License

A person's age at any point or time

A contract whereby one undertakes to indemnify against loss, damage or liability arising from a contingent or unknown event

a condition in which a chance of loss exists

instances where there is a chance of loss or gain

situations where only the chance of loss and no chance of gain exist

the extent to which one may be affected by peril

the cause of a possible loss

a specific situation that increases the probability of a loss arising from a peril or that may influence the extent of loss

HAZARDS -
tangible characteristics

HAZARDS
dishonesty - giving false info on an application

HAZARDS -
indifference - driving without seat belts, smoking, driving too fast

when more insurance is in force than the insured has the potential to lose. The excess amount will not be paid. Does not apply to life insurance

HANDLING RISK -
reducing, but not preventing risk

HANDLING RISK -
not being involved in the activity that gives rise to the chance of loss

HANDLING RISK -
(self insurance) - retaining the responsibility for the loss

HANDLING RISK -
transferring the risk to another (insurance company)

HANDLING RISK -
pooling the risk of a large number of persons (corporation)

1. There must be a large number of homogenous units to make losses reasonably predictable
2. The loss must be definite in terms of cause, time, place and amount (calculable)
3. The loss must be accidental
4. The policy must exclude catastrophic perils such as war, nuclear hazard and 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 largest 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 predict losses over a given period of time

A device used by insurers to transfer or share a risk. This process disperses the probability of a large loss and in turn provides coverage for a possibly otherwise uninsurable risk.

REINSURANCE -
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 withthe reinsurance agreement

REINSURANCE -
allow the ceding insurer and the reinsurance companies an opportunity to exchange advice about the underwriting of each case. This agrrement is more time consuming and may result in a higher premium

The insuring of risks that are more prone to losses than the average risk. These risks tend to seek or continue insurance at a higher participation rate than does an average or above average risk

A contractual agreement removing the liability of one party from a second party. These agreements are used mostly in group health replacements and could be considered as a measure of risk avoidance

1. Possibility 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 ia a minor)
3. In Life Insurance, insurable interest must exists at the time of app
4. The insurable interest on one's own life is generally regarded as unlimited
5. Love an affection (grandparent to grandchild, brothers and sisters)

An agreement among owners of as firm that provides the continuation of a business upon the premasture death of an owner. The deceased estate must see the deceased's interest back to the entity, who must buy at a predetermined price

Money accumulated in a permanent policy that the policyowners may borrow as a policy loan or receive if the policy is surrendered before maturity. Charges may be assessed at policy surrender. Upon maturity, the cash value is paid to the policyowner. May be a source of supplemental income

Insurance policies that do not pay dividends to policy owners

Policies that may pay annual dividends to policyowners

An ind who has the ownership rights in a policy. Policyowner and insured are usually the same. Any changes made to the policy must be approved by policyowner

PERSONAL USES OF LIFE INSURANCE -
providing funds for dependents

PERSONAL USES OF LIFE INSURANCE -
Providing large sums of money for dependents and beneficiaries

Provides money to pay any estate taxes or loans which must be satisfied upon the desth of the estate owner preserving the insured's estate

An amount of cash accessible to the policyowner

Immediate funds available upon death to pay creditors, taxes and final expenses

Life insurance policies purchased from a terminally ill insured

(1 of 2 Approaches to Determine Amount)
Measure of the actual future earnings and services of a person at risk in the event of premature death.

Providing proper amount of coverage as determined by the value of the ind to his/her dependents:
1. Ind after tax annual salary, 2. Individual's annual expenses, not to include hobby or habit, 3. Value of all personal assets, 4. The # of years remaining for indv's expected ability to work, 5. Ages of all dependents, 6. Value of indv. dollar as it depreciates over time, 7. Present salaries of all wage earners in the home

(2 of 2 Approaches to Determine Amount)
Determines a need for coverage upon the premature death of an indv. Always assumes the death of the indv. may be immediate

Factors to determine Proper Coverage Amt:
1. Calculate all financial needs casued by immediate death. Needs to know age of each dependent child, 2. Subtract any assets available to fund financial needs after death, 3. Purchase adequate life ins to fill all gaps between needs and available assets, 4. Permament needs - retirement, disability funds and funeral expenses. Disappearing Needs - Mortgage and educational funds and 5. An Emergency Reserve Fund

INCOME OBJECTION -
assumes both principal (capital) and interest are liquidated over the relevant time period to provide the required income for dependents

INCOME OBJECTIONS -
Assumes the desired income will be generated by the investment earnings only, thus retaining or conserving the principal or capital invested
* Investment experiences of the consumer is important in making recommendations to senior prospects

Advantages of having a Buy Sell Agreement

Disadvantages of NOT having a Buy Sell Agreement

1 of 2 Types of Buy Sell Agreement:
used when parties purchase life insurance on each other or the employer

2 of 2 Types of Buy Sell Agreement:
Business owns the policies on the parties and is the designated beneficiary for each contract participant. A closed corporation might purchase policies on the senior or majority stockholders, providing funds for the corporation to retain ownership

Life insurance purchased to offset the expense and financial losses due to the death of a valued employee. This policy will provide funds for decreased cash flow, recruiting cost, cost of training and cost of replacing the key employee

Does not provide an employee retirement, replace group life insurance, or affect any present or future group or retirement benefits

The employer is the owner, premium payor and usually the beneficiary. If owner is not beneficiary, the premiums may be used as a business expense for IRS purposes. If the owner is the beneficiary, premiums are not considered business expense for IRS purposes

An incentive plan in which an employer promises to pay key employees certain amounts of money at a specified future date (usually retirement)
Income Taxes are deferred Until the employee takes possession of the incentive funds
Employer is policyowner and beneficiary. If employee dies before retirement, the benefit is paid to employer, who pays heirs. If employee lives to retirement, policy may be surrendered to pay deferred compensation

A nonqualified deferred compensation plan that allows employers to provide additional retirement income to key, highly compensated employees, It allows employers to provide benefitsd beyond those of traditional qualified plans, such as 401k.

Not a tax qualified plan, but provides a benefit for the employee's family upon the death of an employee, Upon the employees termination of employment, the policy may be purchased at an agreed price

1. Insures the employee's life with premium payments split between an employee and the employer
2. If death occurs while with this employer, the employer receives a portion of the death benefit equal to the cash value or total of premiums paid. The balance is paid to the employee's beneficiary
3. A certain period of time must elapse before an employee is entitled to any of the cash value.

An arrangement under a Corporate Cross Purchase Buy Sell Agreement where the corporation bonuses the premium to each shareholder to cover the cost of the policies they own on the other shareholder's lives.

1. Each shareholder reports the premium he/she is bonused as additional compensation that, presumably, is deductible by the corporation
2. Corporate records need to be established treating the premiums as compensation to shareholders, not dividends
3. There typically is added a policy provision that forbids any surrenders, withdrawls orother action unless endorsed by the corporation

The policy loans are used to pay the premiums on cash value life insurance policies under a systematic plan of borrowing

1. Loans are to be for the amount of each premium and no greater sum
2. The policyowner must be advised each year as to how much, if any, to borrow under the policy, and the loan transaction has been completed
3. Each year's interest is to be paid in cash in order to receive any advantage to being deductible under a policy owned by a business and covering the lives of officers, employees, or others financially interested in the business

A policy owned by one person insuring the life of another person. The 3 parties involved are the policyowner, insured and insurer. IE - PArent owns a policy on an under aged child, Buy-Sell Agreement, Key Person (employee) insurance.

An insurance plan normally owned by an employer, creditor, or association, under which coverage is provided for the employees, debtors or members. 40% of life insurance is this kind. 85% of this coverage is employer-employee. Provides protection for an employee's named beneficiary or creditor. Coverage may only be changed within confines of Mater policy. Normally written on a renewable term basis providing no cash value or living benefits as indv cash value policies

May be of any classification or type of insurance. Policyowner may use the policy proceeds to his/her advantage while living, when the typr and age of the policy is sufficient to build equity (cash value). May assist in savings, encourage thrift, mimize worry and furnish some income in the form of an annuity. May buikd or preserve a living benefit for the terminally ill.

Any type of life insurance that is not group. indutrial or governement insurance. A large # of people are insured with this insurance making it the larger portion of the life insurance in force today.

Synonymous with debit life insurance and makes up only about .03% of life ins today. Small policies, normally $250 to $1000, were originally sold to pay for funeral expenses.

known as the Monthly Debit Ordinary policy (MDO). Agent must service the account monthly, collecting premiums from the insured and remitting directly to indsurer. FAce value amount normally $5000 to $25,000. Agent may be referred to as a Debit agent.

A durable policy that remains level in amount and premium. Does not require renewability and normally provides protection to age 100 or until the policy is surrended or cancelled. Premium is always higher than that on a term policy when the amount and underwriting factors are equal. Best used as protection for the beneficiary and a form of living benefits for the policyowner or insured.

Lowest of the premium outlay and designed for someone with a large insurance need but with limited cash flow. Coverage is offered referred to as temporar, as it is written to cover a short period of time.l Does not build equity and the benefit will either remain level or decrease or increase depending on type of policy. Used to cover mortgages or short term obligations

A policy marketed by a mutually owned company. A dividend will be paid to the policy owner as dividends are declared.

A pure cost policy marketed by a company owned by stockholders with all future values guaranteed. A stock company is under the control of the stockholders who would receive any profits or dividends

This policy has a fixed amount of coverage, benefits and premium. Without riders, future inflationary trends and money values will depreciate the policy's effectiveness.

Assist the insured during inflationary periods with the naural flexibility of each policy. Some are Universal and Variable Universal Life

A policy introduced in the 70's that uses seperate accounts for the cash value accumulation. The seperate accounts are normally mutual funds and a securities license is required to sell this policy