REVIEW MATERIAL FOR TRADITIONAL LIFE INSURANCE III.

TERM RIDERS – supplementary contracts

I. FOUNDATION
Income- recurrent flow of cash in exchange of goods/services.
Generated through the ff.: A. WAIVER OF PREMIUM (WP)
i. Man at Work  Premiums due are waived upon Total (unable to perform
ii. Money at Work previous work) and Permanent (after 6 months) Disability
iii. Donations/Charity  Cash values will continue to accumulate
Human Economic Value- Financial value of the Man at Work to his  Dividends are still payable
beneficiaries; measured as his current assets + potential earnings  Excludes: Self- inflicted injuries and Combat activities
LIFE RISKS INSURANCE SOLUTION B. PAYOR’S DEATH BENEFIT (PB)
Death Face Amount, Monthly Income  Attached to juvenile policy
Disability Term Riders (e.g. Waiver of Premium)  When payor dies/becomes totally and permanently disabled
premiums are waived up to 60 of payer or 21 of child.
Live too Long Retirement Fund Whichever comes first
Types of RISKS:  A.K.A Parent Waiver Clause
o PURE RISK- no possibility of gain C. ACCIDENTAL DEATH BENEFIT (ADB)
o SPECULATIVE- may result to gain, loss or no change  Pays an additional amount if insured dies due to accident
Uses of Life Insurance  Death must occur 90 days from date of accident
 Family Income  Education Fund  A.K.A Double Indemnity
 Clean-up Fund  Estate Planning  Exclusions:
 Life income for widow  Emergency Fund  Sickness  Combat/warlike
 Retirement Fund  Disability Fund  Poisoning Activities
NOTES!  Gas Inhalation  Committing a crime
 Insurance companies protects “Man at Work” by investing money  Suicide  Aviation Activities
(Money at Work). Fruits of these investments are given as D. TERM INSURANCE RIDER (TIR)
“Donations” to the Beneficiaries of the “Man at Work”
 Life insurance ensures the continuance of INCOME despite of LIFE  Pays an additional amount for a period of time
RISKS by insuring his HUMAN ECONOMIC VALUE  Death must occur within the term
 Use of Risk Sharing: Pools risk to decrease uncertainty; minimizes E. FAMILY INCOME RIDER (FIR)
hazards  Monthly Income in addition to the Face Amount
 Insurance protects people from pure risks by investing into  Modified Decreasing term insurance
speculative risks
IV. RISK SELECTION
 Systematic evaluation of an insurance applicant for the purpose of
BASIC INSURANCE TERMS (IMPORTANT!) determining the classification of risk of possible coverage
 Insured- person whose live is covered by insurance  Anti-Selection: tendency of those with impaired health or those
 Beneficiary- person who receives proceeds(FA) of insurance with hazardous occupations and/or avocations to purchase life
 Policy- contract between insured and insurance company insurance
 Policy fee- fixed fee added to premiums
 Policy owner/payor- pays and owns the policy. May or may not be RISK FACTORS (POFMAR)
the insured PHYSICAL
 Face Amount- amount paid to the beneficiary upon the demise of  Age
the insured  Current Physical Condition
 Premium- regular payment to the insurance company to keep the  Build (BMI)
policy in force  Family Medical History
 Personal Medical History
 Date of illness
PREMIUM RATE FACTORS- calculated by ACTUARY  Doctor’s name
 Mortality table- based on age and sex  Diagnosis
 Life Expectancy- average number of years people will live  Duration
 Law of Large Numbers- the more figures in the study the higher  Drugs administered
the probability that the event is true OCUUPATION
 Principle of Probability- tool used to estimate life expectancy of a  Accident Hazards
person  Unhealthy Working Conditions
 MORTALITY- ↑mortality=↑premiums (vice versa)  Social Hazards
 INTEREST- ↑interest=↓premiums (vice versa) FINANCIAL- capacity to pay; look into other sources of income such as:
o Interest earnings mainly come from- PREMIUMS FROM  Rental Income
CLIENTS AND INVESTMENT REVENUE  Harvest from land
 EXPENSE- ↑expense=↑premiums (vice versa)  Investments
MORAL
 GROSS PREMIUMS= Net premiums + Loading  Lifestyle and habits, Personal relationships, etc.
o NET PREMIUMS- value of contractual liabilities based on: AVOCATION
mortality, safety margins and interest assumptions  High Risk hobbies
o LOADING- covers expenses for securing and maintaining  Aviation Activities- involvement in flying activities other than as a
business fare-paying passenger, pilot or crewmember of a commercial
 Types of premiums airline
o Natural- increasing through time (term insurance) RESIDENCE AND TRAVEL
o Level- remains the same  Extreme changing climate
o Fractional- based on TIME VALUE OF MONEY; Modal factors:  Peace and order situation
 Annual- 1  Unhealthy living condition
 Semi-annual- .53
 Quarterly- .28
 Monthly- .096 RISK CLASSIFICATION
 Standard Risk
 Sub-Standard Risk
II. BASIC PLAN o Lien
o Flat Extra/Extra Rating
 Uninsurable/Unacceptable Risk
A. PERMANENT PLANS Sources of Information
 Protection  Application Form  Medical Records
 Savings (Cash Values- loanable up to 80%)  Agent’s Confidential Report  Attending Physical Statements
 Dividends if Participating-↓Mortality, ↑Interest, ↓Expense  Inspection Report  Medical Impairment Bureau
i. WHOLE LIFE- Covers up to age 100  Financial Statements
a. Ordinary- premium payment until 100 or death
b. Limited Pay- premium pay for a period of time V. POLICY PROVISIONS
ii. ENDOWMENT- Matures after a certain time; lump sum  Legal Contract- agreement b/n two or more people which can be
a. Regular- premium payment until maturity upheld in a court of law
b. Limited Pay- premium payment for a period of time  Life Insurance Contract- one party undertakes to indemnify
NOTE: (benefits) another against loss, damage or liability (life risks) arising
 Age-based: uses “at age” or “@”; matures at stated age from an unknown or contingent event for a given consideration
 Term-based: uses “yr.” or “year”; matures at after stated years (premiums)
o Unilateral Contract- only one party makes promises
B. TERM PLANS
 Protection ELEMENTS OF A CONTRACT
 Renewable  Legal Capacity- Competence to enter into a life insurance contract
 Convertible INSURANCE COMPANY INSURED
i. LEVEL- Face Amount remains constant Registered with the:  Sound mind
ii. DECREASING- Face Amount decreases, premiums stay the  SEC  Legal Age
same  Insurance o 18-20: insure own life
 Used for mortgage redemptions and loans Commission o 21&↑: may insure others
 Yearly Renewable Term Insurance  Not a public enemy
 Insurable interest at the inception of
C. VARIABLE LIFE – hybrid insurance and investment the contract
 Mutual Consent- both parties agree without force or coercion VI. SPECIAL INSURANCE
 Adequate Consideration GROUP INSURANCE (May be TERM of PERMANENT)
o First Premium- PUTS the policy in-force  Protection for a group that was not formed for the purpose of
o Subsequent Premiums- KEEPS the policy in-force obtaining insurance
 Legality of Purpose  Minimum of 30 hours in a week
LEGAL CONSIDERATION  EMPLOYER: Master Policy; EMPLOYEES: Group Insurance
 Binding Receipt Enrollment Card
o Company pays whether or not policy would have been  Underwriting- non-medical, presumed to be generally healthy
approved  Premium Payment
 Conditional Receipt o Contributory- employee and employer
o Company pays only if policy would have been approved o Non-contributory- employer only
 Statements  Conversion Privilege- within 30 days from resignation/retirement
 Warranties- Literally true o No need for proof of insurability
 Representation- Substantially true o Premiums based on age at the time of conversion
HEALTH INSURANCE
A. WHILE INSURED LIVES  Provides protection in case of accidents, illness or disability
 Entire Contract Clause- (PAPA) Proposal, Application form, Policy,  Health Insurance Benefits
Amendments o Expense Reimbursement
 Ownership Provision- Owner has the rights to: o Disability Income
o Assign o Accidental Death and Dismemberment
o Amend  Types of Health Insurance
o Change beneficiaries (irrevocable must agree) o Limited health policy- limited hazards
o Collect cash values and dividends o Blanket health policy- all hazards
o Exercise all allowed options ANNUITY
 Premium Payment  Specified sum payable regularly for a stipulated period of time
o Uses modal factors  Provides continuous income
o frequent modes are more expensive than the annual premium  NO LIFE INSURANCE PROTECTION
 Grace Period  Annuitant- person to whom the annuity income is paid (similar to
o 30 days from due date to pay his premium the insured)
o Remains insured within the period  Vesting date- date income is payable
 NET PROCEEDS= FA – Unpaid Premium  Successor Payee- receives the remaining income upon demise of
 Automatic Premium loan annuitant before exhaustion of fund (similar to beneficiaries)
o Cash Values are loaned to pay for premiums automatically  Types of Annuity Products
o Subject to interest o Fixed (similar to traditional)
 Loan o Variable (similar to VL)
o Max 80% of CV only  Types of Annuity Contracts
o CV + Interest= Loan Value o Based on vesting date
 Assignment- Transfer some (COLLATERAL) or all (ABSOLUTE) of the  Immediate- 1 month
ownership rights from one person to another  Deferred- greater than 1 month
 Dividend o Based on how premiums are paid
o Cash  Single pay
o Reduce Premium  installment
o Accumulate at Interest o Based on annuity payments/settlement agreement
o Purchase paid-up insurance bonus addition  Straight Life- periodic payment to annuitant
o Yearly Renewable Term Insurance for as long as he lives; no further payment after
 Change of Plan  Period Certain- annuitant receives payment for
o Lower Premium to Higher- no evidence required a specified period of time
o Higher Premium to Lower- evidence of insurability required  Refund Annuity- periodic payment to
annuitant for as long as he lives; balance paid
in lump sum or through installments to the
B. WHEN THE INSURED DIES successor/payee
 Beneficiary  Joint and Survivor- annuity income paid to 2 or
 Receives the proceeds of policy upon death of the insured more individuals until both or all individuals die
 Insurable Interest- exists if insured dies beneficiary suffers
 Ties of love and affection VII. QUALITY BUSINESS AND ETHICS
 Pecuniary Relationship (creditor-debtor) Insurance Commission- Governing body of Insurance Companies
 Business Relationship Insurance Code (CRISP)
 BENEFICIARY LIMITATION  Capitalization- 1 billion; 50% paid-up capital and remaining as
 Those guilty of adultery surplus not less than 200 million
 Guilty of criminal offense  Reserves- Legal, Policy and Contingency
 Public officers his wife, descendants or ascendants  Investments- not exceed 70% of MV of real estate; monitored by IC
 TYPES OF BENEFICIARIES  Solvency- not less than 500,000
 Primary- Main  Power to adjudicate- claims up to 100,000
 Secondary- Back-up Quality of Business-Client has good morality and continuously pays for
 Estate- Next back-up premiums
 BENEFICIARY DESIGNATION Licensing Requirement
 Revocable- may be changed  Reasonable Educational Background
 Irrevocable- needs consent to be changed  Good moral character
 SURVIVORSHIP CLAUSE  Not Convicted of crime involving moral turpitude
 2 persons (insured and primary beneficiary)  Satisfactorily trained
 Older presumed to survive, unless the older is 60↑ Unethical Practices
 Male presumed to survive  Rebating (NOT TO BE CONFUSED WITH REDATING)- offer part of
 Misstatement of Age commission to the client/ discounting premiums
 If wrong age adjustments will be made in the FA Note: SHARING OF COMMISSION IS ALLOWED B/N AGENTS
 Incontestable Clause  Twisting/Replacement- persuading the person to lapse a policy to
 Company cannot deny claim after 2 years unless gross fraud purchase a new one
 Suicide Clause  Knocking- Making derogatory remarks about a competing policy,
 After 2 years full proceeds agent, company
 Within first 2 years; refund all premiums  Misrepresentation- false/misleading statements
 EXCEPTION: Insanity  Overloading- selling more than what the client needs/affords
 Settlement Options Grounds for Termination
 Lump Sum  Material misstatement
 Interest  Fraud
 Fixed Period Option  Material misrepresentation
 Fixed Amount  Unremitted premiums
 Life Annuity Option  Modifying statements
 part for fixed period  Misstatement of clients’ health condition
 for fixed period and for life
NOTE:
C. WHEN INSURED QUITS DON’T JUST MEMORIZE THE WORDS, UNDERSTAND THE CONCEPT 
NON-FORFEITURE OPTIONS GOOD LUCK PO! 
 Cash Surrender Value- cash value at date of withdrawal
 Reduced Paid-up Insurance- Cash values are used to purchase
paid-up insurance but with reduced face amount
 Extended Term Insurance- limit period of policy; same FA
o Pure Endowment- CV enough for extended term coverage
REINSTATEMENT PROVISIONS- within 3 years from date of lapse
 Pure/Straight- pay back all unpaid premiums plus interest due
 Redating-pays only one modal premium; effective date later than
that of the original policy