Chapter 7 Flashcards
(30 cards)
What is multi life underwriting?
The underwriting of groups of life insurance applicants primarily using nontraditional approach is to risk selection, such as guaranteed issue and simplified issue
What products does multi life underwriting utilize?
Universal life, variable life, private placement products, corporate owned life insurance, bank owned life insurance
Is bank owned life insurance, growing or shrinking?
Growing the cash value of bank of life insurance policies was more than $182 billion in September 2020
What is the primary focus of all multi life underwriting?
The avoidance of anti-selection.
What is a nonvoluntary life insurance policy?
Plan participation is compulsory in the amount of life insurance placed on each life is fixed. For example, multiples of a salary or a flat amount based on a formula.
What is a voluntary life insurance plan?
They are not as protected from anti-selection by their plan design. The mere fact that the proposed insured has a choice of whether or not to participate is highly selective.
What is spread of risk?
It relates to how much insurance is permitted on one life relative to the size of the group, and how much is permitted on one life relative to the average death benefit for the group.
What is an aggregate funded plan design?
Employees can allot any amount of salary they wish within the constraints of the employers plan. However, there is no correlation between the individuals financial contribution, and the amount of life insurance purchased since all monies are pulled together and spread equally over the lives being insured.
What is tiered plan design?
Where are the amounts of insurance vary by title or salary groupings. They can produce a highly variable spread of risk problems.
What is CHOLI?
Charity owned life insurance
What is FOLI?
Foundation owned life insurance
What is the purpose of CHOLI?
To provide an assured stream of ongoing revenue to the charity from the life insurance proceeds
Why are employer paid but individually owned plans such as 162 executive bonus plans among the least favorable designs from an underwriting perspective?
Individuals can decide whether or not to keep the coverage upon either their retirement or the termination of employment. It can be assumed that individuals with insurability problems will most likely keep their coverage
In the multi life market is full underwriting, desirable or undesirable
It is the least desirable method. While it provides the best evidence to the underwriter and can permit the least expensive premium on the most favorable lives it raises several impediments to the most efficient and effective means of serving the best entrance of the clients producers, and even the insurer.
What are some of the problems with full underwriting in a multi life market?
- It can compromise plan objectives because additional premium cost could disadvantage the employer or the insured.
- It creates at best and uncomfortable position with the client and or the proposed insured which can lead to loss commission to the agent and loss for revenue to the insurer
- It is the most costly method of underwriting.
What is bundle underwriting?
It is full underwriting with one difference. One or more modestly sub standard risk can be accepted at standard pricing in order to avoid the problems that arise with having to write a risk. It is not a perfect solution. It is still costly.
What is simplified issue?
It is an abbreviated form of underwriting with less evidence required than full underwriting. A commonly used method is to accept risk believed to be 200% of mortality or better based solely on the answers provided in the application and to accept them at standard simplified issue premium.
What is guaranteed issue?
It is the most desirable method of underwriting multi life products for the producer of the client and the insurer. The condition typically is that the eligible participant must be actively at work and not on disability retired or otherwise terminated from employment. Also, there is usually a provision that the proposed in shirt has not been absent from work due to illness or injury During a specific timeframe proceeding the time of enrollment.
What are some non-qualified executive compensation plans?
- Deferred compensation plans
- Supplemental executive retirement plans.
- Section 162 bonus plans.
- Equity repurchase plans.
What is a deferred compensation plan?
It is the most easily underwritten multi life plan with the least degree of anti-selection and one that can permit the largest amounts of guaranteed issue coverage on fewer lives than other programs. This plan allows employees to postpone, receiving a portion of their income to a later date, often retirement, which can lead to tax advantages and potentially higher retirement savings.
What is a supplemental executive retirement plan?
It is a type of deferred compensation plan intended to retain key employees. The employee receive supplemental retirement income paid for through the insurance policy cash values. Once the employee receives income in retirement, that benefit is taxable at that point, the employer receives a tax deduction.
What is a section 162 bonus plan?
A life insurance policy purchased by the company, but owned by the employee. This introduces an element of anti selection into the plan.
What is an equity repurchase plan?
The company will have a future obligation to re-purchase executives ownership stakes in the company. One way to have funds available to redeem these shares is by purchasing life insurance on the lives of the employees in an amount commiserate with their shares.
What is a qualified pension plan?
Guaranteed issue is the desired form of underwriting. Some insurers will offer guaranteed issue for such plans despite the mortality implications of ensuring non-executives.
