Life Insurance

THE PARTY MAKING APPLICATION, OFFERING HIMSELF OR ANOTHER PERSON TO BE INSURED BY CONTRACT.

A DOCUMENT THAT PROVIDES INFORMATION FOR UNDEWRITING PURPOSES. AFTER THE POLICY IS ISSUED, ANY UNANSWERED QUESTION IS CONSIDERED WAIVED BY THE INSURER. THE APPLICATION BECOMES PART OF THE ENTIRE CONTRACT.

A PERSON'S AGE AT ANY POINT OR TIME (AGE AT POLICY ISSUE, RENEWAL OR CONVERSION).

THE DATE WHEN INSURANCE COVERAGE BEGINS (MAY ALSO BE KNOWN AS INCEPTION DATE).

A FORM CHANGING THE PROVISIONS AND ATTACHED TO A POLICY

THE DEATH OR MATURITY BENEFIT PAYABLE TO A BENEFICIARY OR POLICYOWNER FROM A LIFE POLICY. SOMETIMES REFERRED TO AS A LIMIT OF LIABILITY.

THE ABILITY OF AN INDIVIDUAL TO MEET AN INSURER'S UNDERWRITING REQUIREMENTS.

THE INDIVIDUAL'S ACTUAL OR CLOSET AGE ON THE POLICY ISSUE DATE.

TERMINATION OF A POLICY BECAUSE PREMIUM HAS NOT BEEN PAID BY END OF THE GRACE PERIOD.

THE PROCESS OF EVALUATING A RISK FOR THE PURPOSE OF ISSUING INSURANCE COVERAGE.

THE PROCESS OF ANALYZING EXPOSURES THAT CREATE RISK AND DESIGNING PROGRAMS TO MINIMIZE THE POSSIBILITY OF A LOSS.

A CONTRACT WHEREBY ONE UNDERTAKES TO INDEMNIFY AGAINST LOSS, DAMAGE, OR LIABILITY ARISING FROM A CONTINGENT OR UNKNOWN EVENT.

ANY EVENT, WHETHER PAST OR PRESENT, WHICH MAY CAUSE LOSS OR DAMAGE TO A PERSON HAVING AN INSURABLE INTEREST OR CREATE A LIABILITY AGAINST HIM/HER.

A CONDITION IN WHICH A CHANCE OF LOSS EXISTS. TWO TYPES OF RISK ARE:

(1) SPECULATIVE RISKS - INSTANCES WHERE THERE IS A CHANCE OF LOSS OR GAIN

(2) PURE RISK - SITUATIONS WHERE ONLY THE CHANCE OF LOSS AND NO CHANCE FOR GAIN EXIST

THE EXTENT TO WHICH ONE MAY BE AFFECTED BY A PERIL.

THE CAUSE OF A POSSIBLE LOSS

A SPECIFIC SITUATION THAT INCREASES THE PROBABLILITY OF A LOSS ARISING FROM A PERIL OR THAT MAY INFLUENCE THE EXTENT OF THE LOSS. THERE ARE THREE TYPES OF HAZARDS:

(1) PHYSICAL (TANGIBLE CHARACTERISTICS)

(2) MORAL (DISHONESTY - GIVING FALSE INFORMATION ON AN APPLICATION).

(3) MORALE (INDIFFERENCE - SMOKING, SPEEDING, NO SEAT BELTS)

WHEN MORE INSURANCE IS IN FORCE THAN THE INSURED HAS THE POTENTIAL TO LOSE. THE EXCESS AMOUNT WILL NOT BE PAID. OVER INSURANCE DOES NOT APPLY TO LIFE INSURANCE.

(1) RISK REDUCTION

(2) RISK AVOIDANCE

(3) RISK RETENTION

(4) RISK TRANSFER

(5) RISK SHARING

REDUCING, BUT NOT PREVENTING THE RISK

NOT BEING INVOLVED IN THE ACTIVITY THAT GIVES RISE TO THE CHANCE OF LOSS

(SELF - INSURANCE) - RETAINING THE RESPONSIBILITY FOR THE LOSS

TRANSFERRING THE RISK TO ANOTHER (INSURANCE COMPANY)

POOLING THE RISK OF A LARGE NUMBER OF PERSONS (CORPORATION).

• (1) THERE MUST BE A LARGE NUMBER OF HOMOGENEOUS UNITS TO MAKE LOSSSES REASONALBLY PREDICTABLE.
• (2) THE LOSS MUST BE DEFINITE IN TERMS OF CAUSE, TIME, PLACE AND AMOUNT (CALCULABLE).

(3) THE LOSS MUST BE ACCIDENTAL

(4) THE LOSS MUST CAUSE FINANCIAL HARDSHIP

(5) THE POLICY MUST EXCLUDE CATASTROPHIC PERILS, SUCH AS WAR, NUCLEAR HAZARD & ILLEGAL OPERATIONS.

IN A PROPERTY AND CASUALTY CONTRACT, THE INSURED IS RESTORED TO THE SAME FINANCIAL CONDITION AS PRIOR TO THE LOSS. THE INSURED SHOULD NOT PROFIT FROM OR LOSE FROM AN INSURANCE TRANSACTION.

A PRINCIPLE STATING THAT THE LARGER THE NUMBER OF EXPOSURES CONSIDERED, THE MORE CLOSELY THE LOSSES REPORTED WILL EQUAL THE PROBABILITY OF LOSS. THE PROBABILITY OF LOSS IS MORE PREDICTABLE, THUS A LOSS RATIO IS MORE READILY AVAILABLE. THIS LAW IS THE BASIS FOR THE STATISTICAL EXPECTATION OF LOSS AND IS USED BY INSURERS TO CALCULATE RATES (PREMIUMS) AND PREDIT LOSSES OVER A GIVEN PERIOD OF TIME.

THE INSURING OF RISKS THAT ARE MORE PRONE TO LOSSES THATN THE AVERAGE (STANDARD) RISK. THESE RISKS TEND TO SEEK OR CONTINUE INSURANCE AT A HIGHER PARTICIPATION RATE THAN DOES AN AVERAGE (STANDARD) OR ABOVE AVERAGE (PREFERRED) RISK.

(1) POSSIBLILITY OF AN ECONOMIC LOSS DUE TO SICKNESS OR DEATH (BUSINESS PARTNER, KEY EMPLOYEE, ETC).

(2) NO ONE MAY PURCHASE AN INSURANCE CONTRACT WITHOUT THE CONSENT OF THE INSURED (EXCEPTION - MINOR).

(3) IN LIFE INSURANCE, INSURABLE INTEREST ON ONE'S OWN LIFE IS GENERALLY REGARDED AS UNLIMITED

(4) THE INSURABLE INTEREST ON ONE'S OWN LIFE IS GENERALLY REGARDED AS UNLIMITED.

(5) SOME INSURERS RECOGNIZE LOVE & AFFECTION AS INSURABLE INTEREST, SUCH AS GRANDPARENT TO GRANDCHILD, BROTHERS & SISTERS, MARRIAGE PARTNERS. NORMALLY THE LOVE & AFFECTION INSURABLE INTEREST REQUIREMENTS ARE NOT SATISFIED WHEN TRYING TO INSURE A MOTHER-IN-LAW, FATHER-IN-LAW, OR SOMEONE WITH WHOM WE HAVE A LONG LASTING FRIENDSHIP.

AN OLD-AGE RETIREMENT BENEFIT WAS GIVEN TO THIS NATION. iN 1939, THIS SYSTEM EXPANDED TO PROVIDE PROTECTION FOR THE WORKER'S FAMILY (OLD AGE, SURVIVORS INSURANCE- OASI)

DISABILITY INCOME BENEFITS WERE ADDED (OLD AGE, SURVIVORS, DISABILITY INSURANCE OLD AGE - OASDHI)

TITLE XVIII (ALSO KNOWN AS MEDICARE) WAS ADDED CHANGING THE NAME OF THE PROGRAM TO THE OLD AGE, SURVIVORS, DISABILITY & HEALTH INSURANCE (OASDHI)

WITH A FEW EXCEPTIONS, IT IS A COMPULSORY PROGRAM.

• A DEVICE USED BY INSURERS TO TRANSFER OR SHARE IN A RISK. THIS PROCESS DISPERSES THE PROBABILITY OF A LARGE LOSS AND IN TURN PROVIDES COVERAGE FOR A POSSIBLY OTHERWISE UNINSURABLE RISK. tHERE ARE AT LEAST 2 INSUREERS INVOLVED, THE INSURER ORIGINATING THE APPLICATION (CEDING COMPANY) OR COMPANIES WHO SHARE IN THE RISK (REINSURANCE ISNURERS). THE AGREEMENT OF REINSURANCE IS STRICTLY BETWEEN THE 2 INSURANCE COMPANIES AND WILL BE CLASSIFIED AS EITHER AN:
• (1) AUTOMATIC AGREEMENT
• (2) FACULTATIVE AGREEMENT

THE CEDING COMPANY MUST TRANSFER THE AMOUNT OF INSURANCE IN EXCESS OF THE RETENTION LEVEL IMMEDIATELY AND AUTOMATICALLY UPON RECEIPT OF THE PREMIUM. THE TRANSFER IS AUTOMATIC IN ACCORDANCE WITH THE REINSURANCE AGREEMENT.

*THE AGREEMENTS ARE STRICTLY BETWEEN THE INSURERS; ALL INQUIRIES & TRANSACTIONS BY THE CONSUMER REGARDING THE PROCESS ARE THROUGH THE CEDING OR ORIGINATING COMPANY.

ALLOW THE CEDING INSURER & THE REINSURANCE COMPANIES AN OPPORTNITY TO EXCHANGE ADVICE ABOUT THE UNDERWRITING OF EACH CASE. THIS AGGREEMENT IS MORE TIME-CONSUMING AND MAY RESULT IN A HIGHER PREMIUM.


*THE AGREEMENTS ARE STRICTLY BETWEEN THE INSURERS; ALL INQUIRIES & TRANSACTIONS BY THE CONSUMER REGARDING THE PROCESS ARE THROUGH THE CEDING OR ORIGINATING COMPANY.

THE WRITTEN INSTRUMENT IN WHICH THE INSURANCE CONTRACT IS SET FORTH

AN AGREEMENT AMONG OWNERS OF A FIRM THAT PROVIDES THE CONTINUATION OF A BUSINESS UPON THE PREMATURE DEATH OF AN OWNER. THROUGH LEGAL CONTRACT, THE DECEASED'S ESTATE MUST SELL THE DECEASED'S INTEREST BACK TO THE ENTITY, WHO MUST BUY AT A PREDETERMINED PRICE.

MONEY ACCUMULATED IN A PERMANENT POLICY THAT THE POLICYOWNER MAY BORROW AS A POLICY LOAN OR RECEIVE IF THE POLICY IS SURRENDERED BEFORE MATURITY. SURRENDER CHARGES MAY BE ASSESSED AT POLICY SURRENDER. UPON MATURITY OR ENDOWMENT THE CASH VALUE IS PAID TO THE POLICYOWNER. SOME FINANCIAL AUTHORS SUGGEST THAT CASH VALUE MAYBE A SOURCE OF SUPPLEMENTAL INCOME.

INSURANCE POLICIES THAT DO NOT PAY DIVIDENDS TO POLICYOWNERS

POLICIES THAT MAY PAY ANNNUAL DIVIDENDS TO POLICYOWNERS.

THE INDIVIDUAL WHO HAS THE OWNERSHIP RIGHTS IN A POLICY. THE POLICYOWNER & INSURED ARE USUALLY THE SAME, BUT NOT NECESSARILY. ANY CHANGES MADE TO A POLICY MUST BE APPROVED BY THE POLICYOWNER IN WRITING WITH HIS/HER SIGNATURE.

(1) SURVIVOR PROTECTION - PROVIDING FUNDS FOR DEPENDENTS

(2) ESTATE CREATION - PROVIDING LARGE SUMS OF MONEY FOR DEPENDENTS AND BENEFICIARIES.

(3) ESTATE CONSERVATION - PROVIDES MONEY TO PARY ANY ESTATE TAXES OR LOANS WHICH MUST BE SATISFIED UPON THE DEATH OF THE ESTATE OWNER PRESERVING THE INSURED'S ESTATE.

(4) CASH ACCUMULATION - AN AMOUNT OF CASH ACCESSIBLE TO THE POLICYOWNER.

(5) LIQUIDITY - IMMEDIATE FUNDS AVAILABLE UPON DEATH TO PAY CREDITORS, TAXES, & FINAL EXPENSES.

(6) VIATICAL SETTLEMENTS - LIFE INSURANCE POLICIES PURCHASED FROM A TERMINALLY ILL INSURED (2 YEARS OR UNDER TO DIE).

LIFE INSURANCE REDUCES UNCERTAINTY, GIVING A GREATER PEACE OF MIND WHILE REPLACING THE POSSIBILITY OF A LARGER LOSS (INCOME) WITH A KNOWN SMALLER LOSS (PREMIUM). LIFE INSURANCE DOES NOT ELIMINATE RISK; IT REDUCES THE LOSS BY TRANSFERRING THE LARGER RISK FROM THE INSURED TO THE INSURANCE COMPANY.

THE PROPER AMOUNT OF LIFE INSURANCE SHOULD BE DETERMINED TO PREVENT OVER OR UNDER INSURING AN INDIVIDUAL. TWO OF THE APPROACHES USED TO DETERMINE THE NEED & AMOUNT ARE:

(1) HUMAN LIFE VALUE APPROACH

(2) NEEDS ANALYSIS APPROACH

THIS APPROACH IS A MEASURE OF THE ACTUAL FUTURE EARNINGS & SERVICES OF A PERSON AT RISK IN THE EVENT OF A PREMATURE DEATH. THE OBJECTIVE IS TO PROVIDE THE PROPER AMOUNT OF COVERAGE AS DETERMINDED BY THE VALUE OF THE INDIVIDUAL TO HIS/HER DEPENDENTS USING THE FOLLOWING FACTORS:

• (1) THE INDIVIDUAL'S AFTER-TAX ANNUAL SALARY.
• (2) THE INDIVIDUAL'S ANNUAL EXPENSES, NOT TO INCLUDE HOBBY OR HABIT EXPENSES.
• (3) THE VALUE OF ALL PERSONAL ASSETS.
• (4) THE NUMBER OF YEARS REMAINING FOR THE INDIVIDUAL'S EXPECTED ABILITY TO WORK.
• (5) AGES OF ALL FAMILY MEMBERS WHICH DETERMINES THE DEPENDENCY PERIOD OF THE FAMILY MEMBERS.
• (6) THE VALUE OF THE INDIVIDUAL'S DOLLAR AS IT DEPRECIATES OVER TIME.
• (7) PRESENT SALARIES OF ALL WAGE EARNERS IN THE HOME.

THIS APPROACH DETERMINES A NEED FOR COVERAGE UPON THE PREMATURE DEATH OF AN INDIVIDUAL. IT ALWAYS ASSUMES THE DEATH OF THE INDIVIDUAL TO BE IMMEDIATE & USES THE FOLLOWING FACTORS TO ARRIVE AT THE PROPER AMOUNT OF COVERAGE NEEDED:

• (1) CALCULATE ALL FINANCIAL NEEDS CAUSED BY AN IMMEDIATE DEATH. TO PROPERLY CALCULATE THIS NEED ONE MUST KNOW THE AGE OF EACH DEPENDENT CHILD.
• (2) SUBTRACT ANY ASSETS AVAILABLE TO FUND FINANCIAL NEEDS AFTER DEATH.
• (3) PURCHASE ADEQUATE LIFE INSURANCE TO FILL ALL GAPS BETWEEN NEEDS & AVAILABLE ASSETS.
• (4) REGARDLESS OF AGE, SOME NEEDS ARE PERMANENT, SUCH AS RETIREMENT, DISABILITY FUNDS & FUNERAL EXPENSES WHILE SOME NEEDS ARE DISAPPEARING, SUCH AS MORTGAGE & EDUCATIONAL FUNDS.
• (5) AN EMERGENCY RESERVE FUND COULD BE PART OF THE CALCULATION TO PROVIDE FOR UNEXPECTED EMERGENCIES THE FAMILY MIGHT ENCOUNTER IMMEDIATELY AFTER THE DEATH OF THE INSURED. FOR EDUCATION FUNDS, CONSIDERATION MUST BE GIVEN TO THE TYPE OF EDUCATION, TUITION COSTS, & NUMBER OF CHILDREN. MEDICAL EXPENSE DURING COLLEGE IS NOT AN EDUCATIONAL COST FACTOR.

TO ANALYZE THE INSURANCE NEEDS IN EITHER APPROACH ONE MUST ALSO TAKE INTO CONSIDERATION THE INCOME OBJECTIVE OF THE PROPOSED INSURED. ONE MAY USE TWO METHODS OF INCOME OBJECTIVES TO ARRIVE AT THE AMOUNT OF INSURANCE NEEDED TO FILL THE "HUMAN LIFE VALUE" OR "NEEDS ANALYSIS" REQUIREMENTS:

(1) CAPITAL LIQUIDATION - ASSUMES BOTH PRINCIPAL (CAPITAL) & INTEREST ARE LIQUIDATED OVER THE RELEVANT TIME PERIOD TO PROVIDE THE REQUIRED INCOME FOR THE DEPENDENTS.

• (2) CAPITAL RETENTION/CONSERVATION - ASSUMES THE DESIRED INCOME WILL BE GENERATED BY THE INVESTMENT EARNINGS ONLY, THUS RETAINING OR CONSERVING THE PRINCIPAL OR CAPITAL INVESTED.
• *THE INVESTMENT EXPERIENCE OF THE CONSUMER IS IMPORTANT IN MAKING RECOMMENDATIONS TO SENIOR PROSPECTS.

• (1) BUY-SELL AGREEMENTS
• (2) KEY PERSON (KEY EMPLOYEE)
• (3) DEFERRED COMPENSATION
• (4) SPLIT-DOLLAR PLANS
• (5) EXECUTIVE BONUS PLANS
• (6) MINIMUM DEPOSIT PLANS
• (7) THIRD PARTY OWNERSHIP

THIS AGREEMENT CONTRACTUALLY ESTABLISHES A PRICE WITH THE INTENT TO PURCHASE, AT A PREDETERMINED VALUE, THE ASSETS OF A BUSINESS SHOLULD ONE OF THE CONTRACT PARTICIPANTS PREDECEASE OTHER PARTICIPANT(S). THIS AGREEMENT MAY BE USED WITH A SOLE PROPRIETORSHIP, A PARTNERSHIP OR WITH STOCKHOLDERS OF A CLOSED CORPORATION. ANY TYPE OF LIFE INSURANCE MAY BE USED TO PROVIDE FUNDS FOR THE BUY-SELL AGREEMENT

(1) IT IS LEGALLY ENFORCEABLE.

(2) THE VALUE OF THE BUSINESS IS PREVIOUSLY AGREED UPON.

(3) IT IS AN IMMEDIATE & AUTOMATIC METHOD OF TRANSFERRING THE DECEASED'S INTEREST.

(1) INCOME TO SURVIVING FAMILY MEMBERS STOPS.

(2) SURVIVING BUSINESS OWNER(S) MAY SUFFER A LOSS OF INCOME

(3) ASSET REDUCTION DUE TO FORCED LIQUIDATION.

(4) THE ESTATE TRANSFER MAY BE DELAYED DUE TO A FORCED BUSINESS LIQUIDATION

(5) SHARE(S) OF OWNERSHIP TRANSFER TO SURVIVING RELATIVES

(1) CROSS PURCHASE PLAN - USED WHEN PARTIES PURCHASE LIFE INSURANCE ON EACH OTHER OR THE EMPLOYER

(2) ENTITY PLAN - USED WHEN THE BUSINESS OWNS THE POLICIES ON THE PARTIES AND IS THE DESIGNATED BENEFICIARY FOR EACH OCONTRACT PARTICIPANT. A CLOSED CORPORTATION MIGHT PURCHASE POLICIES ON THE SENIOR OR MAJORITY STOCKHOLDERS, PROVIDING FUNDS FOR THE CORPORTATION TO RETAIN OWNERSHIP.

(1) LIFE INSURANCE PURCHASED TO OFFSET THE EXPENSE & FINANCIAL LOSSES DUE TO THE DEATH OF A VALUED EMPLOYEE. THJIS POLICY WILL PROVIDE FUNDS FOR DECREASED CASH FLOW, RECRUITING COST, COST OF TRAINING AND COST OF REPLACING THE KEY EMPLOYEE.

(2) THE KEY PERSON INSURANCE DOES NOT PROVIDE AN EMPLOYEE RETIREMENT, REPLACE GROUP LIFE INSURANCE OR AFFECT ANY PRESENT OR FUTURE GROUP OR RETIREMENT BENEFITS. THE KEY PERSON COVERAGE IS WRITTEN FOR THE BENEFIT OF THE EMPLOYER, NOT THE EMPLOYEE'S FAMILY.

(3) THE EMPLOYER IS THE OWNER, PREMIUM PAYOR & USUALLY THE BENEFICIARY.

• ** IF THE OWNER IS NOT THE BENEFICIARY, THE PREMIUMS MAY BE USED AS A BUSINESS EXPENSE FOR IRS PURPOSES.
• ** IF THE OWNER IS THE NAMED BENE, THE PREMIUMS ARE NOT CONSIDERED BUSINESS EXPENSE BY THE IRS.

(1) THIS PLAN IS AN INCENTIVE PLAN IN WHICH AN EMPLOYER PROMISES TO PAY KEY EMPLOYEES CERTAIN AMOUNTS OF MONEY AT A SPECIFIED FUTURE DATE (USUALLY RETIREMENT).

(2) INCOME TAXES ARE DEFERRED UNTIL THE EMPLOYEE TAKES POSSESSION OF THE INCENTIVE FUNDS.

(3) THE EMPLOYER IS THE POLICYOWNER & BENE. IF THE EMPLOYEE DIES BEFORE RETIREMENT, THE LIFE INSURANCE BENEFIT IS PAID TO THE EMPLOYER, WHO IN TURN PAYS THE EMPLOYEE'S HEIRS. IF THE EMPLOYEE LIVES TO RETIREMENT, THE POLICY MAY BE SURRENDERED TO PAY THE DEFERRED COMPENSATION.

(4) SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) - A NONQUALIFIED DEFERRED COMPENSATION PLAN THAT ALLOWS EMPLOYERS TO PROVIDE ADDITIONAL RETIREMENT INCOME TO KEY, HIGHLY COMPENSATED EMPLOYEES. IT ALLOWS EMPLOYERS TO PROVIDE BENEFITS BEYOND THOSE OF TRADITIONAL QUALIFIED PLANS, SUCH AS 401(K) PLANS.