L1: Distribution Methods, Underwriting, and Premium Flashcards
Distribution Methods
used to sell insurance products to customers
Commission System
use brokers, financial advisors to sell products to customers. These works are compensated with commissions as % of premium paid
Front End Load
percentage of first premium is higher than subsequent premiums
Direct Marketing
and size of benefit compared to those sold through commission channel
sell through tv, advertising, radio, telephone, policies have smaller benefit than those sold through commission system
Underwriting
collect and evaluates information from applicant then determines premium using rating profile with rating algorithm.
Premium is based on
multiple rating variables etc age, gender, smoking, UW class
Forms of underwriting
proposal form, applicant profile, medical history, health examination
Level of Underwriting depends on (3)
type of insurance product
amount of benefit
distribution method
type of insurance product
term policies sold more strictly than whole life
amount of benefit
larger then benefit = more stricter underwriting
distribution method
policies sold through commissions are more stricter than on direct marketing
Applicant Classes (4)
- preferred lives
- normal lives
- rated lives
- uninsurable lives
Applicant Classes - Preferred Lives
applicants have low mortality risk
Applicant Classes - normal Lives
applicants have some increased risk factor compared to preferred lives, insurable at standard premium rate
Applicant Classes - Rated Lives
have one or more factors at raised levels, insurable at higher premium
Applicant Classes - Uninsurable Lives
have such significant risk that insurer will not enter contract at any price. Would require risk ceded to take on particular exposure
Adverse - Anti - Selection
lowered by underwriting, individuals with high risk by disproportionately high amounts of insurance which can lead to excessive losses for insurance company
Single Premiums
payable at outset of contract, one payment upfront
Regular Premiums
paid annually, monthly, quarterly or semi annual. Level throughout term and can vary with modern contracts
Assessmentism Matching
Match annual income and expenses yearly for each age. Premiums increase overtime as probability of death increases
