Life Insurance Contract (Section I)

What is Insurable Interest?

- An interest based upon a reasonable expectation of pecuniary (financial) advantage through the continued life, health, or bodily safety of another person AND consequent loss by reason of that person’s death or disability; OR

- A substantial interest engendered by love and affection in the case of individuals closely related by blood or law

When is Insurable Interest

required to exist in Life insurance?

In life insurance, policyowner must have insurable interest in the insured/proposed insured ONLY at the time the contract becomes effective, but need NOT exist at the time the loss occurs.

Non-Medical Application

Life insurance for which proposed insured may not be required to undergo medical examination

> Guaranteed Issue: no medical questions on application

> Simplified Issue: application has medical questions and insurer may still require medical exam if warranted

Entire Contract

A contract clause stating that all pieces of the agreement between insurer and insured are found in the contract.

This can include the application, endorsements, and conditions.

Binding Receipt

- Provides immediate life coverage for the proposed insured for a stated period of time (e.g. 60 days) or until the underwriter accepts or rejects the application, whichever occurs first.

- Coverage provided applies even if the underwriter declines the application.

Conditional Receipt

- Provides life coverage from the date of app ONLY if the application is ultimately approved by the underwriter.

- If underwriter declines the application, then coverage is cancelled retroactively to date of application so that no coverage was ever in force.

Binder

Written agreement issued by P&C insurer or broker-agent that provides coverage pending the issuance of an insurance policy.

> Binders NOT used with Life or Disability Insurance

Life Insurance Illustration

A presentation or depiction that includes nonguaranteed elements of a life policy over a period of years into the future.

Purpose of Life Insurance Illustration rules?

> To ensure illustrations do not mislead consumers

> To ensure illustrations are understandable by prescribing standard formats to be followed

> To ensure certain required disclosures are specified

Requirements for Life Insurance Policy Illustrations

1) Clear label that reads: "Life Insurance Illustration."

2) Name of the insurer

3) Name and business address of the life agent or producer

4) Name, age and sex of proposed insured

5) Generic name, company product name, if different, and form number

6) Initial death benefit

7) Dividend option, if applicable

8) Page number in a format that shows relationship to total number of pages in illustration (e.g. "Page 1 of 8")

Basic Illustration

An illustration that shows BOTH guaranteed and nonguaranteed elements

Supplemental Illustration

An illustration furnished in addition to a BASIC illustration that may be presented in a format differing from the BASIC illustration, but may only depict a scale of nonguaranteed elements that is permitted in a BASIC illustration.

> Must include statement that nonguaranteed elements are NOT guaranteed (same statement found in Basic Illustrations)

Required Life Insurance Disclosures

> Buyer's Guide

> Cost Indexes

> Surrender Period

> Surrender Charges

Standardized Life Policies

There are NO standard(ized) life insurance policies!

Premium Mode

Refers to frequency of premium payments

> Annually

> Semi-annually

> Quarterly

> Monthly

* The higher the frequency, the higher the premium *

Assignment Provision

Life policy provision that allows a policy owner to freely transfer his policy to another person or institution. There are two types of Assignments:

1) Absolute Assignment

2) Collateral Assignment

Absolute Assignment

- Used to transfer ALL ownership rights in a life insurance policy

> Permanent in nature

> Even though insurer approval is NOT needed, it must be in writing and signed by both old and new owner and submitted to insurer

Collateral Assignment

- Used to make a PARTIAL transfer of policy owner's rights in a life insurance policy and is usually only temporary in nature.

- Most often used in situations where policyowner needs collateral to obtain a loan.

Acceptable Delivery Methods

> Registered or Certified Mail

> First-class mail, with a signed and dated delivery receipt

> Personal delivery (by agent), with signed and dated delivery receipt

> Any other reasonable means determined by Commissioner

Delivery Receipt

Provides proof that the Policyowner has received and accepted the life policy

> Provides date for beginning of Free Look period

Consideration Clause

States money and other considerations necessary for the validation of the contract

Example: "This policy is based on the application and the payment of premiums for the term of insurance while the Insured lives."

Insuring Clause

Insurer’s basic promise to pay policy proceeds upon insured’s death

Example: “State Farm Life Insurance Company will pay the policy proceeds to the beneficiary when due proof of the Insured’s death is received.”

Free Look Period

(Right to Return)

(Right to Examine)

A legally required period of time during which a new individual (not group) life policy or annuity can be returned to insurer for ANY reason and have all premiums refunded to the policy owner.

Free Look Period Time Frames

based on Age of Policyowner

- If insured is under 60, return period shall not be less than 10 nor more than 30 days

- If insured is 60 or over, return period shall not be less than 30 days