IC Reviewer - Pru Life UKIC REVIEWER 11/26/2019 version 1.2 IC Reviewer For limited distribution...

For limited distributionIC REVIEWER 11/26/2019 version 1.2

IC Reviewer

For limited distribution

LIFE INSURANCE

Life Insurance is the scientific means of attaining economic security and protection from premature death, disability and old age.

It provides protection by facilitating the transfer of personal risk (i.e., risk of economic loss due to death, disability and old age) from the proposed insured to the life insurer.


BASIC TERMS

INSURED

BENEFICIARY

SUM ASSURED

the person whose life is given protection

recipient of proceeds

amount payable to the beneficiary


PREMIUM

POLICY

POLICYOWNER

amount of money regularly paid in exchange of the protection

the written contract of insurance between the insured & company

person who pays the premium on life insurancePAYOR

BASIC TERMS


LIFE INSURANCE

IN EFFECT, IT IS:

TRANSFER OF PERSONAL RISK

POOLING AND SHARING OF PERSONAL RISK

SUBSTITUTE CERTAINTY FORUNCERTAINTY


LIFE INSURANCE

FAMILYPROTECTION

RETIREMENTINCOME

SAVINGSGREAT SERVICES

OF LIFE INSURANCE


OTHER USES:

KEYMAN INSURANCE

COLLATERAL

CONTINGENCY FUND

BUSINESS CONTINUATION

MORTGAGEREDEMPTION

ESTATE CREATION

ESTATECONSERVATION


KEY CONCEPTS:

RISK SHARING

PURE RISK

PROBABILITY

LAW OF LARGE NUMBERS

MORTALITY TABLE

LIFE EXPECTANCY


RISK SHARING

KEY CONCEPTS:

a group of people would pool funds together to prepare for life’s uncertainties.

PURE RISK

involves the uncertainty of an event which produces a loss with no possibility of gain.

PROBABILITY

the principle used in determining the number of expected deaths in a group.


LAW OF LARGE NUMBERS

the more frequent an event is observed, the closer one gets to the event’s true probability.

MORTALITY TABLE

the recorded rate of deaths per age group.

LIFE EXPECTANCY

KEY CONCEPTS:


INSURANCE PREMIUMS

PREMIUM an amount the insurer charges in exchange for the economic protection given to the insured.


INSURANCE PREMIUMS

FACTORS IN PREMIUM RATE DETERMINATION:

MORTALITYFACTOR

INTEREST

LOADING

accurately predict how many people are expected to die within a given year

investment earnings from premiums paid

operating costs


INSURANCE PREMIUMS

FACTORS: EFFECTS ON PREMIUMS:

MORTALITY

INTEREST

LOADING

P

P

P


INSURANCE PREMIUMS

INSURANCE COMPANIESEARN PROFIT FROM:

MORTALITY

INTEREST

LOADING

SURPLUSEARNINGS

DIVIDENDS


TYPES OF PREMIUMS

NATURAL PREMIUMS

LEVEL PREMIUMS

SINGLE PREMIUMS

ANNUAL PREMIUMS

FRACTIONAL PREMIUMS

Premiums which increase as one ages

Premiums which remain the same

Premiums paid in lump-sum

Premiums paid once a year

Premiums paid more than once a year


RISK SELECTIONInsurance is a pooling or sharing of risks. To provide equitable insurance coverage, companies charge each insured a premium rate that corresponds to the risks that the individual represents to the company.

The process of IDENTIFYING and CLASSIFYINGrisk is UNDERWRITING or RISK SELECTION

Underwriting guards against ANTI-SELECTION (the tendency of individuals who believe they are in poor health

but more likely to apply for life and health insurance than people in average or good health)


FACTORS AFFECTING RISK:

AGE

BUILD

OCCUPATION

PERSONAL

FAMILY

HABITS

PHYSICAL

MORALS

HOBBIES

HISTORY

HISTORY

CONDITION

OR AVOCATION

GENDER

RESIDENCEOR TRAVEL


RISK CLASSIFICATIONPREFERRED

RISK

STANDARDRISK

SUBSTANDARDRISK

UNACCEPTABLE

Lower than usual mortality

Within expected risk or normal risk

Higher than usual mortality

Uninsurable or declined


SOURCES OF UNDERWRITING INFO

APPLICATIONFORM

AGENT’SCONFIDENTIAL

REPORT

MEDICALREPORT

INSPECTIONREPORT

MEDICALINFORMATION

BUREAU

FINANCIALSTATEMENTS

ATTENDINGPHYSICIAN’S

REPORT


RISK SELECTION

An amendment to the insurance contract whereby the company’s liability shall be limited to the return of premiums paid or payment of only a portion of the sum assured if the condition cited in the lien causes death of the insured

LIEN

EXAMPLES:

PREGNANCY LIEN

CHILD’S LIEN

AVIATION LIEN

ASSASSINATION LIEN


POLICY CLASSIFICATION

COVERAGE

• INDIVIDUAL• JOINT• GROUP

PARTICIPATION IN DIVISIBLE SURPLUS

ACCORDING TO:

• PARTICIPATING• NON-PARTICIPATING

LINE OFBUSINESS

• ORDINARY• INDUSTRIAL• GROUP

NATURE• TEMPORARY• PERMANENT


LIFE INSURANCE POLICY

TEMPORARY

PERMANENT

Provides protection (death benefits) only.

Provides protection (death benefits) as well as savings (living benefits).

Has renewability & convertibility features.

Has cash values & dividends.



TEMPORARY PERMANENT

TERM

DECREASING

LEVEL

WHOLE LIFE ENDOWMENT

ORDINARY

LIMITED-PAY

REGULAR

LIMITED

ANTICIPATED



COVERAGE BENEFIT CASH VALUE

TERM

WHOLELIFE

ENDOWMENT

LIMITED

LIFETIME

LIMITED

PROTECTION

PROTECTION& SAVINGS

PROTECTION& SAVINGS


RIDERS

• Provides auxiliary benefits that basic plans do not offer

• For the extra benefit, a small additional premium is added.


RIDERS

WAIVER OF PREMIUM

• Insured shall no longer pay premiums for his policy once he/she becomes totally & permanently disabled.

• 6 month waiting period

• Once insured is able to be gainfully employed, he/she shall resume paying for premiums.


RIDERS

PAYOR’S BENEFIT

• Premiums shall be waived upon death or total and permanent disability of the PAYOR until child-insured reaches the age of majority or end of the policy term, which ever comes first.

• Attached to juvenile policies.


RIDERS

ACCIDENTAL DEATH BENEFIT

• Provides additional cash benefits if the insured dies due to an accident

• Also known as double indemnity


RIDERS

TERM INSURANCE RIDER

• Provides for additional benefits on top of the basic upon death of the insured before the end of the term insurance period

• Advantage: Cheaper protection

• Disadvantage: Term insurance portion will not earn cash values/dividends


GUARANTEED

RIDERS

INSURABILITY

• Makes it possible for the insured to buy additional life insurance at stated future intervals without evidence of insurability

ORIGINAL PURCHASE:

0-24

# OF PURCHASEOPTION:

06

AGES WHEN OPTIONS

ARE AVAILABLE:

25, 28, 31, 34, 37, 40


RIDERS

FAMILY INCOME RIDER

• A decreasing term insurance rider that provides a monthly allowance in addition to the face amount up to the end of the decreasing term insurance period.


RIDERS

HEALTH INSURANCE RIDER

• Provides additional benefits in the event the insured suffers either from disability, illness or diagnosis of a dreaded disease

• It may be in the form of:o medical expense coverageo disability income


LIFE INSURANCE CONTRACT

INSURABLE INTEREST

• Exists if a person stands to suffer an economic loss if the insured dies

• A person always has insurable interest on his own life.


LIFE INSURANCE CONTRACT

INSURABLE INTEREST

• Relationships where insurable interest exists:o Spouses, parent & child, siblingso Pecuniary (Creditor-Debtor)o Key person insuranceo Business partners


POLICY PROVISION

GENERAL PROVISIONS• Required policy provisions which spell

out and protect the rights of policyholders and beneficiaries of life insurance

• Also impose certain obligations on the insurer to advance the interest of the policyholder


POLICY PROVISIONSENTIRE CONTRACT

CLAUSE

GRACE PERIOD

INCONTESTABLECLAUSE

SUICIDE CLAUSE

MISTATEMENT OFAGE

POLICY LOAN

REINSTATEMENTPROVISION

DIVIDEND OPTION

NON-FORFEITUREOPTION

BENEFICIARYPROVISION

SETTLEMENTOPTION


ENTIRE CONTRACT CLAUSE

POLICY PROVISIONS

A provision in life insurance policies that defines the documents that constitute the entire insurance contract

GRACE PERIODA specified period within which a renewal premium may be paid without penalty (31 days from the premium due date)


POLICY PROVISIONS

INCONTESTABLE CLAUSE

• A provision in life insurance policies that limits the company’s right to question the validity of the contract

• 2 years from the issuance or reinstatement of the policy

SUICIDE CLAUSEA provision that governs the payment of policy proceeds if the insured dies as a result of suicide.


MISTATEMENT OF AGE

POLICY PROVISIONS

A provision that describes how the face amount will be adjusted to the amount which the premium would have purchased at the correct age, if the age of the insured is misstated.

DECLARED AGE

30

31

ACTUAL AGE

31

30

FACE AMOUNT ADJUSTMENT

Decrease FA

Increase FA


POLICY PROVISIONS

POLICY LOAN PROVISION

A provision that grants the owner of a life insurance policy the right to take a loan for up to a percentage of the policy’s cash value.

Death benefit payable while there is a loan = (Face Amount - outstanding loan)


DIVIDEND OPTIONS

POLICY PROVISIONS

Options given to a policyowner on how to use his/her dividends

CASH

REDUCE PREMIUM

ACCUMULATE TO

BUY PAID-UP

BUY ONE-YEAR TERMPAYMENT

EARN INTEREST

ADDITIONS


POLICY PROVISIONS

NON-FORFEITURE OPTIONS

Options given to a policyowner in case of forfeiture of premium payments

Available only at the end of 3 years

CASH SURRENDERVALUE

EXTENDED TERMINSURANCE

PAID-UPINSURANCE

AUTOMATICPREMIUM-LOAN


POLICY PROVISIONS


CASH VALUE/CASH SURRENDER VALUE

The policyowner surrenders the policy for its corresponding cash value.

EXTENDED TERM INSURANCE

Cash value is used to buy term insurance for the full coverage amount provided by the original policy.


POLICY PROVISIONS


PAID-UP INSURANCE(REDUCED AMOUNT)

AUTOMATIC PREMIUM LOAN

Cash value is used to buy fully paid-up insurance with a smaller face amount than the original policy

Payment of an overdue renewal premium by making a loan against the policy’s cash value


TRANSFER OF OWNERSHIP

ASSIGNMENTAn agreement under which one party transfers some or all his ownership rights in a particular property to another party

ABSOLUTE COLLATERAL

TWO TYPES OF ASSIGNMENT:


TRANSFER OF OWNERSHIP

ASSIGNMENTTWO TYPES OF ASSIGNMENT:

ABSOLUTE COLLATERAL

An assignment of a life insurance policy under which the policyholder transfers all policyowner rights to the assignee

Ex. Absolute assignmentto a key person

A temporary assignment of the monetary value of a life insurance as a security for a loan

Ex. Mortgage Redemption Insurance


SETTLEMENT OPTIONS

POLICY PROVISIONS

In lieu of lump sum payment, these are the choices given as to how the proceeds of insurance will be paid out

INTERESTOPTION

FIXED-PERIODOPTION

FIXED AMOUNTOPTION

LIFE INCOMEOPTION


SETTLEMENT OPTIONS

POLICY PROVISIONS

INTEREST OPTION

FIXED-PERIOD OPTION

The insurer invests the proceeds of a life insurance policy and pays interest on these proceeds to the payee

The insurer pays the policy proceeds and interest in a series of equal installments for a specified period of time


SETTLEMENT OPTIONS

POLICY PROVISIONS

FIXED AMOUNT OPTION

LIFE INCOME OPTION

The insurer pays the policy proceeds and interest in a series of equal installmentsfor as long as the proceeds last

The insurer pays the policy proceeds and interest in a series of periodic installments over the payee’s lifetime

IC Reviewer - Pru Life UKIC REVIEWER 11/26/2019 version 1.2 IC Reviewer For limited distribution...

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