Risk
uncertainty of a financial loss; 2 types
Two typed of risks
Pure (Insurable) and speculative (uninsurable)
Benefits of purchasing
... [Show More] insurance?
You get to transfer financial risk left after passing to insurance company
Law of large numbers
the larger the size of the group the more accurately the experience aka predicted losses of that group can be predicted
Policyowner
person who owns policy, pays premiums, and chooses the beneficiary
Insured
the life of the person the policy covers (could be policyowner)
Insurer
the insurance company which issues the policy and pays the death benefit to the beneficiary upon the death of the insured
Beneficiary
the person who receives death proceeds
What does having life insurance create or do?
Creates an immediate estate for the beneficiary which could help pay for daily expenses, mortgage, or college etc
Estate
the net worth of a person; things you own minus things you owe
Premium
the amount you pay for coverage aka the money that goes into the policy; money policy owner pays to insurer
Proceeds
the money that is paid out (protection) when the insurer dies; money insurer pays to beneficiary upon insureds death
Synonyms/ other names for proceeds
Coverage
insurance amount
face amount
death benefit
Are the proceeds taxed?
No, the IRS does not tax them
Step 1 of how life insurance works
Policy owner pays premiums to insurer/ insurance company
Step 2 of how life insurance works
the insurance company issues policy to policyowner and pays benefit to beneficiary upon the death of the insured
Step 3 of how life insurance works
the beneficiary receives benefit upon insured persons death
Insurance producers
aka agents; sell insurance on behalf of the insurance company AND SHOULD ALWAYS DO WHATS RIGHT FOR CLIENTS (MONEY ISNT EVERYTHING)
Requirements for insurance producers
must be licensed to sell insurance in their state and must be appointed by an authorized insurance company
Step 1 on issuing life insurance
Solicit client (offer to sell them insurance)
Step 2 on issuing life insurance
Give client a sells presentation on financial product that fits their need
Step 3 on issuing life insurance
field underwritting
Job of field underwritter
fill out application containing:
- general information
- medical information
- agents report
What is an agent report?
Your observation of the client and your knowledge of them
Step 4 on issuing life insurance
After finishing field underwriting application you must collect the premium and forward both to the company underwriter
Job of company underwritter
Determining if someone is eligible for insurance and classifying them as:
preferred
standard
substandard
declined
Preferred
reduced risk of loss
covered at reduced rate
Standard
Average exposures
covered at standard rate
Substandard
Increased risk of loss
covered at increased rate
Declined
too high a risk
not covered
Final step in issuing life insurance
Policy is issued and you deliver it
Two types of life insurance policies
Term and whole life
Term insurance
Temporary insurance; specific time period
has no cash value
can be renewed or converted
Another name for term insurance
Pure protection
Why is term insurance also known as pure protection?
Its provides the policy owner with the most amount of protection for the least amount of money
3 types of term insurance
level
increasing
decreasing
Level term insurance
Get a face amount that stays level for the entire time
10 year term policy
provides $50000
Increasing term insurance
Start low and increase gradually over course of time
increases to 50000 by end of 10 years
Decreasing term insurance
Starts at 50000 and decreased gradually over course of 10 years
When are decreasing term insurance typically used?
To pay for mortages
Do premiums change during any of these terms?
No the premium stays level for all of them
Whole life insurance
Provides protection till death or age 100 paying for coverage and life value
level premiums
cash value/ saving element
Another name for whole life insurance?
Permanent insurance
What do people pay for when they get whole life insurance?
Pay for cash value or saving element AND
for coverage
What does a cash value or saving element mean?
if the insured dies before age 100 then the beneficiary will get the (only death benefit is payed not cash value) IF
insured reaches age 100 then the insured will receive cash value
How are whole life insurance policies classified?
Straight life
limited pay
single pay
Straight life
pays level premiums every single year until age 100 or death
limited pay
pays premiums in limited period of time but still retain permanent coverage till death or age 100
Example of limited pay
20 pay whole life policy
policyowner pays policy for 20 years and after 20 years they retain the coverage of that policy until death or age 100
Single pay
a lump sum payment; one time single premium payment and coverage until death or age 100
Provisions
Clauses contained within a live insurance policy that are designed to protect he policy owner
Options
Choices that the policyowner makes on how money will be distributed at different times and different policies to the beneficiary
Riders
Additions to a policy that personalize the policy and will cost extra money
Two types of provisions
Free look and grace period
Free look period provision
provides new policy owner a period of time in which to own, inspect, and if dissatisfied return the policy for full refund
Grace period provision
provides policyowner a period of time in which to pay their premiums and not lose their coverage
Example of grace period provision
policy premium is due on 11/1/2011
grace period extends 30 to 31 days
during that time policyowner can pay premium and not lose coverage
Settlement options
Options that your beneficiary will receive on how they want to receive the death proceeds
Cash payment or Lump sum
One check for the entire balance of the proceeds which are not taxable
Life income
takes the same amount of proceeds and pays beneficiary a guaranteed installment as long as the recipient lives aka income they cannot outlive
BUT
if beneficiary dies before the entire amount of proceeds are distributed in this way then the remainder of balance is kept by insurance company
BUT
if beneficiary lives longer than expected an outlives the balance of the proceeds then they will continue to get paid above and beyond balance
Types of settlement options
cash payment/ lump sum
life income [Show Less]