ic reviewer - pru life ukic reviewer 11/26/2019 version 1.2 ic reviewer for limited distribution...
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For limited distributionIC REVIEWER 11/26/2019 version 1.2
IC Reviewer
For limited distribution
LIFE INSURANCE
Life Insurance is the scientific means of attaining economic security and protection from premature death, disability and old age.
It provides protection by facilitating the transfer of personal risk (i.e., risk of economic loss due to death, disability and old age) from the proposed insured to the life insurer.
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BASIC TERMS
INSURED
BENEFICIARY
SUM ASSURED
the person whose life is given protection
recipient of proceeds
amount payable to the beneficiary
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PREMIUM
POLICY
POLICYOWNER
amount of money regularly paid in exchange of the protection
the written contract of insurance between the insured & company
person who pays the premium on life insurancePAYOR
BASIC TERMS
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LIFE INSURANCE
IN EFFECT, IT IS:
TRANSFER OF PERSONAL RISK
POOLING AND SHARING OF PERSONAL RISK
SUBSTITUTE CERTAINTY FORUNCERTAINTY
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LIFE INSURANCE
FAMILYPROTECTION
RETIREMENTINCOME
SAVINGSGREAT SERVICES
OF LIFE INSURANCE
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OTHER USES:
KEYMAN INSURANCE
COLLATERAL
CONTINGENCY FUND
BUSINESS CONTINUATION
MORTGAGEREDEMPTION
ESTATE CREATION
ESTATECONSERVATION
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KEY CONCEPTS:
RISK SHARING
PURE RISK
PROBABILITY
LAW OF LARGE NUMBERS
MORTALITY TABLE
LIFE EXPECTANCY
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RISK SHARING
KEY CONCEPTS:
a group of people would pool funds together to prepare for life’s uncertainties.
PURE RISK
involves the uncertainty of an event which produces a loss with no possibility of gain.
PROBABILITY
the principle used in determining the number of expected deaths in a group.
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LAW OF LARGE NUMBERS
the more frequent an event is observed, the closer one gets to the event’s true probability.
MORTALITY TABLE
the recorded rate of deaths per age group.
LIFE EXPECTANCY
KEY CONCEPTS:
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INSURANCE PREMIUMS
PREMIUM an amount the insurer charges in exchange for the economic protection given to the insured.
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INSURANCE PREMIUMS
FACTORS IN PREMIUM RATE DETERMINATION:
MORTALITYFACTOR
INTEREST
LOADING
accurately predict how many people are expected to die within a given year
investment earnings from premiums paid
operating costs
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INSURANCE PREMIUMS
FACTORS: EFFECTS ON PREMIUMS:
MORTALITY
INTEREST
LOADING
P
P
P
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INSURANCE PREMIUMS
INSURANCE COMPANIESEARN PROFIT FROM:
MORTALITY
INTEREST
LOADING
SURPLUSEARNINGS
DIVIDENDS
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TYPES OF PREMIUMS
NATURAL PREMIUMS
LEVEL PREMIUMS
SINGLE PREMIUMS
ANNUAL PREMIUMS
FRACTIONAL PREMIUMS
Premiums which increase as one ages
Premiums which remain the same
Premiums paid in lump-sum
Premiums paid once a year
Premiums paid more than once a year
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RISK SELECTIONInsurance is a pooling or sharing of risks. To provide equitable insurance coverage, companies charge each insured a premium rate that corresponds to the risks that the individual represents to the company.
The process of IDENTIFYING and CLASSIFYINGrisk is UNDERWRITING or RISK SELECTION
Underwriting guards against ANTI-SELECTION (the tendency of individuals who believe they are in poor health
but more likely to apply for life and health insurance than people in average or good health)
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FACTORS AFFECTING RISK:
AGE
BUILD
OCCUPATION
PERSONAL
FAMILY
HABITS
PHYSICAL
MORALS
HOBBIES
HISTORY
HISTORY
CONDITION
OR AVOCATION
GENDER
RESIDENCEOR TRAVEL
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RISK CLASSIFICATIONPREFERRED
RISK
STANDARDRISK
SUBSTANDARDRISK
UNACCEPTABLE
Lower than usual mortality
Within expected risk or normal risk
Higher than usual mortality
Uninsurable or declined
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SOURCES OF UNDERWRITING INFO
APPLICATIONFORM
AGENT’SCONFIDENTIAL
REPORT
MEDICALREPORT
INSPECTIONREPORT
MEDICALINFORMATION
BUREAU
FINANCIALSTATEMENTS
ATTENDINGPHYSICIAN’S
REPORT
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RISK SELECTION
An amendment to the insurance contract whereby the company’s liability shall be limited to the return of premiums paid or payment of only a portion of the sum assured if the condition cited in the lien causes death of the insured
LIEN
EXAMPLES:
PREGNANCY LIEN
CHILD’S LIEN
AVIATION LIEN
ASSASSINATION LIEN
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POLICY CLASSIFICATION
COVERAGE
• INDIVIDUAL• JOINT• GROUP
PARTICIPATION IN DIVISIBLE SURPLUS
ACCORDING TO:
• PARTICIPATING• NON-PARTICIPATING
LINE OFBUSINESS
• ORDINARY• INDUSTRIAL• GROUP
NATURE• TEMPORARY• PERMANENT
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LIFE INSURANCE POLICY
TEMPORARY
PERMANENT
Provides protection (death benefits) only.
Provides protection (death benefits) as well as savings (living benefits).
Has renewability & convertibility features.
Has cash values & dividends.
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LIFE INSURANCE POLICY
TEMPORARY PERMANENT
TERM
DECREASING
LEVEL
WHOLE LIFE ENDOWMENT
ORDINARY
LIMITED-PAY
REGULAR
LIMITED
ANTICIPATED
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LIFE INSURANCE POLICY
COVERAGE BENEFIT CASH VALUE
TERM
WHOLELIFE
ENDOWMENT
LIMITED
LIFETIME
LIMITED
PROTECTION
PROTECTION& SAVINGS
PROTECTION& SAVINGS
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RIDERS
• Provides auxiliary benefits that basic plans do not offer
• For the extra benefit, a small additional premium is added.
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RIDERS
WAIVER OF PREMIUM
• Insured shall no longer pay premiums for his policy once he/she becomes totally & permanently disabled.
• 6 month waiting period
• Once insured is able to be gainfully employed, he/she shall resume paying for premiums.
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RIDERS
PAYOR’S BENEFIT
• Premiums shall be waived upon death or total and permanent disability of the PAYOR until child-insured reaches the age of majority or end of the policy term, which ever comes first.
• Attached to juvenile policies.
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RIDERS
ACCIDENTAL DEATH BENEFIT
• Provides additional cash benefits if the insured dies due to an accident
• Also known as double indemnity
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RIDERS
TERM INSURANCE RIDER
• Provides for additional benefits on top of the basic upon death of the insured before the end of the term insurance period
• Advantage: Cheaper protection
• Disadvantage: Term insurance portion will not earn cash values/dividends
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GUARANTEED
RIDERS
INSURABILITY
• Makes it possible for the insured to buy additional life insurance at stated future intervals without evidence of insurability
ORIGINAL PURCHASE:
0-24
# OF PURCHASEOPTION:
06
AGES WHEN OPTIONS
ARE AVAILABLE:
25, 28, 31, 34, 37, 40
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RIDERS
FAMILY INCOME RIDER
• A decreasing term insurance rider that provides a monthly allowance in addition to the face amount up to the end of the decreasing term insurance period.
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RIDERS
HEALTH INSURANCE RIDER
• Provides additional benefits in the event the insured suffers either from disability, illness or diagnosis of a dreaded disease
• It may be in the form of:o medical expense coverageo disability income
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LIFE INSURANCE CONTRACT
INSURABLE INTEREST
• Exists if a person stands to suffer an economic loss if the insured dies
• A person always has insurable interest on his own life.
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LIFE INSURANCE CONTRACT
INSURABLE INTEREST
• Relationships where insurable interest exists:o Spouses, parent & child, siblingso Pecuniary (Creditor-Debtor)o Key person insuranceo Business partners
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POLICY PROVISION
GENERAL PROVISIONS• Required policy provisions which spell
out and protect the rights of policyholders and beneficiaries of life insurance
• Also impose certain obligations on the insurer to advance the interest of the policyholder
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POLICY PROVISIONSENTIRE CONTRACT
CLAUSE
GRACE PERIOD
INCONTESTABLECLAUSE
SUICIDE CLAUSE
MISTATEMENT OFAGE
POLICY LOAN
REINSTATEMENTPROVISION
DIVIDEND OPTION
NON-FORFEITUREOPTION
BENEFICIARYPROVISION
SETTLEMENTOPTION
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ENTIRE CONTRACT CLAUSE
POLICY PROVISIONS
A provision in life insurance policies that defines the documents that constitute the entire insurance contract
GRACE PERIODA specified period within which a renewal premium may be paid without penalty (31 days from the premium due date)
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POLICY PROVISIONS
INCONTESTABLE CLAUSE
• A provision in life insurance policies that limits the company’s right to question the validity of the contract
• 2 years from the issuance or reinstatement of the policy
SUICIDE CLAUSEA provision that governs the payment of policy proceeds if the insured dies as a result of suicide.
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MISTATEMENT OF AGE
POLICY PROVISIONS
A provision that describes how the face amount will be adjusted to the amount which the premium would have purchased at the correct age, if the age of the insured is misstated.
DECLARED AGE
30
31
ACTUAL AGE
31
30
FACE AMOUNT ADJUSTMENT
Decrease FA
Increase FA
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POLICY PROVISIONS
POLICY LOAN PROVISION
A provision that grants the owner of a life insurance policy the right to take a loan for up to a percentage of the policy’s cash value.
Death benefit payable while there is a loan = (Face Amount - outstanding loan)
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DIVIDEND OPTIONS
POLICY PROVISIONS
Options given to a policyowner on how to use his/her dividends
CASH
REDUCE PREMIUM
ACCUMULATE TO
BUY PAID-UP
BUY ONE-YEAR TERMPAYMENT
EARN INTEREST
ADDITIONS
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POLICY PROVISIONS
NON-FORFEITURE OPTIONS
Options given to a policyowner in case of forfeiture of premium payments
Available only at the end of 3 years
CASH SURRENDERVALUE
EXTENDED TERMINSURANCE
PAID-UPINSURANCE
AUTOMATICPREMIUM-LOAN
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POLICY PROVISIONS
NON-FORFEITURE OPTIONS
CASH VALUE/CASH SURRENDER VALUE
The policyowner surrenders the policy for its corresponding cash value.
EXTENDED TERM INSURANCE
Cash value is used to buy term insurance for the full coverage amount provided by the original policy.
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POLICY PROVISIONS
NON-FORFEITURE OPTIONS
PAID-UP INSURANCE(REDUCED AMOUNT)
AUTOMATIC PREMIUM LOAN
Cash value is used to buy fully paid-up insurance with a smaller face amount than the original policy
Payment of an overdue renewal premium by making a loan against the policy’s cash value
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TRANSFER OF OWNERSHIP
ASSIGNMENTAn agreement under which one party transfers some or all his ownership rights in a particular property to another party
ABSOLUTE COLLATERAL
TWO TYPES OF ASSIGNMENT:
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TRANSFER OF OWNERSHIP
ASSIGNMENTTWO TYPES OF ASSIGNMENT:
ABSOLUTE COLLATERAL
An assignment of a life insurance policy under which the policyholder transfers all policyowner rights to the assignee
Ex. Absolute assignmentto a key person
A temporary assignment of the monetary value of a life insurance as a security for a loan
Ex. Mortgage Redemption Insurance
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SETTLEMENT OPTIONS
POLICY PROVISIONS
In lieu of lump sum payment, these are the choices given as to how the proceeds of insurance will be paid out
INTERESTOPTION
FIXED-PERIODOPTION
FIXED AMOUNTOPTION
LIFE INCOMEOPTION
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SETTLEMENT OPTIONS
POLICY PROVISIONS
INTEREST OPTION
FIXED-PERIOD OPTION
The insurer invests the proceeds of a life insurance policy and pays interest on these proceeds to the payee
The insurer pays the policy proceeds and interest in a series of equal installments for a specified period of time
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SETTLEMENT OPTIONS
POLICY PROVISIONS
FIXED AMOUNT OPTION
LIFE INCOME OPTION
The insurer pays the policy proceeds and interest in a series of equal installmentsfor as long as the proceeds last
The insurer pays the policy proceeds and interest in a series of periodic installments over the payee’s lifetime
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