Classes of Policies Flashcards
Classes of Life Insurance Policies
Why is Group Insurance better?
Who owns the group policy?
What do the participants get as evidence of insurance?
Who can form legitimate groups?
With group coverage, one master policy covers multiple people—from as few as ten to hundreds or more.
The policy is owned by the organization (most commonly an employer).
The covered individuals (such as employees or association members) are not policyowners nor are they parties to the contract. Group insurance coverage is evidenced by the individual certificates of coverage each participant receives from the plan sponsor.
A basic requirement for group insurance qualification is that the group cannot be formed for the express purpose of purchasing group insurance.
Common examples of legitimate groups include:
- employers
- labor unions
- trade and professional association groups
Who gets Individual Insurance?
People who buy life insurance for personal protection and are not part of a group, do so with individual policies.
It is possible for the owner and the insured to be two different people.
Industrial Life Insurance is also called …
Industrial Life covers face values of what amounts?
Provided by home service insurance companies (traditionally called debit or industrial insurance companies), industrial life was originally provided as “burial insurance” but today is recognized as an important source of life insurance for consumers with relatively modest death benefit needs.
An industrial insurance policy offers individual coverage in small face amounts, traditionally ranging from $1,000 or $2,500 to $10,000.
These policies typically require no medical exam to qualify.
What 2 factors makes Permanent Life Insurance different from Term?
Coverage is provided until the insured dies or reaches age _____, whichever comes first. (Note that policies issued before 2009 may mature when the insured turns 100.)
Two important features of permanent life insurance are:
- ____________ for the full duration of policy coverage.
- the accumulation element within the policy, known as the _______________.
In a standard whole life insurance policy, the growth of cash values is designed to equal the policy face amount at the insured’s age _____ .
The policyowner fully owns the cash value and is allowed access to it while the policy is in force, thus providing what is called a “________ __________”
Coverage is provided until the insured dies or reaches age 120, whichever comes first. (Note that policies issued before 2009 may mature when the insured turns 100.)
Two important features of permanent life insurance are:
- the level premium for the full duration of policy coverage.
- the accumulation element within the policy, known as the cash value.
In a standard whole life insurance policy, the growth of cash values is designed to equal the policy face amount at the insured’s age 120.
The policyowner fully owns the cash value and is allowed access to it while the policy is in force, thus providing what is called a “living benefit.”
What is Term Life Insurance?
Who is it best for and what are the advantages and disadvantages?
The policy pays a death benefit only if the insured dies during the term.
No money accumulates in the policy (that is, there is no cash value), so at the end of the term, the insurer owes no payment or refund to the policyowner.
The absence of a cash value means that, for any face amount, term life costs less than permanent life insurance at just about any issue age.
This makes term life especially popular and suitable for relatively temporary financial protection needs (e.g., while raising children).
Term life premiums increase with age, making them difficult to maintain in one’s older years.
Is Life Insurance cancellable by the insurer?
Whether term or permanent, all life insurance policies are non-cancellable as long as premiums are paid on time.
Define the difference between Participating vs. Nonparticipating Life Insurance
Life insurance policies can also be classified as participating (“par”) or nonparticipating (“nonpar”).
With a participating policy, commonly issued by mutual insurance companies, the policyowner is eligible for policy dividends declared by the insurance company.
Dividends are paid from the insurer’s divisible surplus, which is essentially premiums that exceed all company expenses and liabilities.
The dividend …
- can be taken as cash,
- left in the policy to accumulate at interest or
- to purchase additional paid-up life insurance
- may be used to buy one-year term insurance.
With a nonparticipating policy, issued by stock insurance companies, there are no policy dividends.
Fixed Life Insurance
With a fixed life insurance policy, the insurer guarantees a fixed death benefit and a minimum rate of return (interest crediting) on the policy’s cash value.
Premiums are invested in the company’s general account.
By investing conservatively, insurers are able to make the important guarantees that are the foundation of life insurance. The insurer also assumes all risk for making enough profit to cover the policy’s promised benefits.
4 Characteristics of Variable Life Insurance
- With a variable life insurance policy, premiums are invested in investment subaccounts managed by the insurer.
- The insurer guarantees a minimum death benefit, usually the face amount of the policy at issue.
- But, the cash values and the death benefit rise and fall based on the subaccount’s investment performance.
- The insurer does not guarantee a rate of return on the cash value invested.
- Instead, the policyowner assumes all risks for the performance of the policy’s investments over time.
General Account and Separate Accounts
To back up the many financial guarantees made in their contracts, insurers invest their premiums in conservative investment assets that commonly include U.S .Treasury securities, investment-grade corporate bonds, so-called “blue-chip” stocks, and similarly sound investments.
In return for the relatively low returns these conservative investments provide, the insurer has the assurance of investment safety. These assets are managed in the insurer’s general account by the company’s financial department.
With variable contracts, the policyowner designates the investment funds in which premiums will be invested. These investment funds are maintained apart from the insurer’s general account in a separate account. Within separate accounts are a variety of subaccounts, each with its own investment objectivity, from which policyowners can choose the ones that best fit their objectives and risk profile.
Regulation of Variable Products
The Securities Exchange Commission (SEC) is responsible for regulating the securities that make up an insurer’s separate account.
The Financial Industry Regulatory Authority (FINRA), formerly known as the National Association of Securities Dealers (NASD), regulates producers who sell variable life products. FINRA also regulates companies that sell investment products, including insurance companies that sell variable contracts.
Producer Qualifications to Sell Variable Contracts
To be properly registered to sell variable insurance contracts, producers must
- Hold either a FINRA Series 6 or Series 7 registration, obtained by passing a FINRA exam.
- They must also hold a valid life insurance license in the state(s) where they do business.
Some states also require a state-issued variable life or variable producer’s license.
