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1
March 2015 version
Insurance ConceptsTRADITIONAL LIFE REVIEW
2
I. The Insurance Commission
II. Insurance Commission Exam/Insurance Institute for Asia and the Pacific-Validating Final Exam
III. Concepts of Life Insurance
IV. Premium, Basic Plans and Riders
V. Legal Aspects of Life Insurance
VI. Policy Provisions
VII. Annuities
VIII. Ethics
Course Content
3
March 2015 version
The Insurance Commission
4
• Regulatory government agency
• Executes all laws pertaining to insurance
• Regulates insurance companies
Insurance Commission
5
• Issues licenses to insurance companies• Reviews policy contracts and premium rates• Examines the financial condition of insurance companies to
ensure solvency• Renders assistance to the public on matters pertaining to
insurance
Functions of the Insurance Commission
Insurance Commission
6
Insurance Commission
1071 United Nations Avenue cor. Romualdez St., Ermita, Manila
Location of the Insurance Commission
7
• Rendered the provisions of Presidential Decree No. 612
• Promulgated in 1978
• Also known as Presidential Decree No. 1460
• Special law to govern insurance
Insurance Commission
Insurance Code of the Philippines
8
Insurance Commission
Built on Trust
• Between the company, the advisor and the client
• Importance of upholding professionalism and proper ethics
9
March 2015 version
IC Exam and IIAP Validating Final
Exam
10
Successfully complete the Sun Life - Insurance Concepts Review Course
Choose from 2 options
The Insurance Commission Licensing Exam
The IIAP-Validating Final Exam
IC Exam/IIAP VFE Exam Requirements & Procedure
IC Exam and IIAP VFE
11
IF YOU OPT TO TAKE THE IC
LICENSING EXAM
Pass the Simulated IC Exam
Secure a Test Permit from STD
Secure NBI/Barangay Clearance
Completely fill out the Application for Life Insurance Agent’s Walk-in Examination Form
Don’t forget to attach your 1x1 photo (2 copies)
Proceed to OIC Licensing Division in U.N. Avenue to take
the exam
Option 1: Insurance Commission Exam
IC Exam and IIAP VFE
12
• Ground Floor, OIC Bldg. #1071 United Nations Avenue, City of Manila
• 50 item multiple choice exam• Covers general life insurance
concepts, terms and practices• 70% Passing mark• P710 exam fee
Option 1: Insurance Commission Exam
IC Exam and IIAP VFE
13
Option 1: Insurance Commission Exam Schedule
• Every Tuesday to Friday
• 8:30 am–9:30 am
• 9:30 am–10:30 am
• 50 persons per session
• Will be released one (1) hour after the exam
IC Exam and IIAP VFE
14
IF YOU OPT TO TAKE THE IIAP-VFE
Proceed to IIAP 26th Floor, Ayala-FGU Center 6811 Ayala Avenue,
Makati to take exam
Pass the Simulated IIAP-VFE
Completely Fill out Form0930 Don’t forget to attach your 1x1
photo (2 copies), and bring Photocopy of Valid ID
Secure Form0930 from STD to take the Regular and Walk-In exams at
the IIAP
Option 2: IIAP Validating Final Exam
IC Exam and IIAP VFE
15
• Insurance Institute for Asia and the Pacific (IIAP) 26th Floor, Ayala-FGU Center 6811 Ayala Avenue, Makati to take exam
• 50-item multiple choice exam, 2 points per item for a total of 100 points• Covers general life insurance concepts, terms and practices• 70% Passing mark or 70 points (35 out of 50 items)• P700.00 exam fee
Option 2: IIAP Validating Final Exam
IC Exam and IIAP VFE
16
• Every Saturday
• 8:00 am–9:00 am
• Will be released one (1) hour after the exam
• Course certificate will be released 3 days after
Option 2: IIAP Validating Final Exam
IC Exam and IIAP VFE
17
March 2015 version
Concepts of Life InsuranceTRADITIONAL LIFE Insurance Concepts
18
Concepts of Life Insurance
INCOME EXPENSES
Man at Work
OLD AGE DISABILITY DEATH SICKNESS
In Memory
19
INCOME EXPENSES
“Life Insurance is against all O.D.D.S!” LIFE INSURANCE
Man at Work
Life’s Brighter
under the sun
Concepts of Life Insurance
20
OLD AGE
DEATH
SICKNESS & DISABILITY
In Memory
RetirementIncome
GuaranteedSavings
CashValues
Maturity Benefit
DeathBenefit
FamilyProtection
THREATS SERVICE BENEFIT
Concepts of Life Insurance
21
• Human life has an economic value• The capitalized monetary worth of the earning
capacity of an individual devoted to the support of his family during his working lifetime
Human Economic Value
Concepts of Life Insurance
22
A RISK–SHARING
BUSINESS
Life Insurance
Concepts of Life Insurance
23
Risk Sharing
• A group of people places a fund together in preparation for an uncertain event.
• Everyone is prepared to accept a small loss to compensate the unfortunate from the effect of a larger loss.
Concepts of Life Insurance
24
Concepts of Life Insurance
• Chance of loss.• Exists when there is
uncertainty about the future.
What is Risk?
25
Concepts of Life Insurance
Types of Risk
1. SPECULATIVE RISK – involves three possible outcomes: loss, gain, or no change.
2. PURE RISK – is a risk that involves no possibility of gain; there is either a loss or no loss. May be insured.
26
Law of Probability
• A likelihood that a given event will occur in the future.
• This is used in determining the number of people dying & living at a particular age w/in a given period.
Concepts of Life Insurance
27
• The more frequent a particular event is observed, the more likely that the observed results will approximate the true probability of the event happening.
Law of Large Numbers
Concepts of Life Insurance
28
Risk Selection/Underwriter
Concepts of Life Insurance
• is a systematic evaluation of an insurance applicant for the purpose of determining the classification of risk for possible coverage
29
• is the high pre-disposition for those with impairments to purchase life insurance
• Can be prevented through proper Risk Selection / Underwriting
Anti-Selection
Concepts of Life Insurance
30
PHYSICALOCCUPATIONFINANCIALMORAL HAZARDAVOCATIONRESIDENCE/TRAVEL
Factors in Risk Selection
Concepts of Life Insurance
31
PHYSICALOCCUPATIONFINANCIALMORAL HAZARDAVOCATIONRESIDENCE/TRAVEL
Factors in Risk Selection
Concepts of Life Insurance
32
Concepts of Life Insurance
• Application Form
• Medical Examination Report
• Agent’s Confidential Report
• Medical Impairment Bureau (MIB)
Sources of Information
33
Concepts of Life Insurance
RISK CLASSIFICATION
ACCEPT DECLINE
STANDARD SUBSTANDARD
34
Concepts of Life Insurance
• Life Insurance Policy• Insured• Insurer• Policyowner/ Applicant• Beneficiary
• Face Amount• Premium• Death Benefit• Maturity Benefit• Cash Values• Dividends
Basic Insurance Terms
35
Concepts of Life Insurance
Life Insurance Policy
as defined by the Insurance Code P.D. 1460
A contract whereby a PARTY for a CONSIDERATION agrees to pay ANOTHER a SUM OF MONEY in the event of his DEATH FROM ANY CAUSE NOT EXCEPTED IN THE CONTRACT, or upon surviving a SPECIFIED PERIOD, or otherwise on the CONTINUANCE or cessation of life.
Basic Insurance Terms
36
Concepts of Life Insurance
Party – Insured & Insurer
Consideration – premium payment/policy payment
Another – Beneficiary
Sum of Money – proceeds/face amount/face value
Death from any cause not excepted in the contract – excluded risks
Specified period / Continuance – Maturity period
Life Insurance Policyas defined by the Insurance Code P.D. 1460
37
Concepts of Life Insurance
Insurer
- The insurance company
Insured
- The person whose life is covered under the insurance policy.
Policyowner/Applicant
- The person who is buying or applying for life insurance.
38
Concepts of Life Insurance
Beneficiary
- The person who is designated to receive the insurance proceeds upon death of the insured.
Face Amount
- The amount stated in the policy as payable under a life insurance policy if the insured dies while the policy is in force.
39
Concepts of Life Insurance
Premium
- is a sum of money given by the insured as a consideration for the insured’s promise to indemnify or replace the loss.
Death Benefit
- is the amount payable upon death of insured. The sum assured the beneficiary (ies) would receive in case the insured dies during the protection period.
40
Concepts of Life Insurance
Maturity Benefit
- is the amount payable if the insured outlives the protection period
Cash Values
- The guaranteed amount received in case the plan is terminated prior to the death of the insured or maturity of the policy
- legal reserves or the savings element of the policy.
41
Concepts of Life Insurance
Dividends
- is a return of excess premium paid annually to owner of insurance policy based on insurer’s performance and experience over a given year.
42
C
Re
Fa
L
E
E
R
Fund to pay hospital bills, funeral expenses, and taxes
Fund used to cushion immediate life style adjustment that family must make if the insured die
Fund to provide for the family’s needs while the children still dependent
Lifetime fund for the widow
Fund that will ensure the education of children
Fund that is designed to provide financial back up for unexpected
Clean Up Fund
Readjustment Fund
Family Dependency Fund
Life Income for the Widow
Educational Fund
Emergency Fund
Retirement FundFund that gives security and peace of mind who have outlived their earning years
Cash Needs: CReFaLEER
Concepts of Life Insurance
43
Concepts of Life Insurance
Life Insurance gives certainty to uncertainty
Death is a certaintyWhen, is an uncertainty
To live is one’s rightHow long isn’t one’s choice
Life insurance cannot prevent your death
It prevents your plans from dying with you
44
March 2015 version
Premiums, Basic Plans
and RidersTRADITIONAL LIFE Insurance Concepts
45
Premiums, Basic Plans & Riders
Concept of Premium• An ACTUARY is the /a company officer that determines
the premium rates with respect to the principal elements of the life insurance
46
Premiums, Basic Plans & Riders
Factors that affect the premium:
1. Mortality
2. Interest
3. Expense
47
Premiums, Basic Plans & Riders
Mortality + Interest = NET PREMIUM
Expense + (Safety Margin Requirement) = LOADING
Net Premium + Loading = GROSS PREMIUM
48
Premiums, Basic Plans & Riders
Types of Premium
• Natural Premium o premiums that increase each year as the age of the
insured increases.
• Level Premium o premiums that remain the same from year to year
throughout the premium paying period.
49
Premiums, Basic Plans & Riders
CLASSIFICATION OF BASIC PLANS
According toNATURE
According toPARTICIPATION
According toCOVERAGE
50
Premiums, Basic Plans & Riders
CLASSIFICATION OF BASIC PLANS
According toNATURE
According toPARTICIPATION
According toCOVERAGE
51
Premiums, Basic Plans & Riders
ACCORDING TO NATURE
TEMPORARY / TERM PERMANENT
LEVEL TERM DECREASING TERM
ORDINARY / WHOLE LIFE
ENDOWMENT
Limited Pay Life
Regular Endowment
Pure Endowment
Anticipated Endowment
52
Premiums, Basic Plans & Riders
Temporary or Term Plan• Life Insurance that remains in force for a
specified period or term• Term pays the face amount only in the event of
death • There are no cash values, no profit sharing, and
is the cheapest in terms of initial premium outlay
• Renewable & Convertible
53
Premiums, Basic Plans & Riders
Age 30 Age 31
Renewable
Age 32
Example: Yearly Renewable Term
Protection Period Renewable for another year
54
Premiums, Basic Plans & Riders
Age 30 Age 35
Protection Period
Age 33
May be converted in whole or in part
ConvertibleExample: 5 Year Convertible Term
55
Premiums, Basic Plans & Riders
Types of Term Plans
1. Level Termo the death benefit remains constant over the term of
coverage
2. Decreasing Termo the death benefit starts at the set face amount and
then decreases over the term of the coverage.
56
Premiums, Basic Plans & Riders
Types of Term Plans
1. Level Term
Face Amount
Example: 5 Year Level Term
Php 3M
5 Years
Php 3M
57
Premiums, Basic Plans & Riders
Types of Term Plans
2. Decreasing Term
Example: 5 Year Decreasing Term
Face Amount
Php 2.5M
5 Years
Php 5M
Death Benefit
58
Premiums, Basic Plans & Riders
Whole Life Plan• Life Insurance that remains in force during the
insured’s lifetime • The face amount is paid whenever death occurs
up to the age of 100 of the insured.• There are cash values as well as profit sharing
and dividends. • The initial premium outlay is higher than term
insurance but is lower than endowment.
59
Premiums, Basic Plans & Riders
Age 30 Age 100
Protection Period & Premium Paying Period
Age 65 Age 75 (RIP)LB = CV+AD DB = FA+AD MB = FA+AD
Whole Life Plan
60
Premiums, Basic Plans & Riders
Limited Pay Life Plan• Provides lifetime protection with premiums
payable for limited term of years.• Life Insurance that remains in force during the
insured’s lifetime • The face amount is paid whenever death occurs
up to the age of 100 of the insured.• There are cash values as well as profit sharing
and dividends.
61
Premiums, Basic Plans & Riders
Age 30 Age 100
Protection Period
Age 65 Age 75 (RIP)LB = CV+AD DB = FA+AD MB = FA+AD
Example: 10 Year Limited Pay Life Plan
Premium Paying Period
Age 40
Limited Pay Life Plan
62
Premiums, Basic Plans & Riders
Endowment Plan• Pays the face amount whether the life insured
lives to the end of a specified period or dies during that period.
• It has cash values, profit sharing or dividends. • Initial premium outlay is the highest compared to
term and permanent plans.• Allows for faster accumulation of funds, making it
ideal for saving for future needs.
63
Premiums, Basic Plans & Riders
Age 40 Age 60
Protection & Premium Paying Period
Age 50 (RIP)DB = FA+AD MB = FA+AD
Example: 20 Year Endowment Plan
Endowment Plan
64
Premiums, Basic Plans & Riders
Types of Endowment Plan
1. Regular Endowment
a. Age-based
b. Term-based
2. Pure Endowment
3. Anticipated Endowment
65
Premiums, Basic Plans & Riders
Types of Endowment Plan
1. Regular Endowment
a. Age-based - provides maturity benefit
at a specified age (Ex. Endowment at 65)
b. Term-based - provides maturity benefit at the
end of a specified period (Ex. 20 Year Endowment)
66
Premiums, Basic Plans & Riders
Types of Endowment Plan
2. Pure Endowment• Promises to pay the face amount only if the
insured survives up to the end of the endowment period
• Nothing will be paid if death occurs before the end of the endowment period.
67
Premiums, Basic Plans & Riders
Types of Endowment Plan
3. Anticipated Endowment• Policy owner does not have to wait for the
maturity date of before a portion of the face amount is given
68
Premiums, Basic Plans & Riders
CLASSIFICATION OF BASIC PLANS
According toNATURE
According toPARTICIPATION
According toCOVERAGE
69
Premiums, Basic Plans & Riders
CLASSIFICATION OF BASIC PLANS
According toNATURE
According toPARTICIPATION
According toCOVERAGE
70
Premiums, Basic Plans & Riders
ACCORDING TO PARTICIPATION
PARTICIPATINGNON
PARTICIPATING
71
Premiums, Basic Plans & Riders
Participating vs. Non-participating• Non-Participating
o is one in which the policy owner does not share in the insurer’s dividends.
• Participatingo is one under which the policy owner shares in the
insurance company’s dividends.
72
Premiums, Basic Plans & Riders
CLASSIFICATION OF BASIC PLANS
According toNATURE
According toPARTICIPATION
According toCOVERAGE
73
Premiums, Basic Plans & Riders
CLASSIFICATION OF BASIC PLANS
According toNATURE
According toPARTICIPATION
According toCOVERAGE
74
Premiums, Basic Plans & Riders
ACCORDING TO COVERAGE
INDIVIDUAL LIFE JOINT LIFE GROUP LIFE
Contributory
Non-Contributory
Joint Life
Joint and Last Survivor
75
Premiums, Basic Plans & Riders
Individual Life• Provide protection to one person only. There is
only one Insured in this type of plan• May be payable annually, semi-annually or
quarterly basis. • Individual policies may also be paid on a
monthly basis in the form of Salary Savings insurance.
76
Premiums, Basic Plans & Riders
Joint Life• Joint Life plans provide protection to two or
more persons, allowing a single plan to have 2 or more Insured's.
77
Premiums, Basic Plans & Riders
Types of Joint Life
• Joint Lifeo Death benefit payable at first death, after which the
policy terminates.
• Joint and Last Survivoro insurance coverage is extended until the last person
being covered in the policy dies.
78
Premiums, Basic Plans & Riders
Group Life• Provides protection to a group of people• A single master policy under which individuals
in a natural group (such as employees of a business firm) are insured
79
Premiums, Basic Plans & Riders
Types of Group Life• Non-contributory
o employer pays for the premium; 100% of the employees are included in the policy
• Contributoryo employer and the employees share in the premium
payment; at least 75% should be enrolled
80
Premiums, Basic Plans & Riders
Riders• Are supplementary contracts that when
attached to the basic policy, will provide additional benefits at minimal cost
• It is referred to as a rider because it needs a basic policy to “ride on” to be effective
81
Premiums, Basic Plans & Riders
Types of Riders• Accidental Death Benefit• Waiver of Premium Due to Disability• Payor’s Benefit• Guaranteed Insurability Option• Term Insurance Rider• Family Income Rider
82
Premiums, Basic Plans & Riders
Accidental Death Benefit (ADB)• Provides an additional amount equal to the
coverage in the event of accidental death of the insured.
• Limited within the period of 90 days from the date of the accident.
83
Premiums, Basic Plans & Riders
Waiver of Premium due to Disability (WPD)• Provides for a waiver of premium if the insured
suffers from a total and permanent disability
84
Premiums, Basic Plans & Riders
Payor’s Benefit• Provides waiver of premium during the rider term
when the payor dies or becomes totally and permanently disabled
• Waives premiums until the time the insured child reaches the age where he can earn and pay for the premiums of the policy
85
Premiums, Basic Plans & Riders
Guaranteed Insurability Option (GIO)• Provides an opportunity for people to buy
specific amounts of additional life insurance coverage at stated future intervals without the need to show evidence of insurability.
• This means that the insured will automatically pay the standard rate since there would be minimal underwriting requirements.
86
Premiums, Basic Plans & Riders
Term Insurance Rider• Provides an additional amount of coverage for a
minimal cost. • The rider has its own face amount separate from
the coverage of the basic policy, but cost of coverage is lesser since it is a term coverage.
87
Premiums, Basic Plans & Riders
Family Income Rider• A form of decreasing term rider that provides
the family of the insured monthly income from the insured’s date of death until the duration of the rider.
88
March 2015 version
Legal Aspects ofLife Insurance
Insurance Concepts
89
Legal Aspects of Life Insurance
Types of Contracts• Valued Contracts and Contracts of Indemnity• Informal and Formal Contracts• Unilateral and Bilateral Contracts• Aleatory and Commutative Contracts• Contracts of Adhesion and Bargaining Contracts
90
Legal Aspects of Life Insurance
Valued Contract vs. Contract of Indemnity
LIFE INSURANCE NOT LIFE INSURANCE
VALUED CONTRACTspecifies the amount of benefit that will be payable when a covered loss occurs, regardless of the actual amount that was incurred
CONTRACT OF INDEMNITYThe amount of policy benefit payable for a covered loss is based on the actual amount of financial loss, as determined at the time of loss
91
Legal Aspects of Life Insurance
Informal Contract vs. Formal Contract
LIFE INSURANCE NOT LIFE INSURANCE
INFORMAL CONTRACT-Parties met requirement concerning the substance of the agreement. -It may be expressed in a verbal or written fashion. Life insurance contracts are typically written.
FORMALCONTRACT-Parties met certain formalities concerning the form of the
agreement.-Contract should be written and should have a seal to be enforceable
92
Legal Aspects of Life Insurance
Unilateral Contract vs. Bilateral Contract
LIFE INSURANCE NOT LIFE INSURANCE
UNILATERAL CONTRACTOnly one of the parties (insurer) to the contract has legally enforceable promises
BILATERAL CONTRACTBoth parties to the contract have legally enforceable promises
93
Legal Aspects of Life Insurance
Aleatory Contract vs. Commutative Contract
LIFE INSURANCE NOT LIFE INSURANCE
ALEATORY CONTRACT
-One party provides something of value to another party in exchange for a conditional promise
-One party may receive something of greater value than that party gave
COMMUTATIVE CONTRACT-is an agreement which the parties specify in advance the values that they willexchange-parties exchange items or services of relatively equal value
94
Legal Aspects of Life Insurance
Contract of Adhesion vs. Bargaining Contract
LIFE INSURANCE NOT LIFE INSURANCE
CONTRACT OF ADHESION
One party prepares the contract and the other may accept or reject as a whole, without any bargaining between the parties to the agreement
BARGAINING CONTRACT
Both parties, as equals, set the terms and conditions of the contract
95
Legal Aspects of Life Insurance
Offer and Acceptance• For a contract to be valid there must be:
An OFFER and ACCEPTANCE
96
Legal Aspects of Life Insurance
Conditional Receipt• In most cases when an advisor receives the
premium payment from the client, he/she issues a conditional receipt to acknowledge payment.
97
Legal Aspects of Life Insurance
Legal Capacity• Policyowner
o Must be of legal ageo Must have sound mind and body
• Insurance Companyo Registration and Regulationo Capitalization
98
Legal Aspects of Life Insurance
• Insurable Interesto Insurable Interest exists when a policyowner has
reasonable chance of suffering financial loss if the person who is insured dies.
o It should also exist between the insured and the named beneficiaries.
o Its existence during inception of the policy is required.
99
Legal Aspects of Life Insurance
Every person has an insurable interest in the life and health:
1. Of himself, of his spouse and of his children;
2. Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest;
3. Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and
4. Of any person upon whose life any estate or interest vested in him depends.
100
March 2015 version
Policy ProvisionsTRADITIONAL LIFE Insurance Concepts
101
Policy Provisions
o Entire Contract Clause
o Ownership
o Premium Payment
o Grace Period
o Policy Loan
o Assignment
o Dividend Options
While the insured lives and the policy is active..
102
Policy Provisions
o Made up of the policy and the attached application form
o Includes other reports, amendments material to the policy
o Cannot be affected by later changes
Entire Contract Clause
103
Policy Provisions
o Right to assign, transfer or have policies amended
o Change beneficiaries and exercise privileges in the contract
o Right to cash values and dividends
Ownership
104
Policy Provisions
o Can be done annually, semi-annually, and quarterly
o Payment of the first premium makes the contract binding
o Subsequent payments are entirely dependent on the policyowner
Premium Payment
105
Policy Provisions
Grace Period
o Protects the policy from lapsing
o Generally, 30 days from due date
o Right to cash values and dividends
106
Policy Provisions
o Right to loan against the cash value
o Loan within prescribed limits; not exceed the cash value
o Treated as a loan, has interest
Policy Loan
107
Policy Provisions
Assignment
o 2 years after the policy has been in force, the company cannot contest its validity
o If the company has no objection during the period, there can be no question about the payment of proceeds
108
Policy Provisions
o For participating policyholders
o Dependent on mortality experience, investment earnings and expenses
o NOT GUARANTEED
Dividends
109
Policy Provisions
1. Cash
2. Reduced Premium
3. Interest
4. Paid-Up Addition
5. Yearly Renewable Term
Dividend Options
110
Policy Provisions
When the insured dies…
o Misstatement of age
o Incontestability
o Suicide
o Beneficiary
o Settlement
111
Policy Provisions
Misstatement of Age
o Misrepresentation on the matter of age
o Age is increased or decreased
o Amount of proceeds will be adjusted upon death
112
Policy Provisions
o Right of the policyowner to transfer or assign the policy
o Two types: Absolute and Collateral
o Must notify the company of any assignment
o Company will accept without question
Incontestability
113
Policy Provisions
Suicide
o To discourage financially desperate people from purchasing policies with suicide in mind.
o If committed within 2 years of the policy, the company will refund the premiums.
114
Policy Provisions
Beneficiary
o Designated to receive the proceeds of the policy
o Must be identified clearly
o Types of Beneficiary: Primary or Secondary (Contingent)
Revocable or Irrevocable
115
Policy Provisions
Primary vs. Secondary (Contingent)
PRIMARY- first person in line to receive the death proceeds
SECONDARY (CONTINGENT) - person next in line to receive the proceeds in case of death of the primary beneficiary
Beneficiary
116
Policy Provisions
Revocable vs. Irrevocable
REVOCABLE – changes/amendments to the contract may take effect without consent. Subject to Estate Tax.
IRREVOCABLE - changes/amendments to the contract require written consent. Not subject to Estate Tax.
Beneficiary
117
Policy Provisions
Minors are not recommended to be named as irrevocable beneficiaries
Revocable vs. Irrevocable
Beneficiary
118
Policy Provisions
o Lump Sum
o Interest Option
o Fixed Period Option
o Fixed Income Option
o Life Income Option
Settlement
119
Policy Provisions
• Lump Sum o Single sum payment of the
proceeds
• Interest Optiono The company will hold the
proceeds to earn interesto Interest earnings will be paid out
regularly
Settlement
120
Policy Provisions
Settlement
• Fixed Period Optiono Pays the beneficiary equal
amounts at regular intervals over a specified period of years
• Fixed Income Option
o Pays the beneficiary a specified amount until proceeds are depleted
121
Policy Provisions
Settlement
• Life Income Optiono Pays the beneficiary regular
income for his lifetime, no matter how long he lives
122
Policy Provisions
When the insured quits paying his premiums..
o Non-Forfeiture Options
o Reinstatement
123
Policy Provisions
Non-Forfeiture Options
o Cash Surrender Value (CSV)
o Reduced Paid-Up (RPU)
o Extended Term Insurance (ETI)
o Automatic Premium Loan (APL)
124
Policy Provisions
• Cash Surrender Value
o Policyowner claims an immediate cash pay-out for his policy
o Once elected, policy is terminated
Non-Forfeiture Options
125
Policy Provisions
30 100
Protection Period
40
No more protection
Quits paying:
Receive Cash Surrender Value and Accumulated Dividends
Policy terminates
Maturity Benefit = 0.00
Cash Surrender Value
126
Policy Provisions
• Reduced Paid-Up
o Protection continues for life but for a lower face amount
Non-Forfeiture Options
127
Policy Provisions
100
Protection Period
40
Protection Period
FA = 1,000,000 FA = REDUCED
Reduced Paid-Up
30Quits paying:
Same Protection Period
Reduced Face Amount Maturity Benefit = REDUCED
128
Policy Provisions
• Extended Term Insurance
o Protection continues for the same face amount but only until a certain period of years and days
o Automatic non-forfeiture option
Non-Forfeiture Options
129
Policy Provisions
30
Protection Period
40
Protection Period
FA = 1,000,000 FA = 1,000,000
Reduced Protection Period
Until a certain period of Years and Days
Extended Term Insurance
Quits paying:
Same Face Amount
New Protection Period Maturity Benefit = 0.00
130
Policy Provisions
• Automatic Premium Loan
o The company lends to the insured an amount from the cash value to pay for the overdue premiums
o Policy has to have a sufficient amount of cash value
Non-Forfeiture Options
131
Policy Provisions
30 100
Cash Vaue
40
Maturity Benefit = less any unpaid dues with
interest
41
missed the 30-day grace period:• SAME protection period• COVERAGE : Face Amount less loan (unpaid due)
• if cash value is sufficient, automatic payment will be applied on the premium due• it will be considered as policy loan
Automatic Premium Loan
132
Policy Provisions
Reinstatement
o Pure Reinstatement
o Redating
133
Policy Provisions
• Pure Reinstatement
o Pays back all past due premiums plus interest
o proof of insurability is necessary
Reinstatement
134
Policy Provisions
• Redating
o New premium would be charged
o Based on new attained age
o New policy effectivity date
Reinstatement
135
March 2015 version
AnnuitiesInsurance Concepts
136
Annuities
Annuities
o Not a life insurance policy
o Purchase of income
o Liquidation of both capital and interest
137
Annuities
So how are annuities different from life insurance contracts?
138
Annuities
LIFE INSURANCE ANNUITY
Estate Creation
Premiumsmostly in
installments
Beneficiary orInsured
Death of the Insured or at the Maturity of
the Policy
Estate Distribution
Purchase pricemostly paid in
lump sum
Annuitant orSuccessor
While the annuitantis still alive or until a
specified period
NATURE
PAYMENT
RECIPIENT
PAYMENT OF
PROCEEDS
139
Annuities
Types of Annuities• Fixed
o Single Premium Immediateo Single Premium Deferredo Installment Deferred
• Variable
o Conventional Variable
o Deferred Variable
140
Annuities
• Single Premium Immediate
o Entire premium is deposited in the annuity fund at one time
o Income begins immediately
Fixed Annuities
141
Annuities
• Single Premium Deferred
o Annuity fund is purchased through a single payment
o Income begins years after the payment is made
Fixed Annuities
142
Annuities
• Installment Deferred
o Provides pension for life; no life insurance coverage
o Fund is built up through a series of regular payments
Fixed Annuities
143
Annuities
• Conventional
o Based on fixed-dollar investments
o Specified interest and maturity values
Variable Annuities
144
Annuities
• Deferred
o Period of time lets the funds accumulate
o Value may rise and fall depending on the investment results
Variable Annuities
145
Annuities
o Life Annuity
o Cash Refund Annuity
o Installment Refund Annuity
o Period Certain Annuity
o Joint and Full Survivor Annuity
Annuity Settlement
146
Annuities
• Life Annuity
o Provides a series of periodic payments to the annuitant
o Payment for the rest of his life
Annuity Settlement
147
Annuities
• Cash Refund Annuity
o If annuitant dies, the beneficiary will receive cash payment equal to annuity fund
o Cash payment will be less the amount already paid out
Annuity Settlement
148
Annuities
• Installment Refund Annuity
o If annuitant dies, the beneficiary will receive the same monthly income
o Installments will be paid until annuity fund is exhausted
Annuity Settlement
149
Annuities
• Joint and Full Survivor Annuity
o Income that is paid out to the annuitant and the beneficiary
o If either dies, the same income continues to the survivor for life
o When the survivor dies, no further payments are made to anyone
Annuity Settlement
150
Annuities
• Period Certain Annuity
o if annuitant dies within a specified period, such as 10 or 20 years, payments will continue until the end
of the period.
Annuity Settlement
151
March 2015 version
EthicsInsurance Concepts
152
Ethics
Unethical Practices
o Twisting
o Knocking
o Overloading
o Rebating
o Misrepresentation
153
Ethics
• Twisting
o Is persuading the person to lapse or surrender a policy in order to purchase a new one
o Also called Replacement
Unethical Practices
154
Ethics
• Knocking
o Making derogatory remarks about competing policies, advisors or companies
Unethical Practices
155
Ethics
• Overloading
o Selling a person insurance more than what is warranted by his resources
Unethical Practices
156
Ethics
• Rebating
o Offering part of your commission to your client
o Accepting a smaller premium than the one stipulated in the policy
o Premium discrimination against policyholders
Unethical Practices
157
Ethics
• Misrepresentation
o Misstatement of material facts for insurance
Unethical Practices
158
Simulated ExaminationTRADITIONAL LIFE Insurance
ConceptsMarch 2015 version
159
Test Taking TipsInsurance Concepts: TRADITIONAL
& V.U.LMarch 2015 version
160
1. Be prepared, Read and Review.
2. Before the test list everything you will need for it that is allowed. Like pencils/pens, a watch, etc.
3. Review your Traditional Life Simulated Exam and Reviewer.
Before the Exam
Test Taking Strategies
161
1. Read the directions carefully.
2. Get the big picture.
3. Answer easy questions first.
4. Eliminate answers to difficult questions
5. Review your test to make sure that you have answered all questions.
During the Exam
Test Taking Strategies
162
THANK YOU!
&GOOD LUCK!