georgia life insurance

Insurance

transfer of risk

Peril

Cause of loss

Hazards

Conditions that increase the probability of an insurance loss.

5 ways of handling risk

1. avoidance

2. retention - self-insured

3. sharing - similar to transferring but share the risk in a group (employee insurance).

4. reduction

5. transfer - insurance policy

Five elements of an insurable risk

1. due to chance

2. definite and measurable

3. statistically predictable

4. not catastrophic

5. randomly selected/large loss exposure

Legal contract elements

Agreement (offer and acceptance), consideration, competent parties, and legal purpose

aleatory contract

a contract where the values exchanged may not be equal but depend on an uncertain event

personal

between the insurer and the insured.

contract of adhesion

the insured must accept the entire contract with all of its terms and conditions

unilateral contract

one-sided promise

conditional

Certain conditions must be met in order for policy to pay-out.

fraud

intentional misrepresentation

material fact

In insurance, a fact that would affect the insurer's decision to provide or maintain insurance or to settle a claim.

utmost good faith

honesty on both parties

Purchase of life insurance

1. policy owner - pays premium

2. insurer - pays claim

3. beneficiary - tax free death benefit

Insurable interest

for life insurance, the insurable interest must exist at the time of application and for a valid reason.

1. yourself

2. blood relative

3. business relationship

business relationships

1. between business partners

2. employers may insure employees

3. creditors may insure debtors

process off issuing a policy

1. solicitation and sales

2. field underwriting and company underwriting

3. premium determination

4. policy issue/delivery

Insurance buyer's guide

general information and cost comparison

policy summary

includes the illustrations that are hypotheticals and is a selling tool. It includes the following specific information: policy owner's name, insurer's name, name of policy, premium, riders, living, benefits, and surrender values. The illustration is sent with the application to front office.

application

1. basic information

2. medical information

3. agent's report - your observations of applicant.

4. signatures of owner of policy (if not applicant), applicant, agent. Only the applicant can make changes to the application.

What happens with incomplete applications?

1. returned to be completed.

2. if policy is accepted with incomplete information, the insurer can't ask for the missing information after the fact.

underwriting

1. risk selection

2. classification process

3. premium determination

primary criteria for a life insurance policy

1. health

2. occupation

3. lifestyle

4. hobbies

5. interests

field underwriting

what the agent does. includes the proper solicitation of applicants, help complete the applications, proper signatures, collect premiums, provide receipt, and deliver policy.

adverse selection

insuring of risks that are more prone to losses than the average risk

Attending Physician's Statement (APS)

Sent by underwriting to the applicant's doctor because of

greater risk

need specific info

helps determine likelihood of claims

less expensive than a medical exam

Medical Information Bureau (MIB)

non-profit central information agency that was established by a number of insurance companies to aid in underwriting. Speeds up underwriting and helps prevent fraud. Adverse information fro MIB is not sufficient enough to deny policy.

Fair Credit Act

1. pre-notification - on application

2. post notification - required if insurer orders consumer report or investigative consumer report.

Consumer must be advised in writing about report within 3 days of the request.

HIV consent

Insurer's duties

1. may run test

2. must ask permission

3. mail results to medical doctor

4. agents DO not deliver the HIV results

HIV consent is not discrimination if all these condition are met:

1. testing required of everyone in the same class.

2. not denied solely based on test.

3. USFDA approved.

premium receipt

1. client writes premium check

2. agent gives client a premium receipt

conditional receipt

the effective date of a conditional receipt is either the date on the application or the date of the medical exam, which occurs last, as long as the policy is issued as applied for.

classification of risks

1. preferred - cheapest rates (good health, non-smoker)

2. standard - average rates

3. sub-standard - high risk and rates (complicated medical history)

4. decline - to risky to insure.

Modes of premium payment

Insurance rates are based on an annual premium

Company prefers to have premium the entire year

Payments can be annually, semi-annually, quarterly, monthly, but more frequent payments cost additional money.

Policy delivery

1. application with premium - effective date of policy.

2. application without premium - effective date is date premium is paid and statement of good health is given.

Policy backdating

lower premium based on age.

can't backdate more than 6 months

premium must be paid from effective date.

Life insurance policies fall into two categories

1. term

2. whole life

Term life insurance

Purest form of insurance. It is the cheapest form of life insurance and never has a cash value.

annually renewable term life insurance

policy is renewed every year and the new premium is based on the current age. It can get very expensive over time. The premium increases every year, but the death benefit never increases. It is the most insurance for the lowest cost.

increasing term life insurance

Also known as return of premium insurance. The premium always stays the same, but the death benefit increases as the amount of premium increases.

level term life insurance

the premium and death benefit remain the same through the life of the policy.

decreasing term life insurance

the premium remains the same, but the death benefit goes down (similar to the payment of a debt).

Term life insurance features

1. term = temporary since it gets too expensive.

2. least expensive life insurance

3. never has a cash value (pure protection)

4. no loans against policy