

Notice of Claim

15 days from acknowledgment of death benefit; total of 60 days to pay it.

within how many days of requesting an investigative consumer report must an insurer notify the consumer in writing that the report will be obtained ?

3 days

in an applicant for a life insurance policy and person to be insured by the policy are two different people, the underwriter would be concerned about